Dead Aid: Why Aid Is Not Working and How There Is a Better Way for Africa (18 page)

The case of sugar is a similarly sour tale.

The US sugar industry receives US$1.3 billion of support per year, European Union producers receive US$2.7 billion, and in the two years between 1999 and 2001 the OECD supported its sugar farmers to the tune of US$6.4 billion, an amount more than the total value of sugar exports from developing countries, and 55 per cent of the US$11.6 billion annual world sugar trade.

Like cotton, sugar subsidies hurt Africa. The charity Oxfam estimated the regime has deprived Ethiopia, Mozambique and Malawi of potential export earnings of US$238 million since 2001. The costs of Mozambique’s sugar losses equalled one third of its development aid from the EU and its government’s spending on agriculture and rural development. The EU also supports its producers by blocking the entry of developing-country imports into its markets with tariffs of more than 300 per cent. Oxfam estimated that Malawi could have significantly increased exports to the Union in 2004 but that market restrictions deprived it of a potential US$32 million in foreign-exchange earnings, equivalent to around half the country’s public-healthcare budget.

It’s not just developed countries that are guilty of distorting trade markets. China is reported to support its cotton sector by an estimated US$1.5 billion annually. Turkey, Brazil, Mexico, Egypt and India put US$0.6 billion into their cotton sectors during 2001/2002.

But perhaps the most egregious examples come from Africa itself. African countries impose an average tariff of 34 per cent on agricultural products from other African nations, and 21 per cent on their own products. As a result, trade between African countries accounts for only 10 per cent of their total exports. By contrast, 40 per cent of North American trade is with other North American countries, and 63 per cent of trade by countries in Western Europe is with other Western European countries.

The glaring trade inequity has led to a lot of talk, but despite round after round of the World Trade Organization negotiations – Uruguay, 1994, Doha 2001 and on-going, et al. – all the chatter has amounted to little for Africa.

Perhaps the most notable Western efforts to level the trade
playing field have been the US African Growth and Opportunity Act (AGOA)
²
,
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of 2000, and Europe’s Everything But Arms (EBA)
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of 2001, neither of which can claim to have made an overwhelming impact on the state of play. This may, to some extent, explain why Africa’s share of global trade remains at around 1 per cent (having fallen from a high of 3 per cent sixty years ago), even though Africa is commodity-rich. It seems truly bizarre that such a large continent in population terms is pretty much irrelevant in trade terms.

AGOA opens US markets to a range of African products, especially textiles, on the basis that freer trade will create jobs and reduce poverty in many sub-Saharan Africa countries. For example, the average duty for garment imports into the US stands at 17.5 per cent, but apparel imports from the twenty-five eligible African countries into the US are duty-free. These imports are, however, capped at a limit of 3 per cent of total US apparel imports.

In 2003, AGOA exports were worth more than US$14 billion (£7.4 billion). While the headlines look strong, the devil, again, is in the detail. Only a handful of African countries have benefited – and even then, most of them are the oil-rich and larger economies. Nigeria, South Africa, Gabon and Lesotho account for more than 90 per cent of AGOA duty-free benefits, and of the total US$14 billion export value, petroleum products accounted for 80 per cent, with textiles and clothes accounting for US$1.2 billion.

The picture is not much rosier with the EBA. The EBA is designed to give duty- and quota-free access for the forty-eight countries (thirty-three African nations) described by the United Nations as ‘least-developed’. But in 2001, trade in goods given preference for the first time under its auspices amounted to just 0.02 per cent of exports by least-developed countries to the European Union. The narrow range of goods eligible, coupled with the amounts, dramatically minimize these schemes’ effectiveness. The process can be arbitrary and absurd. For instance, whereas T-shirts produced in war-torn Somalia are welcomed under the EBA, shirts made in the equally deserving Kenya are excluded.
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As things stand in 2008, the European Union is still Africa’s largest trading partner (26 per cent), followed by the United States (18 per cent), and then China at 11 per cent (Asia excluding China is 11 per cent as well). It is clear that however good their hand may seem, when trading with the West the cards are stacked against Africa, and will always be. Western political imperatives against freer trade continue to reign, and efforts to depose the current regime are proving futile. If the West wants to be moralistic about Africa’s lack of development, trade is the issue it ought to address, not aid. Of course, such are the West’s demands that even if all its trade barriers were lifted, Africa no longer has the technological equipment and know-how to compete on many products where it once had a comparative advantage. Together with environmental and labour issues, these are now serious barriers to trade.

Although Europe remains Africa’s main trading partner, its share of the region’s foreign trade has dropped to 26 per cent from 40 per cent in the ten years from 1996. It’s time that Africa faced up to this fact and moved on; time that Africa sat down at another table, with another set of players – ones who deal a fairer deck. For now, China again is just one such player.

China is motoring. It’s getting richer and hungrier. Since 1998 China has accounted for nearly the entire increase in global consumption of major commodities such as copper, tin and aluminium. But China also needs to feed itself, clothe itself and, as discussed, fuel itself. All this requires vast amounts of grain, beef, cotton and oil, the very things Africa is poised to provide. What China so desperately needs, Africa has: tea in Kenya, coffee in Uganda, beef in Botswana, cashews in Mozambique, cotton in Mali, oil in Gabon – the list goes on and on and on. And, in addition, Africa also accounts for nearly half of the world’s production of bauxite, chrome and diamonds, for more than half of its cocoa and platinum, and nearly three quarters of its cobalt.

Over recent decades, China has registered unprecedented rates of economic growth – to the point that, today, China is the world’s third-largest economy. It has achieved the seemingly impossible – moving vast numbers of its people from the depths of poverty,
decidedly into the ranks of the middle class. Yet the 300 million in China’s rising middle class are just a fraction of its 1.2 billion population. As China’s middle class continues to grow, so too will its appetite.

For Africa, this is a golden opportunity.

But, in 2008, Sino-African trade was a paltry 2 per cent of China’s total; fortunately these numbers are growing. Between 1990 and 2000, trade between China and Africa grew by 450 per cent. From 2002 to 2003, it rose over 50 per cent to almost US$12 billion and then nearly quadrupled by 2007, jumping to US$45 billion. China is now the continent’s third most important trading partner, behind the US and France, and ahead of the UK.

As with FDI, the impressive rise in trade between China and Africa has primarily been driven by China’s voracious appetite for raw materials, and most notably oil. But, although oil and mining have dominated trade between the two continents, there are now welcome signs of diversification, such as agricultural commodities. Burkina Faso sends a third of its exports, almost all of which are cotton, to China, compared with virtually nothing in the mid-1990s.

The trade figures sound fantastic – doubling, tripling and even quadrupling; on paper it looks like a bonanza. But the reality is quite different. There are still too many African countries standing by the sidelines, unable or unwilling to capitalize on the obvious opportunity staring them in the face. A mere five oil- and mineral-exporting countries account for almost 90 per cent of Africa’s exports to China (in order of importance, Angola, Sudan, Equatorial Guinea, Gabon and Mauritania); this at a time when China’s demand for grain, meat (China’s meat consumption has doubled in just three years) and other foodstuffs is rising at an unprecedented rate. With only 7 per cent of the world’s arable land, and a billion-plus people to feed, China will have to shop everywhere. And it is doing everything it can in Africa to make up the numbers – offering duty-free treatment to some goods (increasing the number of tariff-free imports to over 400, from 190), establishing trade and economic cooperation zones, and going so far as to set up a China–Africa Joint Chamber of Commerce and Industry.

For some reason, many African countries seem to be reluctant to embrace this eager suitor. There are fears that an African fixation on trade with China, and catering to China’s all-pervasive needs, will solidify the continent’s status as only a commodity exporter, and history has shown that no country has become rich by relying on its agricultural exports alone (save, perhaps, New Zealand). But this is not about perfection; it’s about survival – and survival today.

The theory would go that the trajectory of economic development starts with agricultural production (African states dominate this lowest rung of the economic ladder, mirrored by their lowest per capita incomes), moves up the curve to manufacturing (currently dominated by Asia), then services, ending up with high-value-added research and development (the latter two stages populated with the world’s most economically rich and industrialized countries – the US, Singapore, Germany, etc.). And, obviously, it should be every country’s dream to attain the highest income levels. But many of the most successful Asian countries have made the transition from commodity exporter to manufacturing powerhouse. The question is, what has happened to Africa?

While Asian economies were scaling the manufacturing ladder, African nations have (all but a few) been relegated to agricultural producers (but even so are sometimes unable to feed themselves). African labour is not more expensive than Asian labour – the converse is, in fact, true. On pure wages alone, Africa should dominate the world’s manufacturing slot (manufacturing does tend to employ lowly skilled workers, so Africa’s poor education showing ought not to hamper its prospects of becoming a manufacturing engine). But once the infrastructure costs are factored in, Africa is a let-down in spades.

Although Africa is the centre of the universe on the area-accurate Peters Projection Map (occupying a much-coveted proximity to the industrialized hubs of Europe and America), it takes way too long to transport goods on its unnavigable rivers, impassable bridges and pot-holed roads. Besides, to state the obvious, no profit-seeking company can afford to bet on Africa’s unreliable power and erratic telecommunications as the source of its manufactured
inputs. Of course, were Africa’s dire infrastructure predicament remedied, its chance for higher-value trade (thereby distancing itself from the tag of commodity exporter) could dramatically improve. Thankfully, as discussed in
Chapter 7
, the recent foray into Africa by China and others means there is some hope that the infrastructure will be there for Africa to move up the development curve.

There are also concerns – given that trade works both ways – that Africa is susceptible to China flooding the markets with cheap manufactured goods. There is clearly the risk that cheaper Chinese goods can undercut African manufacturers, putting our mosquito net producer back out of business. He is definitely out of business in the aid scenario, and could be out of business in the Chinese trade scenario, but the important point here is much more nuanced. Crucially, under the aid regime there is nothing else for him to do – he lives in a sterile landscape, opportunities are scarce, and corruption is rife. In the trade scenario, even with a modicum of corruption, opportunities abound – there is a thriving economy, people are buying and selling. Our mosquito net producer, who’s forced to stop making mosquito nets, might start making hair nets for a burgeoning middle class; or may in another way need to retool. The point is, as hardhearted as it sounds, it is better to face economic hardship in a thriving economy with prospects than to be confronted by it in an aid-dependent economy, where there are none. Mosquito man lives.

Dongo can clearly benefit from more trade – trade creates employment, improves trade balances, lowers the price of consumer goods through greater imports and generates income for the country’s exporters, but, perhaps most importantly, trade produces income that accrues to governments through tariffs and income taxes.

However, common sense should tell Dongo that it would be foolhardy to hitch itself to China alone. Certainly Africa makes up
only 2 per cent of China’s trade, so obviously there is scope for expansion. But, equally, there is a lot of scope for Africa’s trade partnerships to develop elsewhere, and although China has emerged as Africa’s preeminent partner, it is by no means the only one.

India, too, is anxious to trade with Africa. Although the Indian Junior Commerce Minister, Jairam Ramesh, remarked that ‘there is no race between us, the Chinese have left us far, far behind’, Indo-African trade has risen from US$1 billion in 1991 to US$30 billion in 2007/2008.
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At the first India–Africa Forum, attended by eight African heads of state, calling for a ‘new architecture’ in the Indo-African partnership, India’s Prime Minister, Manmohan Singh, announced duty-free access to Indian markets for the world’s fifty least-developed countries (LDC), thirty-four of which are African. India has pledged preferential market access on 92.5 per cent of all LDC exports, including diamonds, cotton, cocoa, aluminium ore and copper ore.

In just five years (since 2003), African trade to Asia has grown by almost 30 per cent a year.

According to the World Bank economist Harry G. Broadman, ‘skyrocketing’ Afro-Asian trade represents the beginning of a change in trade patterns. Although most trade is still between Africa and Europe, Japan or North America, Broadman notes: ‘what’s going on in China, India, and Africa is part of the broader trend in the world of rapidly growing South–South investment and trade – trade among developing countries’.