Commentary

Africa’s War on Poverty Begins at Home

This article appeared in the Financial Times, December 20, 2005.
As the Year of Africa draws to a close, it is right and proper to reflect on the advances that the cause of African development has made in 2005. It is also important to debunk some of the myths that have arisen as a result of the media’s continued focus on protectionism in rich countries and its negative effect on economic growth in Africa.

It is true that rich countries’ protectionism harms some producers in the developing world but trade liberalization in rich countries as a cure for African poverty is often over-emphasized. The main causes of African impoverishment are internal. Africa lacks political stability and economic freedom. Its tariffs are high and private property rights weak. It is hypocritical for African leaders to call for greater access to global markets while avoiding policy reforms, including trade openness, at home.

In a recent paper, the World Bank estimated the value of Africa’s income growth resulting from full liberalization of global merchandise trade. Taking 2001 as the base year, the authors estimated that by 2015 annual income growth in Africa would be $4.8 billion greater than it would have been had no trade liberalization taken place. Trade liberalization in high-income countries would only account for $1.92 billion of those gains. The rest would come out of trade liberalization in the developing world — including Africa itself.

Africa continues to be one of the most protectionist regions in the world. While high-income nations of the Organization for Economic Co-operation and Development reduced their average applied tariffs by 84 percent between 1983 and 2003 (to 3.9 percent), African countries only reduced theirs by 20 percent (to 17.7 percent). According to the most recent data, non-tariff protection in the poorest African countries is four times greater than it is in rich countries. Strikingly, some of the highest tariffs on African exports are levied by other African countries. Accordingly, the World Bank found that income gains from regional trade liberalization in Africa would account for $1.75 billion by 2015, or more than 36 per cent of all the gains that Africa stands to receive from full liberalization of global merchandise trade.

To put it differently, Africa stands to gain almost as much from regional trade liberalization as from greater access to rich countries’ markets. Yet some non-governmental organizations, Oxfam included, argue against trade liberalization in Africa. Africans, the argument goes, ought to protect their producers from foreign competition. That is nonsense. After decades of domestic protectionism and preferential treatment overseas, Africa’s share of the world’s exports declined from 2.5 percent in 1980 to 0.9 percent in 1999.

The causes of Africa’s falling share of world trade are not lack of access to overseas markets and inadequate protection at home but, as UK prime minister Tony Blair’s Commission for Africa found, “low productivity and poor competitiveness.” That is why Africa’s income gains from global trade liberalization are likely to be quite small. In contrast to Africa’s gain of $4.8 billion, Latin America and the Caribbean stand to gain as much as $29 billion.

The potential benefits of increased access for African goods to overseas markets will go unfulfilled unless it is accompanied by far-reaching economic and political changes on the African continent. In addition to greater trade openness, those changes should include dealing with government corruption, dishonest judiciaries, inefficient bureaucracies and over-regulation that stifles private sector growth.

Clearly, free trade is a necessary, but not a sufficient, condition for economic growth in Africa. But trade can play a role in promoting prosperity by increasing domestic competition and changing the dynamic of the political economy that keeps privileged groups protected. Many reforms are needed but a good place to start is with freeing trade at home. African countries should do so regardless of what the rich countries do. India, China, Hong Kong, Singapore, South Korea, Taiwan, Chile, Estonia and many other developing countries undertook unilateral trade liberalization in the past and reaped the benefits.

The steps that are necessary in order for Africa to prosper rest in the hands of African governments. Yet conventional wisdom continues to hold that the continent is destined to remain poor unless the rich countries change their economic policies. African leaders are only too happy to play their part in that charade. Blaming poverty on forces beyond the control of Africa’s political elites takes the spotlight away from decades of failed economic policies, wholesale looting of the continent’s wealth and loss of countless lives to political repression and ethnic conflicts. If African political elites are serious about improving the lot of the African people, they must first look to their own actions and stop blaming others for the poverty on the continent. The war on African poverty must begin at home.

Marian Tupy is assistant director of the project on global economic liberty at the Cato Institute. He is the author of a new Cato Institute study: Trade Liberalization and Poverty Reduction in Sub-Saharan Africa.