Africa's economic fate in its own hands

Richard Tren & Jasson Urbach | 13 Dec 2005
Business Day (South Africa)

As trade ministers gather in Hong Kong for the World Trade Organisation (WTO) meeting this week, many hold out hope of increased prosperity that will come from freer trade.

One would hope that, in particular, trade ministers from Africa will appreciate the location of the talks.

A few decades ago Hong Kong was a barren rock; now, thanks largely to open trade and a free economy, Hong Kong it is thriving and prosperous.

Africa can achieve prosperity too, but it has to be more open to trade; must stop blaming others for its problems; and has to improve the institutions of a free society.

Economists say free trade allows countries to specialise in what they can produce better and cheaper than others (known as comparative advantage). They can then exchange, to each other's mutual benefit.

Of course, some people are harmed as imports threaten their jobs but overall far more people reap the benefits of trade.

No country in recent decades has achieved economic success, in terms of substantial increases in living standards for its people, without being open to the rest of the world.

While much of the world is liberalising and increasing trade, Africa's trade with the rest of the world has been declining. The major reason for the substantial decrease in trade is attributable to trade policies.

African countries have kept their countries locked behind protectionist walls for decades. Governments claim that they need to protect producers but forget about the millions of consumers that are hurt in the process.

While governments focus on increasing exports, they miss the point that it is through importing that countries develop.

Low-priced inputs mean that productivity gains can be made and competition from abroad means local innovators are spurred on to become more competitive.

A recent paper by Dr Marian Tupy, of the Washington DC-based Cato Institute, explains that while most of the world has made progress in reducing trade barriers, Africa has been far more reluctant to free up trade.

For instance, Tupy notes, "while rich countries reduced their average applied tariffs by 84%, sub-Saharan African (SSA) countries reduced theirs by only 20%".

World Bank figures show that African nations impose tariffs as high as 33,6% on agricultural commodities from their neighbours. South Asian nations reduced their average tariffs by 70% between 1983 and 2003. Although their average tariffs are now around the same level as most of sub- Saharan Africa's, the liberalisation has benefited the region enormously. Other World Bank data suggests that welfare growth by 2015 in the region would be $1,746bn greater if only intraregional trade liberalisation were to take place.

While trade liberalisation is a necessary condition for growth, it is not in itself sufficient. Columbia University economist Arvind Panagariya says: "There are complementary conditions, such as macro-economic stability, credibility of policies and enforcement of contracts, without which the benefits of openness may fail to materialise."

Whatever happens in Hong Kong, African leaders have the power to reform their own economies, give their own consumers greater choice through free trade and set the stage for growth and opportunity. We should not, and must not, accept Africa's poverty and nor should we be looking anywhere other than but at home for solutions.

Urbach is a researcher for the Free Market Foundation and Tren is a director of health advocacy group Africa Fighting Malaria.