Some argue that the collapse of the World Trade Organisation (WTO) talks in Cancun last month is irrelevant to sub-Saharan Africa. Protectionism is not detrimental to African exports, the argument goes, as it primarily affects temperate products.
This is misleading. One of the most important strategies for raising incomes of producers of tropical products, as well as reducing the macroeconomic vulnerability that comes from developing countries’ high degree of commodity dependence, is diversification.
This issue is of special importance for Africa: of the 26 highly indebted countries with export concentration of more than 50% in three or fewer commodities, 20 are in Africa.
Temperate products are viable alternative crops in many countries, so policies that displace developing-country production in these markets obstruct diversification.
Processing of raw materials in the country of origin would allow producing countries to capture more of the added value of the final products. But all major developed countries — and many developing countries — have “escalated” tariff structures that tax these processed products more highly.
These policies, especially those that operate in a counter-cyclical manner, also increase volatility in world markets, forcing producers and consumers in other countries to bear the costs of adjusting to shocks.
Increasing the productivity of African agriculture is another priority. The opportunities for investment and adoption of new research would be enhanced through trade reforms that increase market opportunities and reduce the volatility of prices facing producers, as these erode farmers’ savings and dramatically increase the risks associated with new investments.
Cotton is one of sub-Saharan Africa’s rare success stories. In the past 20 years the continent’s share of world cotton trade rose by 30%. Moreover, cotton is a predominantly smallholder crop in Africa, with more than two million poor, rural households depending on it for their main source of income.
Beginning in the late 1990s, the sector experienced a severe financial crisis caused by the poor performance of the state-owned enterprises in the West African cotton-producing countries, and especially the fall in world cotton prices.
This decline was caused largely by agricultural subsidies in the developed world of $3,7-billion a year to United States cotton farmers, $0,7-billion from the European Union.
The African producers in these countries are among the world’s lowest-cost. Yet farmers are falling further into poverty. High trade barriers and huge subsidies given to farmers are also the norm with regards to many other commodities besides cotton, including rice in Japan and sugar and livestock products in the EU, Japan and the US.
Overall, producer support in Organisation for Economic Cooperation and Development countries averaged $235-billion (with total transfers to the agricultural sectors of $315-billion) a year in recent years, compared to global official development assistance of $50-billion.
What makes these policies especially unconscionable is their perverse distributional impact. Like Robin Hood in reverse, they rob from the poorest of the poor and give to the rich in the richest countries — namely, the largest farmers, as most payments are doled out in proportion to production or input use.
Many African countries have been carrying out reform programmes for two decades. While these have partially reversed the negative trend, the results have been disappointing. In the 1990s, while the developing world’s per capita gross domestic product (GDP) grew by 1,7% a year, Africa’s fell by 0,2%.
It was hoped that the combination of improved domestic policies and global trade reform would boost Africa’s exports, particularly those in farming, as farm products account for about 35% of GDP and 40% of export earnings. Yet the region’s share of global agricultural export value has declined almost continuously from 8% in 1965 to 2% in 2000.
The potential benefits for the developing world from global trade reform are estimated to be as high as $349-billion a year.
Rich countries should take the lead in restarting the WTO process by making more ambitious offers than at Cancun, and developing countries should follow by showing increased flexibility in opening their markets.
This will ensure that the developing countries are able to take full advantage of the benefits from investment in research, extension and rural infrastructure to enhance their global integration and trade — both with the huge markets in the North and with their neighbours in the South. — IPS
Ian Goldin is vice-president, external affairs and United Nations affairs of the World Bank