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Barriers to African External Trade

Written by: African Development Bank

Article Overview: Attempts to expand Africa’s trade have been hampered by both internal and external constraints or barriers.

Barriers to African External Trade

Attempts to expand Africa’s trade have been hampered by both internal and external
constraints or barriers. Internal barriers to African trade include low per capita incomes,
tariff and non-tariff barriers, overvalued exchange rates, inconvertible currencies, poor
transport and communications infrastructure, anti-trade biased policies, civil wars, and
poor macroeconomic policies. The external barriers to trade are those imposed by
foreigners and include lack of access to Western markets and trade-distorting farm
subsidies by Japan, the EU and the US.
On account of a host of factors including low productivity, lack of competitiveness, poor
market access, falling terms of trade, and restrictive trade regimes, Africa’s relative
market share in world exports has been declining for decades. According to the World
Bank (2000, p. 192):
Since 1970 Africa has suffered losses in its world market for agricultural exports – 55
percentage points for groundnuts, 27 points for cocoa, and 14 points for coffee.
Africa’s agricultural exports continue to be dominated by a few crops. Indeed, since
1970, nine crops, namely, cocoa, groundnuts, coffee, cotton, tea, rubber, banana, sugar,
and tobacco, have accounted for approximately 70% of Africa’s agricultural exports; see
World Bank (2000, p. 184). Between 1970 and 1997, Africa’s share of world trade
declined for seven of its major export crops. These were cocoa, groundnuts, coffee,
cotton, rubber, banana, and sugar. Africa’s relative share of world exports increased for
the remaining two, viz., tea and tobacco. Overall, Africa’s share in world trade as
measured by its share of world exports or world imports has steadily declined since 1970.
In 1970, Africa’s share of world exports was 4.4% but by 1997, its share of world exports
had declined to a minuscule 2.3%. Africa did not fare much better in imports as its share
of world imports fell from 6.1% in 1970 to 3.9% in 1997.

What accounts for Africa’s declining share of world trade and declining market share of
agricultural exports? First is the issue of restrictions on market access by the rich
countries. This point has been well made by Sharer (2001, p. 15) who declared that
“industrial country protectionism in the agricultural sector is particularly harmful to
Africa, much of whose export potential is in agricultural products and processing.”
However, even though industrial country trade policies and market access restrictions
have played a role, the fundamental cause of Africa’s falling export could be ascribed to
lack of competitiveness arising mainly from low productivity, undercapitalization, high
transactions costs, inadequate market infrastructure, weak institutions and support
services, inadequate diversification, and poor macroeconomic policies (including
overvalued exchange rates). Thus, ultimately, it is Africa’s lack of competitiveness that
has resulted in the steady marginalization of its agriculture in world trade. This is best
demonstrated by comparing the agricultural export performances of Africa and Asia
during the last decade of the 20th century. Asia was very competitive -- a result of high
labour productivity arising from favourable economic and trade policies, high
capitalization, use of modern techniques, and abundance of the requisite infrastructure.
Consequently, Asia increased its market share in all the main agricultural commodities.
In contrast, Africa's market share in all the major commodities declined. An examination
of African and Asian export market shares shows that between 1970 and 1993, Africa's
export market share in cocoa fell by 20.2% while Asia's market share rose by 19.6%. For
coffee, Africa's relative share fell by 10.3% while Asia's market share rose by 6.0%. As
for cotton, Africa's export market share declined by 13.5% while Asia's share increased
by 19.0%. It seems imperative therefore for African countries to produce agricultural
commodities at lower costs, possibly by using new technologies, to ensure that Africa’s
position in world markets is not further eroded.
Africa, of course, has comparative advantage in the production of primary agricultural
commodities. Thus, ceteris paribus, Africa's exports of agricultural commodities could be
significantly increased if there is a level playing field. The tariff reductions already
agreed upon under the auspices of the World Trade Organization (WTO) are no doubt
useful. But more needs to be accomplished in future rounds of trade negotiation to ensure
that Africa's gains are maximized. In particular, efforts should be made to reduce nontariff
barriers by the Organization for Economic Co-operation and Development (OECD)
countries on Africa's agricultural exports, and in general, to increase market access.
According to Sharer (1999, p. 26), “[d]during the round of talks launched in Seattle,
African nations should join forces to persuade industrial countries to liberalize agriculture
and open their markets to Africa's exports.”
It is true that a country's export performance depends on many factors, including its
natural endowments and its macroeconomic and structural policy environment, i.e., its
domestic policies but the external environment is also often quite critical. Sharer (1999,
p. 27) states the matter thus with particular reference to Africa:
Africa's export performance will be determined primarily by domestic polices. However,
enhanced access to industrial country markets is also important and could provide
African countries with additional incentives to reform their domestic polices.

In this context it is noted that industrial countries tend to have restrictions on imports of
agricultural products, an area where much of Africa's export potential is concentrated. For
example, in 1997, the average most-favoured nation tariff in the European Union (EU)
was approximately 15% for imported unprocessed agricultural commodities and 25% for
processed agricultural products. These were much higher than the 4% tariff that was
levied on other goods; see Sharer (1999). Also, in the OECD countries, especially in the
European Union, non-tariff barriers in the form of product price supports, export
subsidies and marketing arrangements also help to fence out agricultural imports. It has
been estimated that agricultural subsidies in the OECD countries amount to 1.5% of their
total GDP; see Sharer (1999). Data contained in the UNDP’s Human Development
Report 2003 show that in 2001, the OECD countries’ agricultural subsidies totaled
US$311 billion which exceeded sub-Saharan Africa’s GDP of US$301 billion; see
UNDP (2003, p. 156).
Thus, in addition to the problem of lack of market access, there are the important issues
of trade-distorting farm subsidies and trade-distorting export subsidies by the advanced
developed countries. High farm subsidies encourage over-production of primary products
like cotton in advanced countries. The resulting artificial increase in world supply in turn
leads to falling prices and declining incomes in African countries that depend almost
entirely on the exportation of these primary products. In addition, according to UNDP
(2003, p. 12), “…agricultural subsidies in rich countries lead to unfair competition.
Cotton farmers in Benin, Burkina Faso, Chad, Mali and Togo have improved productivity
and achieved lower production costs than their rich country competitors. Still, they can
barely compete. Rich country agricultural subsidies total more than US$300 billion a year
– nearly six times official development assistance”. The World Bank has analysed OECD
subsidies to agriculture and their effect on Africa and other developing countries. It found
that transfers to farms in OECD countries reached staggering amounts in the late 1990s.
According to the World Bank (2000, p. 177):
In 1996, transfers were estimated at US$300 billion [...], about the same as Africa's GDP.
These transfers are largest in the European Union, with Japan and the United States
transferring income at just over half the EU level.
It is obvious that removing the OECD subsidies to agriculture would result in significant
benefits to developing countries, including African countries. In the first place,
production patterns would shift, with agricultural production falling in OECD countries
and rising in developing countries. For example, it is estimated that meat production in
Africa could increase by 20 per cent. Secondly, real income in Africa and other
developing regions would rise. According to the World Bank (2000, p. 177), “[a]nnual
per capita income would increase by US$1 in South Asia, US$4 in Southeast Asia, US$6
in Africa, and US$30 in Latin America.” The trade liberalization aspects of globalization
therefore still have a long way to go. Clearly, proper implementation of the tenets of
globalization would result in huge gains for Africa’s agricultural production.
Before ending this section, it would be helpful to provide an overview or summary of the
constraints and challenges of agricultural production in Africa. It would seem that there
are both external and domestic obstacles to reaping the full benefits of globalization. The
external constraints arise partly from the region's excessive reliance on the exportation of primary commodities whose prices tend to be volatile. This makes Africa to be highly
susceptible to adverse external trade shocks and the vagaries of international trade cycles.
Another constraint is the high tariff and non-tariff barriers to Africa's agricultural exports
by OECD countries. Finally, there is the issue of excessively high farm subsidies and
export subsidies for primary products by the industrialized countries. On the domestic
side, constraints include supply bottlenecks arising from rigid land tenure systems,
antediluvian farm technologies, poor infrastructure, low on-farm investment, and weak
rural financial systems. Other constraints include socio-economic and political instability,
and poor macroeconomic policies.
Arising from this analysis, the recommendations for enhancing Africa's agricultural
production, exports, and economic growth include the need:
· for diversification both within agriculture and into manufacturing;2
· to promote a conducive and favourable environment for domestic and foreign
investment;
· to adopt stable, transparent, predictable and growth-promoting macroeconomic
policies;
· to promote a stable social and political environment for sustainable economic growth;
and
· to improve market access (preferably by granting across-the-board, bound, duty-free,
and quota-free access to industrial country markets for primary products from African
countries) and to reduce agricultural subsidies in the industrialized countries.

African Development Bank
Economic Research Working Paper Series
Enhancing Africa’s Trade: From Marginalization
to an Export-Led Approach to Development
Milton A. Iyoha
Professor, Department of Economics & Statistics
University of Benin, Nigeria
Economic Research Working Paper
No 77 (August 2005)

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Article Tags: agricultural exports, barriers to trade, civil wars, communications infrastructure, export crops, external barriers, external constraints, farm subsidies, internal barriers, macroeconomic policies, market access, percentage points, relative share, restrictive trade, tariff barriers, trade regimes, western markets, world exports, world imports, world market



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