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Giant marketplace with few local products: Why free trade will be a disaster for Africa

Africa. Photo credit: Google

Pressure for free trade is growing in Africa. The European Union (EU) is urging African governments to sign economic partnership agreements (EPAs) and end non-reciprocal trade preferences: to keep their exports to the EU exempt from customs duties, African countries will have to remove 80% of those they apply to imports from the EU.

The African Union (AU) has started negotiations to establish a huge continental free trade area (CFTA), and a meeting of trade ministers in Niger on 16 June decided to work towards the removal of 90% of duties between African countries.

This rush towards free trade is questionable, especially for the agricultural sector. West Africa faces a triple challenge: a growing food deficit, a population explosion (1) and climate change.

The food deficit grew from an average ¨ 144m in 2000-4 to ¨ 2.1bn in 2013-6, but if cocoa (not a basic food product) is excluded, it has soared from ¨ 2.5bn to ¨ 7.5bn. It is likely to worsen, since the population is expected to double by 2050, and the UN believes that a temperature rise of 2∞C could reduce agricultural yields in sub-Saharan Africa by 10%.

The EPAs the EU wants would reduce customs duties to zero, over five years, on basic food products such as cereals (apart from rice) and powdered milk.

This would not only sharply increase West Africaís food dependency, but ruin its dairy farmers and growers of local cereals (millet, sorghum, maize) and other starch-rich crops (cassava, yams, plantains).

The European Commission presents the EPAs as ëwin-winí agreements, but the majority of African, Caribbean and Pacific (ACP) countries have refused to sign them formally, though they originally declared their intention to sign by initialling them.

Nigeria accounted for 72% of West Africaís GDP and 52% of its population in 2016, and President Muhammadu Buhari told the European Parliament in February 2016 that the regional EPA would destroy his countryís industrialisation programme. In East Africa, the presidents of Tanzania and Uganda have expressed similar concerns.

If the EPAs are so beneficial, why has the EU refused to publish three studies of their impact on West Africa (April 2008, April 2012 and January 2016)?

The European Commission demonstrated its ignorance of local agriculture in a 2016 report which claimed the EPAs would increase West Africaís cereal exports by 10.2% and its red meat exports by 8.4% (2). Cereals are West Africaís main agricultural import, and in 2013 reached 16.1m tonnes, including 2.8m tonnes from the EU (3.4m tonnes in 2016). The EU imported only 22 tonnes of beef from West Africa in 2016, but exported 84,895 tonnes to the region.

In practice, West Africa s annual losses in customs duties and value added tax on imports from Europe would rise from ¨ 66m in the first year to ¨ 4.6bn in the final year (2035), and its cumulative losses would reach ¨ 32.2bn.

These would be far from offset by the EU aid planned for 2015-20: ¨ 6.5bn under the EPA Development Programme (Paped). (This is just a retargeting of existing aid, as the European Commission s directorate-general for international cooperation and development has stated.)

The outlook is even worse because the UK, which at present contributes 14.5% of the European Development Fund, is leaving the EU, while France has cut its cooperation budget for 2017 by ¨ 140m.

Premature opening up

In Europe, powerful special interest groups are exerting pressure at national and European level for the conclusion of the EPAs.

French enterprises are among the big agrifood companies interested in these markets: Robert Fabreís Compagnie FruitiËre grows and exports most of the bananas and pineapples in CÙte díIvoire, Ghana and Cameroon; Grands Moulins díAbidjan, Grands Moulins de Dakar and Compagnie SucriËre SÈnÈgalaise all belonged to Mimran, which recently sold them to a Moroccan group; and the BollorÈ group controls port infrastructure on the Gulf of Guinea and is involved in exports to Europe.

The EU s neoliberal principles do not prevent it from subsidising exports to West Africa. In 2016 it granted ¨ 215m of subsidies on 3.4m tonnes of cereals and ¨ 169m on 2.5m tonnes of milk products (in milk equivalent).

Subsidies on exports to southern Africa totalled ¨ 60m for cereals, ¨ 41m for poultry, meat and eggs, and ¨ 23m for milk products, while subsidies of ¨ 18m were granted for milk products exported to central Africa.

EU customs duties and over-quota tariffs on processed cereals, milk products and meat imports from the rest of the world are far higher than those imposed in sub-Saharan Africa.

These are the circumstances under which the AU, supported by the UN Conference on Trade and Development (Unctad), the UN Economic Commission for Africa, and international financial institutions have decided to establish a CFTA by the end of 2017 and a customs union by the end of 2019.

The CFTA will remove customs duties between the 55 member states of the AU, while the union will establish common external tariffs on imports from the rest of the world.

The AU is fascinated by the major free trade agreements now being negotiated, such as the Transatlantic Free Trade Agreement (TAFTA), the Trans-Pacific Partnership (TPP) and the Comprehensive Economic and Trade Agreement (CETA) between the EU and Canada, and wants to do even better.

In February 2016 Fatima Haram Acyl, then trade and industry commissioner for the AU, said: ëThe emergence of mega-regional trade agreements [MRTAs] continues to threaten Africaís market access in established markets … and it appears that this trend will continue to accelerate … While we may not be able to control what happens at the WTO [World Trade Organisation] or in the MRTAs, what we make of the CFTA is entirely in our hands

It is an illusion that Africa could benefit economically from suddenly opening up to international competition. No country has ever attained a level of development that allowed it to take on foreign competition without protecting its agricultural sector and emerging industries from imports.

Developed nations still benefit from huge subsidies, such as those within the EUís common agricultural policy. Mamadou Cissokho, honorary president of the Network of Farmers and Agricultural Producersí Organisations of West Africa, told the WTOís Public Forum in September 2014: ëOne cannot ask [Africa] to be the first example [of how] it is by first opening its markets that [an economy can] develop.

Ghana’s trade and industry minister Ekwow Spio-Garbrah warned a meeting of the Economic Community of West African States (Ecowas) in March 2016 that ëthe successful implementation of the CFTA would depend on how well it meets the needs of the private sector.

It is generally expected that the rules that African countries enact for the conduct of trade, such as the CFTA, are meant to be exploited by the private sector. Private sector engagement and sensitisation on the CFTA [are] therefore critical at all levelsí (4).

By ëprivate sectorí he did not mean Africaís hundreds of millions of small farmers ó who would produce far more if better prices were guaranteed by effective protection against imports ó but a few multinationals and privately owned African companies which are pressing for the removal of customs duties between African countries.

Spio-Garbrah said: ëAdmittedly, deriving benefits from international trade remains a challenge for most of our countries as measures such as rules of origin, infrastructure deficits, lack of diversification, overly high standards and technical barriers disguised as trade policy tools continue to restrict us from taking advantage of market access opportunities, thereby hampering our effective integration into the multilateral trading system.í He seemed to overlook the fact that the EPAs would be a huge breach in the protection of Africaís internal markets.

Ignorant of history
Unctad sees only advantages in the CFTA, especially for the agricultural sector, claiming that ëAfricaís exports of agricultural and food products ó particularly wheat, cereals, raw sugar (cane and beet) and processed foods (meat, sugar and other food products)  would benefit most from the CFTA, under which Africa s export volume of agricultural and food products in 2022 would be 7.2% ($3.8bn) above the baseline (5).

In reality, Africa s dependency is growing: its annual wheat imports went from 26.6m tonnes (¨ 3.7bn) in 2001-3 to 48.6m tonnes (¨ 9.2bn) in 2014-6, while exports fell by 0.3m tonnes (¨ 31.6m) to 0.2m tonnes (¨ 74.1m). Most of this was shipped by South Africa to other African countries, though South Africa s own wheat deficit increased by a factor of 5.5.

Unctad s promotion of the supposed benefits of removing customs duties shows its ignorance of the history of agricultural markets: since the time of the pharaohs, these have been protected by special measures in every country.

Unlike industrial products and services, agricultural markets are not capable of self-regulation: when short-term demand for food is stable, the major factors affecting agricultural production and farm prices are weather and the fluctuation of global market prices in dollars, accentuated by exchange rate fluctuation and speculation.

Since farmers make up 60% of the economically active population south of the Sahara, it is easy to imagine the social impact of liberalising agricultural trade.

Since the time of the pharaohs, special measures in every country have protected agrarian markets.

The AU seems to underestimate the obstacles to a CFTA. How will it be possible to establish common trade rules for a continent with a population of 1.2 billion in 2016 (2.5 billion by 2050), highly varied political systems and tariff regimes, very weak transport infrastructure, and gross national income per head ranging from $260 in Burundi to $6,510 in Botswana? According to Third World Network Africa, the CFTA ëwill simply create a giant African marketplace with few African products to trade in … It will simply facilitate the movement of products imported from Europe and other areas across Africaí (6).

Being critical of the EUís policies does not mean that we cannot learn from the integration it has achieved, which seems to be inspiring the AU.

The AU emphasises that intra-continental trade accounts for around 10% of all Africaís trade, but nearly two-thirds of the EUís trade. This did not happen by chance.

Though the EUís budget has always been very limited (around 1% of GDP), more than a third has been allocated to its structural and cohesion funds, which have helped the less developed EU member states to catch up. Nothing like this is planned for Africa.

The lesson for sub-Saharan Africa is clear: sustainable economic integration will only be possible if backed by a policy of significant redistribution among member states (especially within each sub-region of the continent), which will require a minimum of political integration and a substantial budget.

Premature opening up to free trade without these compensatory measures can only sideline the poorest households, enterprises and regions, leading to insurmountable structural social and political conflicts and greater underdevelopment.

•Berthelot is an economist and the author of L’Agriculture, talon d’Achille de la mondialisation (L’Harmattan, Paris, 2001)
Source:https://mondediplo.com/2017/11/10africa-freetrade

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