- Laura Wallace
- Published Date:
- January 1999
Trade Reform and Africa’s Image
Tomáz Salomão of Mozambique set the tone by asking what Africa needed to do to change its image so that it could tap into the huge pool of foreign capital. Yes, political stability was vital, but so was a new world attitude. No longer should Africa be seen as a continent of war, poverty, disease, coup d’etats, corruption, and lack of transparency. There were many good examples in Africa that should be capitalized upon, and good stories to be told. The IMF, World Bank, and other international institutions need to work with Africa to alter its image. If not, 5 or 10 years from now, little would have changed. He also asked for support in helping to explain to the general populace that trade liberalization is more than just a way to promote development, it is also a way to improve the quality of life.
Moses Asaga of Ghana seconded Salomão’s views, noting that Ghana had taken the same trade liberalization steps as Korea, yet investment was still not forthcoming—leading to criticisms in parliament of the whole liberalization effort. He urged the World Bank and the IMF to come up with economic programs that were based on best practices in Africa, not in Asia or the European Union.
Hiroyuki Hino of Japan, however, doubted that image was the problem. Speaking as “an Afro-optimist and an Afro-realist,” he felt that many investors were opting not to invest in Africa because of the difficulties of doing business there. Problems with petrol and electricity supplies in some countries offset the relatively low labor costs. Thus, trade reform should be viewed realistically—it is a necessary but not a sufficient condition for attracting foreign direct investment.
Kwesi Botchwey of Ghana took strong issue with Hino’s interpretation, insisting that Africa’s image problem was very real. His own studies at Harvard had shown a high level of ignorance among businesspeople the world over about progress made in Africa in the 1990s. In addition, there was a “neighborhood effect,” where even if a small country did everything right, it suffered if a neighboring large country was in trouble. Even on risk ratings, professional raters admitted that African countries received, on the margin, a lower rating than they deserved.
Jean-Claude Brou of Côte d’Ivoire injected his own note of reality. Trade reform is just one of many elements needed to attract foreign investment, along with political stability. He was hopeful that regional integration would help greatly by harmonizing tax, monetary, and legal policies, thereby creating a more stable environment for investors. For him, the creation of the Economic Union brings to the fore the key problem of the pace of implementation, especially for the landlocked countries. As a result of the change in custom duties, policymakers in these countries have to cope with a short-term risk of a drop in revenue because import duties tend to form a large part of the government’s revenue. Here, the IMF and World Bank could help with technical and financial support to assure policymakers that the transition would be orderly, as there is no question that over the medium term, trade reform and integration would bring enormous benefits.
René Mbappou of Cameroon, who also characterized himself as an optimist, noted that many countries in Central and West Africa have made a good deal of progress on the trade front. For them, the next hurdle was moving beyond the level of subregional integration. He also called on the IMF to be more understanding and humble. Trade liberalization measures were difficult to adopt, requiring time and assistance—not just in terms of human resources but also in terms of financial resources. Indeed, more financial help was indispensable in helping countries to open up.
Mansour Cama of Senegal noted that attitudes in the private sector toward trade reform were divided. One group of entrepreneurs, the export-led companies, tended to be positive, while the other group of entrepreneurs, the import-substitution companies, tended to be negative. He wondered whether trade reform was really essential, asking if the Asian tigers—which had had protected economies for a long time—relied on trade liberalization for their takeoff, or only pursued it after their takeoff?
Peter Freeman of the United Kingdom shared concerns raised by Asaga and Salomão, emphasizing that trade reform must be viewed in a broader context, as just part of a strategy to boost investment and growth and reduce poverty. He suggested that landlocked countries—given the extra transport costs and time factor—stood to gain less from trade reform than sea-bordering countries. He also felt that South Africa’s economic progress held the key for Southern and Central African countries, as did Nigeria’s for West Africa.
Jan Willem Gunning of the University of Oxford countered the skeptics by making a strong case for trade reform. He said studies showed that trade restrictions in Africa were actually more damaging than when countries elsewhere adopted the same restrictions—the reason being that many African economies were very, very small. Picking up on questions as to what more Africa could do, at least for those who had liberalized, he contended that liberalization still had not gone far enough. Although many countries had lowered their tariffs, they had not bound these with the World Trade Organization. This meant that while applied rates were low, ceiling rates were still high, sending investors the message that governments wanted to maintain the freedom to alter their current fairly liberal policies.
In responding to comments and questions, Robert Sharer of the IMF disagreed with Hirohisa Kohama’s comment that over the medium and long terms Africa’s growth potential was lower than that of East Asia, suggesting that levels and rates of change were being confused. Clearly, investment in Africa was going to remain below the levels of Asia for a long time, but given Africa’s low base, there was tremendous scope for increasing the rate of growth of investment. In addition, there was enormous scope for using existing resources more efficiently.
Sharer also took issue with Freeman’s analysis that trade reform might be less significant for landlocked countries. In fact, quite the opposite was true. Landlocked countries with strong trade and price controls sometimes ended up putting resources in low-value agricultural crops in distant regions where there was no transport. In other words, it was vital to take comparative advantage and relative costs—particularly of transport—into account when allocating resources.
In response to Cama’s question on the importance of trade reform for the “Asian tigers,” Sharer said trade liberalization was launched before the economic takeoff—not after—and yes, it did play a role in the East Asian miracle. He also agreed with Botchwey, Salomão, and others on the image question. Many African countries were doing much better than in the past, yet the information was not getting out to the rest of the world.
In closing, Co-Chairman Jack Boorman seconded these concerns about image, emphasizing that all development parties should do a lot more to spread the word about the success stories in Africa. And he closed with a question of his own: “Is there a minimum regional dimension, or dynamism, that needs to be in place to make an area attractive, or is Africa still paying the price of its poor image?”