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ECONOMY-AFRICA: One of These States Is Not Like the Others…

Kristin Palitza

CAPE TOWN, Jun 11 2009 (IPS) - African economic experts at the World Economic Forum on Africa have called for a regional approach to the global financial crisis, but South Africa – the continent’s strongest economy – does not want to play ball.

South African minister of trade and industry, Rob Davies, believes strict trade policies, regulation and export to developed countries are the most suitable mechanisms to protect the South African economy.

"We will resort to regulation and tariffs. The rules-based trading system gives us policy space [to do this] and it would be naïve to imagine countries won’t use this policy space," he told delegates at the Forum, taking place in Cape Town from June 10 to 12.

While developed countries have resources and finance available to deal with the economic crisis, developing countries rely on fighting the economic downturn with non-financial instruments such as tariffs, Davies explained.

Chris Kirubi, chairperson of Kenyan consumer goods giant Haco Industries, complained that the South African government, despite having the strongest economy on the continent, was too controlling about its trade relationships and regulations.

"There is too much protectionism, even against its African neighbours," he said, highlighting the need to create regional markets on the continent.

"African countries together can mitigate this [financial] meltdown. They must open their borders to each other before talking to [developed nations]. They must do things between themselves first," Kirubi added.

African Development Bank president Donald Kaberuka agreed with Kirubi, highlighting the fact that a regional response to the global financial crisis "is absolutely vital" for African countries. "Free investment flows and open channels of trade are undermining our economies," he warned. "The crisis is an opportunity to address this."

But Davies stuck to his guns. South Africa is not planning to set tariffs for all products, but "on the basis of evidence, case by case", because the country has been "severely affected by the dry-up of capital".

"We don’t want to be put in the dog box if we raise a few tariffs. We cannot afford to lose strategic investment capacity. That’s not protectionism," Davies claimed, referring to South Africa’s capacity to make investments to raise capital and credibility in existing and new markets.

"It’s a big mistake to think tariff increases are not in order," he further explained, while cautioning of over-regulation. "We need to use regulatory instruments the same as Western countries are using them. It’s naïve to assume we will get benefits for good governance."

Salim Ismail, chairperson and chief executive officer of textile manufacturer Groupe Socota in Madagascar, expressed wariness of the implementation of tariffs in Africa.

"Protectionism benefits a limited number of producers only and leads to higher prices and less quality. Also, the absence of competition equals no innovation, and that is bad for consumers," he explained.

Since Madagascar opened its markets in 1991, prices of locally produced goods, such as textiles, have dropped by 45 percent, 150,000 jobs have been created and exports have shot up by 80 percent, said Ismail. "All this is thanks to competitiveness. Protectionism prevents competition."

Global trade tilted against Africa

African countries can not rely on the international community to make them equal partners in global trade. Although agreements coming out of the Doha round trade negotiations of the World Trade Organisation (WTO) theoretically give low-income countries "access" to trade in developed countries’ markets, they have not been meaningful in practice, lamented Kaberuka.

"The doors have been opened, but we can’t walk through them. True access is not there," he explained. "We need to make sure African countries are given means to build up their capacity to trade."

Such capacity building, Kabera believes, needs political will, regional integration and investment in infrastructure development.

While Kirubi agreed with Kabera, he also called for more social and equitable trade policies and increased accountability of African governments. "We need to become more efficient, reduce our enormous [spending] and reduce taxes. We need to become more transparent, remove corruption and invest more in infrastructure," he said.

Adjustments in spending during a financial crisis need to begin from the top, Kirubi said, but African governments have not sent the right signals. "How many ministers have we seen buying smaller cars?" he asked. "They behave as if they live in a separate economy."

African Import-Export Bank president Jean-Louis Ekra confirmed that spending continues throughout the continent. "We have seen a drastic increase in requests for finance for trade this year," he said.

Like Ismail, Ekra believes protectionism cannot be the answer to solving the global financial crisis: "Protectionist measures fuel the crisis, because when one country starts to build barriers, others will build barriers to their markets, too."

He suggests African countries should improve their competitiveness and trade capacity, for example through diversification of exports, moving into new markets such as China and India, and strengthening regional trade.

Currently, only five percent of total African trade takes place among African countries, while about half of all trade takes place with Europe.

"This makes Africa more vulnerable to the economic downturn," said Lord Malloch-Brown, minister of state for Africa, Asia and the United Nations of the United Kingdom’s foreign and Commonwealth office. "Regional policies are critical."

Davies, however, remained sceptical about a regional approach, believing "the capacity to sell in each others’ markets is limited". He explained that although within the Southern African Development Community (SADC) governments had removed taxes on almost 99 percent of products, cross-border trade hadn’t improved dramatically.

"Since the financial crisis is global, the solution needs to be global," Davies insisted.