Mainstreaming Trade in National Policies An ECA View

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Mainstreaming Trade in National Policies - An ECA
View

• Finance MinistersMeeting, Kampala, May 2004
• Presented by Hakim Ben Hammouda, Director, TRID

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Table of Contents

• I - Africas Marginalisation from global economy
• II National Policies to Counteract these trends
• III International Negotiations and policy space
  for Africas development
• IV Regional Integration in Africa

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The Issues....

• Gradual marginalisation of Africa from the global
  economy
• Insufficient external support
• Severity of Poverty
• Distance from MDGs
• Insufficient employment creation

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Africas Marginalisation from Global Economy
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The pressing need to diversify out of
commodities..

• Current trends misleading - no hiding secular
  decline in commodity prices
• Cumulative terms of trade losses 1970-97
  estimated at -120 percent of GDP
• Nor have African oil producers fared better...

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Some diversification, but insufficient.....
of Manufactured Goods in Exports, 1980-2001
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And gradual loss of competitiveness
internationally
UNIDOs Industrial Competitiveness Index
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Limited gains from preferential schemes

• Industrialised countries recognised problem of
  insufficient market access, E.g. AGOA...
• Adds 1,835 products to regular GSP products
  (approx. 4,650)
• Significant increase in exports to US from South
  Africa, Nigeria, and Lesotho in 2002
• Some evidence of ? in FDI

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But are these measures sufficient?

• 15 fall of US imports from SSA in 2002
• AGOA excludes sensitive products
• Limited list of countries benefit from special
  textile preferences
• Excessively strict rules of origin
• Short leash of agreement (until 2008)

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How to Counteract these trends?

• Lack of coordinated policy to promote structural
  diversification
• Pessimism regarding picking winners (although
  all Northern countries provide support for their
  industries)
• Importance of Coherence and inter-ministerial
  coordination ? Mainstreaming

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What Is the Correct Role for Trade?

• Consensus amongst economists on beneficial
  characteristics of trade
• Source of foreign exchange
• Increase in consumer choice
• Scale economies (learning by doing)
• Greater competition
• Faster technological acquistion
• Yet in Africa liberalisation has so far failed to
  generate necessary synergies and effectively
  promote exports and reduce poverty

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Mainstreaming Trade...the key to improving
competitiveness?

• (i) trade reform by developing countries under a
  pro-poor agenda
• (ii) assessing market access impediments
• (iii) establishing the benefits of WTO and global
  rule making to developing countries
• (iv) strengthening the capacity of developing
  countries to trade.

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Strengthening the Supply-Side

• Main themes of ERA 2004
• Proactive reform agenda in...
• Energy sector
• Transport Sector
• Trade Facilitation
• Fiscal Policy

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Energy Sector Reforms

• High Correlation between Export Diversification
  and energy consumption
• Africa has lowest rate of electrification in
  world (23 of population)
• More investment in sector receives only 6 of
  FDI between 1990-8
• Need for effective regulation of sector

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Trade Facilitation Transport Sector

• Transport costs 6 times more expensive in
  Cameroon, Ivory Coast Mali than Pakistan
• Many barriers to trade simply unnecessary e.g.
  roadblocks
• Simplification of Cross-border formalities (e.g.
  Tunisia Trade Net, ASYCUDA )
• Harmonization of customs procedures

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Fiscal Implications of trade liberalisation...

• Overall tax base excessively low and excessive
  dependence on trade taxes.
• Fiscal deficits in 2002/3 around 7 percent
• Trade liberalisation poses key challenge to
  Finance Ministries.
• EPAs make subject all the more urgent

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Need for micro-reforms to build long-term
competitiveness

• In addition, reforms and adequate financial
  support required in the following areas
• Education
• Health
• Technology Policy
• Agricultural reform

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Negotiations on international Level

• Agriculture is key to deeper integration
• High Stakes in the negotiations on cotton
• Reciprocal non-agricultural market access may
  wipe out industrial sectors
• More progress needed on special and differential
  treatment
• Will Singapore Issues be the Stumbling Block?

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The Pending Goal of Regional Integration (1)

• Lack of progress on multilateral front means
  greater emphasis on RI?
• Intra-African trade only 10.5 of exports (though
  fast growth and figures distorted by primary
  resource exports)
• Best hope for Africa to build its manufacturing
  sector?

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The Pending Goal of Regional Integration (2)

• Objectives
• Removing non-tariff barriers
• Establishing a common external tariff

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Conclusions towards a strategic approach to
trade policy? (1)

• Priorities? domestic saving and investment,
  greater investment in human capital, and
  structural diversification
• Need to mainstream trade policy at national level

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Conclusions towards a strategic approach to
trade policy? (2)

• The need for policy space in international
  negotiations
• Importance of achieving Doha development agenda
• Importance of promoting regional integration