The Web of Globalisation. Africa's Position in International Trade

THE WEB OF GLOBALISATION: AFRICA’S POSITION IN INTERNATIONAL TRADE

Gideon Asante Yeboah

Introduction

Although international free trade is relatively a new practice, many forms of trade between different parts of the world have been in existence for a long time. The end of World War II, there had been improvements in relations among states. Thereby, creating interconnectedness among between states and this has caused upsurge in global trade liberalisation. These developments have made the exchange of goods and services among states easier than any point in modern history. As a result, many scholarly works have examined the importance of international trade and globalisation to countries across the world. This essay adds to the existing debate by exploring the four advantages and three disadvantages of international trade and globalisation to Africa. The essay is presented in four sections; the first part gives a brief historical account of international trade. The second section explores the benefits or the opportunities of international trade and globalisation to Africa, and the third section discusses the disadvantages of international trade to the continent. The final section suggests ways by which African countries to approach international trade and globalisation.

A Brief History of International Trade

International trade in a simple term can be defined as the exchange of goods and services between countries. On the other hand, globalisation refers to the removal of a physical or virtual trade restrictions in order to increase the integration of domestic markets into world markets.¹ According to Shangquan, globalisation refers to continues development and mutual integration of market frontiers, and is an irreversible trend for the economic development in the whole world at the turn of the millennium.² For some centuries, there has been an exchange of goods and services between all the continents of the world. Buckman noted that before the fourteen century, trade contact between Europe and Asia largely took place along Silk Roads which were established in the third century.³ In the thirteenth century, these trade roots started declining and eventually declined in the seventeen century. This development resulted in increased maritime trade activities between the Middle East and India. As established earlier, though the world’s continents were already trading among themselves, European colonisation around the world became a force that linked together all the regional world trade networks.⁴ The spread of Islam during the same period was another crucial factor that contributed to the development of international trade. In the Americas, there existed a significant trade within the continent before the arrival of the Europeans, however the trade was not sophisticated as that of Asia, Europe or Africa.⁵ Issues of international trade cannot be discussed without making reference to the industrial revolution in Europe and America. Subsequently, Europeans and Americans begun to explore other regions in search of market for their manufactured products. This event is crucial since it changed the profile of international trade and explained why some regions became the dumping ground for industrial economies.

In Africa, there was a very important trade rout that linked West Africa through the Saharan desert to the Mediterranean where key commodities such as gold, slaves and salt were traded for a long time before the sixteenth century.⁶ It is important to mention that one of the vibrant trade relations in Africa in the mid nineteenth century was between the Asante and the Sokoto Caliphate where salt and cola were exchanged between the two regions.⁷ Globally, international trade developed between 30 to 60 percent in the 19th century, but dropped to 14 percent in the first quarter of the 20th century.⁸ However, international trade since the end of World War II has seen an exponential growth and presented many opportunities for countries to trade with one another.

Since the mid 90s, international trading system has experienced a number of structural changes. Before the Uruguay Round,⁹ the international trading system focused primarily on border measures in trade in goods. This acknowledged special and preferential consideration for the social and economic challenges faced by developing countries. This took the form principally of non-reciprocity in trade concessions, such as preferential market access, the most important of which were the generalised system of preferences (GSP) negotiated in UNCTAD¹⁰ and the Lomé Convention¹¹ granted by the EU to African, Caribbean, and Pacific countries. Trade liberalisation is the principal mission of the GATT/WTO system,¹² but it also recognises that trade is only a means to an end, that end being welfare maximisation. The main forces that have driven global integration have been technological innovations, broader political changes and economic policies. Africa, as part of globalisation has become a major player in international trade and this has enabled the continent to derive much benefits. The next section discusses three benefits of trade liberalisation and globalisation to the African countries.

Benefits of International Trade and Globalisation to Africa

International trade continues to play an important role in the economic welfare and development of both developed and developing countries. ¹³ Since their establishment, the World Trade Organisation (WTO) and the General Agreement on Trade and Tariff (GATT), they have implemented a number of measures to eliminate or reduce trade barriers and promote free trade among countries across the world. In a today’s globalised economy, people are able to transport goods and services in and out of a country more freely, particularly without being subjected to tariff and non-tariff barriers, such as exorbitant taxes, standards and other checks which serve or may serve as impediments trade among countries.¹⁴ Africa has not been left out of the opportunities these opportunities.

International trade is an important stimulator of economic growth as it expands a country’s consumption capacities, increases global productivity, and provides access to worldwide markets for products.¹⁵ Africa is rich in agricultural products, natural resources and raw materials needed to manufacture key products for global consumption, therefore international trade gives Africa the opportunity to export these products to countries for foreign direct investments. Some of Africa’s main exports include commodities such as oil, gold, coffee, cotton, cocoa and other agricultural products. Since 1948, international trade has contributed to the development of Africa where African export in merchandise trade increased from $3.4 billion to about $92 billion in 1993 further increased to $601 billion in 2013.¹⁶ In 2018, Africa’s oil export to other continents stood at US$140.7 billion¹⁷ while merchandise exports within the continent has nearly doubled, increasing from 10.3 of total exports in 2010 to 19.6 per cent in 2017.¹⁸ International trade measured in terms of import and export of goods and services represents more than 50 percent of GDP in many Sub‐Saharan African countries.¹⁹ For example, trade represents 96 percent Mozambique’s GDP, Rwanda 45 percent, Kenya 50 and South Africa 64 percent.²⁰ Ghana’s economy has enjoyed fast GDP growth, development in the business sector as well as steady economic growth in the last few years as a result of international trade and globalization.²¹ Without international trade, it would be very difficult for poor countries to develop.

In addition to the above, Africa continues to benefit from international trade in the area of poverty eradication through employment. Increasing exports, particularly in manufacturing, are crucial for job creation for low-skilled workers, which is necessary to substantially reduce high unemployment, particularly amongst the youth. The economic integration of developing countries, for that matter Africa, through export-led growth strategies has a great potential for job creation. Successful integration was part of every development success story of past decades. Evidence from UNCTAD and Development Commission in 2013 shows that a number of countries have been very successful in creating a significant number of productive jobs in expanding exporting sectors. One of the major challenges confronting Africa is unemployment and foreign investors have created a considerable number of job opportunities across the continent. Foreign Direct Investments is the most stable components of globalisation as it has created over 53 million jobs worldwide. ²² In Ghana for example, Multinational corporations such as MTN, Coca-Cola, Goldfield and AngloGold have employed a number of Ghanaians in different aspects of their operations. It is also established that Multinationals and Foreign investors pay higher wages relative to domestic firms in both developed and developing countries.²³ Foreign investors in Egypt, Morocco, South Africa, Nigeria, Tunisia and many other African countries have also created a number of jobs in agricultural sector.²⁴ Multinational Corporations investment in Ghana creates new job opportunities and enable better job placement for locally available skilled workers.²⁵

Furthermore, international trade and globalisation help Africa countries to improve their relations with the rest of the world. Over the years, promotion of trade and investments has been one of the tools used by world leaders to improve economic diplomacy and relationship among states in the global community to contribute to peace and global security.²⁶ International trade does not only focus on the exchange of goods and services across borders, but how states conduct their external economic relations, how they negotiate internationally and interact with the in the international environment. Thus, international trade includes external investments, financial flows, aid, bilateral and multilateral economic negotiations and technology exchanges. These economic exchanges help to promote peace, security and reduce tension among states.²⁷ As argued by Kara, preferential trade agreements are also utilised as economic diplomacy tools.²⁸ The current trade war between the United State of America and China is a major concern to international relations analysts since it has the tendency to spark into a full scale war between the two nations. As a result of this, international trade and globalisation gives Africa and the rest of the world the opportunity to interact in the international environment, build consensus and explore the opportunities available to harness economic growth and development.

International trade enables transfer of technology and human resource needed for development. Technology transfers are very important in developing economies since markets of these countries are generally larger for low-tech goods. Developing countries potentially stand to gain from their international trade relationships, since these countries can draw upon the stock of knowledge capital accumulated by the more advanced trading partners.²⁹ Through bilateral, multilateral trade agreements and collaborations, states and private individuals provide one another with machinery, skilled personnel and technologies to maximise productivity and development. Moreover, skilled personnel or the human resource needed for the operation of imported technologies are also sent by resourced countries (often developed countries) to operate these technologies. It is important to mention that international trade has also been beneficial to Africa in the area of Foreign Direct Investment. For example, Mauritius and Rwanda continues to attract international investors because of their improved business environment and increasing positive corporate sentiment ratings.³⁰ Foreign Direct Investment increased from $56.6 billion in 2013 to $61.1 billion in 2014 and was projected to increase to $66.9 billion in 2015.³¹ The above statistics bring to light the benefits Africa is deriving from international trade. Despite the numerous opportunities presented by international trade, Africa is still marginalised in the global context, as reflected in the global trend towards bilateral free trade agreements. Therefore, the next section of the essay discusses the disadvantages and the challenges of international trade and globalisation to Africa.

Challenges that International Trade Pose to Africa

One of the challenges of international trade to Africa comes in the African textile industry. Trade liberalisation especially since the turn of the Twenty-first century, created open markets across the world, particularly in Africa. The structure of international trade has over the years made Africa the source of raw materials for industries in developed countries. Arguably, advanced economies’ hidden agenda might be to ensure that developing countries, especially Africa, remain suppliers of primary products to their well-established manufacturing industries and, in return, import manufactured or processed commodities as postulated by the dependency theories.³² This can be seen in the influx of cheap manufactured goods on the African market, weakening African industrialisation efforts and also crippling indigenous firms. Over the years, African countries, particularly, those of south Sahara have had their infant industries to compete with cheap manufactured products from industrialised countries, particularly China. This is clearly seen in the clothing, textiles, and furniture and footwear sectors. Chinese imports, are problematic for domestic manufacturers. Furniture manufacturers in Ghana find it increasingly difficult to compete with Chinese imports, as do South African clothing manufacturers and has led to the collapse of local textile industries and many job losses.³³

In addition, a country’s trade performance and export sophistication and diversification are critical indicators of its competitiveness and are drivers of its economic performance. However, as a result of Africa’s lack of above factors, it continues to play only a marginal role in world trade. Africa’s share of global exports is only 2.4 percent in 2015, with Sub‐Saharan Africa accounting for just 1.7 percent while Asia, Europe and North America have accounted for 88% in total merchandise trade of World Trade Organisation members over the past ten years.³⁴ African countries remain by and large dependent on the export of a few commodities; mostly agricultural products and natural resources in the form of raw materials. According to the International Monetary Fund (IMF), Africa’s natural resources account for the bulk of GDP growth in the continent, with peaks of over 40 percent in the more resource-rich countries. This means that when commodity prices drop at the global level, African economies suffer and terms of trade losses have further weakened their capacity to invest in human and physical infrastructure.³⁵

Present levels of national savings and investment are insufficient to ensure a process of accumulation necessary to place Africa on a sustainable growth path which will eventually put them in a competitive position to accelerate growth and development of the continent. Moreover, most African countries import more than they export and this situation accounts for widespread of balance of payment problems and indebtedness of African countries which deflates their power to compete in the global stage and become major actors in international relations. It is estimated that Africa currently spends about USD 63 billion a year on the importation of food, beverages and tobacco.³⁶ Out of this amount, USD 35 billion is spent on food imports alone. With the growing population in Africa, forecasts show that the annual food import bill could reach USD 110 billion by 2025 unless domestic production is scaled up. The above factors indicate that Africa has not benefitted much from international trade like other countries in Europe, North America and Asia.

Africa and International Trade: the Way Forward

Industrialisation is a necessity for Africa to be able to launch itself into the global stage which will eventually prevent them playing a marginalised role in international trade. Over the years, international trade and globalisation have been key stimulators of economic growth and development. Hitherto, no country is self-sufficient to meet the demand in all areas of its national economy in today’s globalised world. This makes every country to be interdependent on one another, therefore, to advocate against international trade means argument against development. It is also important to mention that there is no country or region that has made positive returns from international trade and globalisation or economic growth and development for its citizens without a robust industrial sector. Therefore, to ensure that Africa makes good use of the opportunities of international trade and globalisation, African leaders need to focus and commit to industrialisation of the continent. China’s rise to global power was staged on industrialisation and the likes of Brazil and India are on the same path. The export growth of China and India has been growing at an average of 10% for the last 30 years.³⁷ Structural industrial revolution is required in Africa to ensure sustainable, comprehensive and collective growth which will also address the unemployment situations in Africa.

Regional Economic Communities have the potential to contribute to the growth of intra- Africa trade, enhance Africa’s bargaining power in trade negotiations, and help ensure more policy credibility.³⁸ In many cases, international trade or trade liberalisation is not successful on the continent partly because some fundamental aspects of trade logistics, such as infrastructure are limited. The existence of tariff barriers or quantitative constraints also poses formidable obstacles to trade in Africa, but they do not render trade exchanges completely impossible, as does the absence of an appropriate regional infrastructure. However, it made the cost of transportation of goods and services in Africa found to be the highest in the world. However, there is the need to improve on trade infrastructure on the continent. Poor road and telecommunication infrastructure make trade difficult and expensive on the continent.

Over the years, though, there has been conscious efforts to reduce trade barriers such as tariffs and custom duties, the lack of political will and commitment to implement these policies continue to impede free trade on the continent. Therefore, African countries need to reduce or remove tariffs to boost trade among themselves. It is a welcoming news that as part of the negotiations for the newly created African Continental Free Trade Area (AfCFTA), African Union Member States agreed in June 2017, to remove 90 percent of their tariff lines on goods. Nevertheless, in order for African countries to take advantage of a new $3.4 trillion African Continental Free Trade Area, there is the need for them to boost value addition of goods and services and integrate payment systems. This will go a long way to help boost trade on the continent. The benefits of international trade, particularly regional trade have not been harnessed in Africa. This is because of the uneven spread of natural resources and the similarity of export products in most African countries. This requires the need for collaboration through the strategic pooling of human, physical and natural resources across the continent.

Conclusion

International trade and globalisation come with a number of benefits and challenges established earlier, trade is inevitable in today’s globalised economy. Through international trade, people are able to move goods and services across borders, particularly without being subjected to tariff and non-tariff barriers. International trade has also contributed to economic growth, consumption capacities, increases global productivity, and open access to worldwide markets for products. It also provides African countries the platform to improve their relations with the rest of the world. Moreover, international trade has in many ways helped African countries to benefit from transfer of technology and human resource needed for the development of many areas of their economies. On the other hand, international trade has crippled Africa’s industrialisation efforts and made it to remain the supplier of raw materials to industrialised and stronger economies. The lack of diversification and value addition coupled with low exportation of finished products made to Africa to be marginalised in in international trade.

Advocating against trade is an advocacy against development and better cooperation among states. In order to make gains from international trade and globalisation, African leaders need to focus and commit to industrialisation of the continent. There is also the need to reduce trade barriers and improve trade infrastructure on the continent. Most importantly, African countries need to take advantage of the African Continental Free Trade Area and commit to its goals and objectives.

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[...]

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⁸ Buckman, G. (n 20).

⁹ The Uruguay Round negotiations included industrial products, agricultural products and services, with separate agreements concluded for each grouping and for specific products in each group. The treatment of trade in services and intellectual property had not in fact been covered by GATT prior to the Uruguay Round. An additional feature of the Round was the negotiation to establish the World Trade Organization (WTO), which is the successor to GATT.

¹⁰ The United Nations Conference on Trade and Development (UNCTAD) was established in 1964 as a permanent intergovernmental body. UNCTAD is the part of the United Nations Secretariat dealing with trade, investment, and development issues.

¹¹ The first Lomé Convention (Lomé I), which came into force in April 1976, was designed to provide a new framework of cooperation between the then European Economic Community (EEC) and developing ACP countries, in particular former British, Dutch, Belgian and French colonies.

¹² The General Agreement on Tariffs and Trade (GATT) is a legal agreement between many countries, whose overall purpose was to promote international trade by reducing or eliminating trade barriers such as tariffs or quotas.

¹³ Ty, A. International Trade and Economic Growth in Ghana - Benefits, Constraints and Impacts. International Journal of Economics & Management Sciences 2162-6359. 2018.

¹⁴ Muthoka, S. (n 1)

¹⁵ Reyes, G. E. International trade conditions: challenges for less developed countries. Tendencias, 13(1), 207- 220. 2012.

¹⁶ Verter, N. International Trade: The Position of Africa in Global Merchandise Trade. Emerging Issues in Economics and Development, 65. 2017.

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²¹ Ty, A. (n 2).

²² Ty, A. (n 2).

²³ Javorcik, B. Does FDI bring good jobs to host countries? World Bank. 2012.

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²⁸ Kara, Y. T. K. (n 70)

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³¹ United Nations Economic Commission for Africa. (n 24).

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³⁷ Kappel, R. Global Power Shifts and Challenges for the Global Order. German Institute of Global and Area Studies, Hamburg. 2015.

³⁸ Geda, A., & Seid, E. H. The potential for internal trade and regional integration in Africa. Journal of African Trade, 2 (1-2), 19-50. 2015.