Unleashing African growth

Daily News Egypt
6 Min Read

The recent failure of the World Trade Organization’s Doha Round and the long-standing failure of aid need not need spell disaster for African economies. The tools for promoting growth and prosperity are in their own back yard and three of the world’s top 10 pro-growth reformers are in Africa, according to the World Bank report Doing Business 2009, released last week.

Useful reforms in Africa have increased by over 150 per cent over the past five years, helping to maintain the record six per cent a year growth of the past decade. Some countries are buoyed by high commodity prices but African economies are diversifying and expanding.

The top reformers in the whole continent, Botswana, Burkina Faso and Senegal, have focused specifically on an area of utmost importance, simplifying the procedures for trading with the rest of the world. Red tape, logistics bottlenecks and customs corruption are trade barriers just like tariffs. “Reforms are already paying dividends for countries rich and poor but there is scope for greater improvement still, trade analyst Daniel Ikenson of the Cato Institute says.

For example, Doing Business 2009 shows it takes an average of 14 days before exports are allowed to leave Egypt: nine days to prepare documents, one day to clear customs and an additional two days to get through port. The entire process costs exporters a tidy US$737–just under half of what the average Egyptian earn in a year. And most of this rigmarole applies to imports too. In Angola it takes 68 days: its economy is booming now thanks to high prices for oil and diamonds, giving annual growth rates over 15 per cent, but removing the trade barriers would give Angolans a better chance to prosper when those prices take a tumble.

The United Nations Conference on Trade and Development estimates that just a one per cent reduction in the cost of maritime and air transport in developing countries–easily achievable in Angola–could increase global GDP by US$7 billion. Across Africa, a 10 per cent increase in exports to rich countries could be achieved simply by cutting export time by about four days–the regional average is a suffocating 34.7 days. Dropping these barriers would also boost the paltry level of regional trade: under 15 per cent of African trade occurs between neighbors.

So the fact that Africa’s top reformers have prioritized trade facilitation is very good news. Crucially, their reforms illustrate how any economy can move in the right direction unilaterally, without waiting for bureaucrats to agree on complicated agreements at the WTO or elsewhere.

Optimistic estimates predicted that agreement at the WTO Doha Development Round would have injected an additional US$287 billion into the global economy, half of which would have benefited poor countries. The proposed cuts in tariffs and subsidies would have been wonderful but the agreement was politically unachievable.

Yet the right unilateral reforms within Africa could be even more beneficial: a recent World Bank study of 75 countries found that if below-average performers on trade obstacles, many of them in sub-Saharan Africa, could raise their scores only halfway to the average score, world trade would increase by US$377 billion, or about nine per cent a year.

Africans are already showing that they can do what aid cannot do for them: after an (adjusted) US$2.3 trillion over the last 50 years, aid has left many people worse off.

Meanwhile, private capital flows to sub-Saharan Africa have soared in the past decade, to over $50 billion in 2007, achieving far more than the development industry ever could.

Mobile phones provide the best illustration: better business conditions have allowed private sector competition and the creation of a vast mobile network. Half of Africa’s population is now connected and another US$50 billion over the next five years will further develop networks, bringing better signals to more areas and connecting the next half of the population. Studies calculate that a 10 per cent expansion in mobile telephony stimulates an additional 1.2 per cent boost in GDP and the beauty of it is that the biggest growth goes to the poorest businesses, like market traders, small farmers and transporters.

The few success stories show the rapid effects of reform. The growth that Africa is enjoying is an illustration of what can be achieved in spite of the barriers that are imposed upon Africa’s producers, traders and workers. Removing these barriers is the only way to allow people out of poverty.

Alec van Gelderis Network Director at International Policy Network, a development think-tank in London, and specializes in trade, technology and intellectual property.

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