TRADE-AFRICA: Growth Depends on Access to Market, Not Aid

IPS
6/08/2003

http://www.ipsnews.net/africa/interna.asp?idnews=19552

Analysis by Farah Khan

JOHANNESBURG, Aug 6 (IPS) - As the next round of trade talks gets underway in Cancun, Mexico next month, it has emerged that Africa would benefit far more from the better access to the European Union and the United States markets than it does from aid.

The Economic Commission for Africa, a United Nations sub-agency, last week released its fourth Economic Report for Africa, dedicating it to plotting the path to ”accelerated development”. A key instrument for development is the dismantling of trade subsidies, said the author Patrick Aseah.

”Abolishing OECD (the organisation for Economic Cooperation and Development) agricultural subsidies would provide developing countries with three times their current overseas development assistance (aid) receipts. The elimination of all tariff and non-tariff barriers could result in static gains for developing countries of around 182 billion U.S. dollars services; 162 billion U.S. dollars in manufactured goods and 32 billion U.S. dollars in agriculture,” says the report which also criticises the United States' farm bill passed in 2002.

”...the U.S. decision to introduce a six-year 51.7-billion-U.S.-dollar farm bill boosting crop and dairy subsidies will reduce agricultural prices, making it difficult for small African countries to compete,” it says. Mozambique, for example, could offer its people much sweeter fruits if it could increase its sugar exports, said the country's agriculture minister, Helder Muteia this week.

But this will depend on Europe improving the country's duty free quota to the European Union. Every year, Mozambique can export 8,000 tonnes of sugar duty-free into Europe, but better weather and improvements in sugar production, means it is now a net exporter. The ECA report says the country has the potential to export 428,000 tonnes of sugar annually.

Overall, the report found that growth on the continent slowed to 3.2 percent last year, from 4.3 percent the previous year. But as the global economy picks up, the report predicts that growth will again grow beyond four percent this year. Boosting growth prospects are moves toward conflict resolution in the Democratic Republic of Congo (DRC) and in Angola, but the authors are concerned about the ”contagion effect” of the political and economic crisis in Zimbabwe and the war in Liberia.

Only five countries achieved the seven percent growth necessary to meet the UN Millennium Development Goals for improved development in the fields of education, nutrition and the advancement of young girls, among others. ”The slowdown in regional (African) growth is also due to slower growth in four of the five largest economies in the region: Algeria, Egypt, Morocco and Nigeria,” says the report.

Economist Asgar Adelzadeh of the UN Development Programme says growth is not the only measure that needs to be taken into account. ”The quality of growth is what is important. It has to be job-creating and distributional in order to ensure that Africa begins to meet the Millennium Development Goals.”

The goals are set by the United Nations and are an effort to meet a set of development targets by 2015 which could halve poverty.

The weather and disease also dragged down growth. HIV/AIDS is reversing economic gains made in the early 1990 as the disease reaches its killing phase, while tuberculosis and malaria remain maladies that strip gross domestic product every year.

Conversely, three of Zimbabwe's neighbours - Botswana, Namibia and South Africa - ranked with Mauritius and Tunisia as the star performers, both for economic management and for putting in place pro-poor policies.

The ECA's economic policy stance index, which ranks each of the 53 countries on the continent, is a method of peer review that will be used by the six panellists who next month begin the New Partnership for Africa's Development check of political and economic governance.

Countries are ranked on factors including: public budgets; an independent central bank and commercial justice system; a national development plan and a medium-term budget.

The ECA also adds points for factors like privatisation and for market liberalisation. The United Nations blames stuttering privatisation for slower growth, but African civil society opposes the sell-off of public assets because it reduces the role of the state in development. Instead, the ECA report punts more private-public partnerships, where the business sector enters into pacts with governments to deliver services and absorb the financial risk of an initial outlay.

Adelzadeh also believes the distribution of income is an important measure that should be included. ”At the moment, a lot of growth in developing economies is leading to a concentration of wealth.”

In South Africa, sustained though, moderate growth spurts have not resulted in income redistribution. Over one in three working adults earn less than R6000 (800 U.S. dollars) a year. It is a pattern repeated in other African economies held up as role models.

At a macro-economic level, the report found many governments still profligate spenders, but said that where countries like Mauritius which were running up deficits exceeding five percent for improved education were making a good investment.

Economists have warned against low-deficit chasing for the sake of it. Keeping deficits unsustainably low can crowd out social spending. Nigeria, however, got a thumbs-down for busting its deficit to spend ahead of last year's general election.

What is clear from the report, the fourth annual report, is that Africa must also increasingly chart her own path and reduce dependence on aid.

The figures are staggering: Mozambique, though the fastest grower, funds 70 percent of its fiscus from aid; Uganda is 50 percent aid dependent while Rwanda is 60 percent dependent. ”There is mounting evidence that aid in large quantities is a double-edged sword,” says the report, ”initially helping but eventually weakening a country's economic performance.”

Aid crowds out private investment, a necessary factor for securing the seven percent growth rate needed for decent levels of development. And the report came out strongly against incoherent and inconsistent aid policies among many donor countries.

There was a silver lining among the clouds that are scattered across the report's prognosis of the African economy. While foreign direct investment (fdi) has suffered, the continent has been less buffeted by the Sept.11 storm and the war on Iraq than anticipated.

Rising commodity prices - including those of gold and oil - have given a fillip to producer economies; while tourists have found safe and cheap havens on Mauritian beaches and in South African game parks.

”Between 1990 and 2000, tourism in Africa grew at an annual rate of 6.2 percent, well above the world average of 4.3 percent,” it says.

In addition, more countries are expected to benefit from the debt relief programme of the World Bank called the Highly Indebted Poor Countries (HIPC) Initiative, freeing up funds for social spending.

In addition, enhanced debt relief should staunch crippling capital flight, which is currently equivalent to sub-Saharan Africa's GDP. Information on 30 countries computed over the past 27 years (ending 1996) shows that capital flight amounts to 187 billion U.S. dollars, ballooning to 274 billion U.S. dollars if interest is taken into account. (END/2003)