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Commercial Wars and Energy Wars: a Zero-Sum War?

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MEDays forum, attracting more than 2,500 attendees, has concluded in Tangier, Morocco on 16 November. The three-day forum was dedicated to issues of geostrategic, political, economic and social importance in the Mediterranean, African, and Arab states.

Mister Yonov Frederick Agah, Deputy General Director of the World Trade Organisation, who took part in the forum shared his insights into African industries and markets and their relations with outside global players.

Sputnik: Great Britain and other nations, including the USA and France, are beginning to return to African countries because this is a place where relatively cheap labour and inexpensive natural resources remain. How is the expanding influence of China, the USA, and Europe affecting industries in Africa?

Yonov Frederick Agah: I think we have to understand two things. Trade is about exchange between countries, and it’s expected that all countries should benefit from that exchange. Unfortunately, countries are not equally endowed; so, maybe because of resource endowment, because of capacity, because of location, sometimes because of policy misalignment countries don’t benefit as they should from trade. If you look back at the colonial times – I wouldn’t want to say they are coming back, they have been here; they have never left because if you go to many African countries, the major operators are multinationals from the US, from Europe. The new entrance may be the ones that are coming from China, which are more of a different species because what you see from China is what you call state-owned enterprises; they are not private sector like what you see from Europe or from the United States. That’s the game-changer. The interaction of China with many African countries, companies, the private sector is more driven by the politics and policy of the government rather than private sector interests or profit motivation. We have to bear that at the back of our minds. Will India exchange with Africa? One would first look at it from a very liberal point of view. Trade is about welfare, welfare of consumers. Do African countries or populations have access to better quality goods at cheaper costs than they would have otherwise had?

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Secondly, trade is also about experience. If you close yourself up, close your economy up, to new products and you don’t allow new products to come in, you can’t innovate. It’s because you have new products coming in that you now feel challenged to begin to see creative technology, where your investment should go; you also improve. And in any case, in today’s world, production networks have become dependent; sometimes what you may see coming into Africa from China and Europe may not be a final product; it may be an input into something you want to produce and export out of Africa.

So, the key issue is not that Africa should import or not import; the policy issue is what to import. Is this something that adds value to your growth? Is this something that improves the welfare of your consumers? And then there’s another angle of people in our countries that earn their livelihood from the logistics or the import/export business. How do you balance their interests before you can now go to whether the current existing players or producers in the countries are being taken out or driven out of the market? And yet, that is why the WTO is important because it has rules that allow a member who thinks that imports or certain behaviour of certain governments are adversely affecting its producers to respond. I can give you some examples.

If you think that imports of agricultural products, subsidised agricultural products or subsidised manufacturing products, are decreasing prices and affecting your companies, you could use either the Safeguard Agreement, which is just “look, this upsurge in imports is harmful” and you can now redress; if you think a company from Europe or America is selling on that cost – this is what you call dumping – you are allowed to investigate and establish a dumping margin, which protects your domestic producers. And in any case, all your commitments in the agreement, in the WTO in terms of liberalisation of tariffs are limited to the level you may have bonded; so you are also free to adjust your tariffs if you think that the current level is not limiting imports to the way that they will allow domestic industries to flourish.

So, African countries have all these options upon to them. Whether they have the knowledge, the capacity, the institutions, the national laws to enable them to do this depends on a country. If you go to South Africa, they have an excellent investigative authority, the Board of Trade, they can do anti-dumping investigations, put duties and do safeguard. If you go to Nigeria where I come from, they don’t have a national investigative authority, they resort to administrative and quantitative measures; and that can create challenges in terms of distortive effects, because the market that trade works with is based on price, and once you have a non-price-based measure you create a problem.

So I would not want to think that the trading relations that exist between Africa, China, Europe and America are necessarily bad or are necessarily a new thing; it is whether Africa takes advantage of its participation in the WTO to develop the tools, which are already within the WTO toolbox, to respond to the challenges that they may face.

Sputnik: How does the desire of Western countries to export more products to Africa impact the continent’s manufacturing sector?

Yonov Frederick Agah: I think it’s not a generic question; it’s what are they selling. Is it what Africa is producing? For instance, we are here in Morocco; do you have a domestic car market, car producer? If you don’t have a domestic car producer, car importation is not really a problem for domestic production; car importation allows you to have quality cars at cheaper prices. That’s the point I’m making. So, it’s country by country, sector by sector, and in the WTO tariff line by tariff line. I’ve heard that you already have an aerospace assembly here; without trade that wouldn’t have been possible. But because of trade you can bring whatever parts you come from the US, from Europe, from China. And before you know it Morocco becomes the centre of excellence for the aerospace industry. Those are the kinds of policies that our governments should be looking at. For instance, if you go to the steel sector, do you produce steel in Morocco, or do you produce steel in Rwanda? If you don’t produce steel, imports of steel from the US or from China will not damage domestic production. But if you want to do a steel industry, your response will be what kind of measures do you put in place that will allow your domestic industry to flourish? I’m saying that your question is right, but the answer depends on the economy and the sector, or the product that you are referring to.

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You cannot even speak for Africa, because Africa comprises different countries, different levels of development, different opportunities; even within countries you have different regions with different opportunities and different challenges. In some African countries, some regions are not even accessible, not to talk of industrialisation. How does the government in that African country configure its industrial policy, its trade policy, its regional development policy to have an inclusive development framework? And then you can begin to see how trade with others will affect those policy perspectives, and how you can respond to them. So, in some ways you protect, in some ways you open up.

For example in Morocco, if you want to produce all your fabrics in Morocco to feed the garment industry, you may not be competitive; so you look for a cheap source of fabric because the cheap source of fabric will enable you to use the cheap Moroccan labour to cut, sew and export to the United States, to the European Union or to whatever region. So, it depends sector by sector, country by country, product by product.

Sputnik: What needs to be done so that Africa can export more and not just be a market for products from other countries?

Yonov Frederick Agah: It’s not what the African countries should be doing, it’s nothing new. It’s already there. First and foremost, if you go around Africa, you’ll see that some countries don’t even have national development strategies or long-term national development strategies. So, the first thing to do for a country is to have a long-term development strategy. If you are leading an African country, you must say “my country in 2020 is this; by 2040 this is what I want my country to look like.” So, from a trade point of view, you begin to develop your benchmarks; so, you will now begin to see which sector can serve as your growth sector. Now you hear about blue economy, using ocean resources; for some countries it’s manufacture. For some countries it’s agriculture; for some countries it could be services, tourism or something. It depends on the country, its growth strategy, its centres of growth.

Then your trade policy will be if you say agriculture, who is buying agricultural products, in what quantities, based on what standards? That would then help you come and look at who is producing agricultural products in your country; are they using the right production methods, do they have the right standards, what do you need to have to that you can support them to export? So, the idea is that you are no longer working on the basis of your national market, you are looking at what other markets are; because when you go to other markets, the conditions are different. So, once you know that, you then begin to think of the logistics, because trade is also about costs. It may be very easy to cheaply produce something in Morocco, but it may be very expensive to get that product from Morocco to the United States; sometimes the cost of transportation, logistics and other may be more than the cost of production.

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But once you landed in the export market, at what price do you sell it? If you add other costs to production, you may become more competitive. These are the things we need to be thinking about. Long-term perspective in terms of growth for us, the example is that we are using the SDG agenda 2030, the indicators are already there; if you [like capacity ally] or you have the Africa 2063, that can be your target or you reduce it to ten or five years; I’m not being prescriptive, I’m not telling people what to do, I’m only saying it could be done. And then you have five-year plans, and within each five-year plan you do a year-to-year progress report; so, if you were thinking you should have increased your export values by 20, 10 or 5 percent and you have not achieved it, you begin to look at why didn’t you do it. You begin to look at issues like the cost of capital; in some countries the cost of capital is too much. In some countries there’s no trade finance; in some countries transportation networks are absent.

So, you can begin to think of corridors, you can begin to think of railway lines to make trade easy. In some countries the skills are not there; so you begin to adjust your educational system to give you the level of skills that would develop the sector. That is what we mean by mainstreaming trade into your national development strategy, because whatever you are doing is to have access to markets, world markets, to be competitive. That is not what every country will do; this is what each country will have to decide, because, unfortunately, many of our countries after independence adapted what is called import substitution industrialisation strategies; so they have not achieved export orientation. To achieve export orientation, they need policy reforms.

And interestingly, each policy you have in place benefits somebody; and it depends on how strong that person is, how determined the government is that you can change. Otherwise, even though change would be for the good of the interests of the country and the people, the political economy makes reforms difficult. So, you get caught up in a well; as long as the domestic environment is more favourable to business, they will never want to export; but you would want Africa to export so that we don’t, like you’re saying, end up importing from others. We want to also export. So, we must prepare ourselves for an export orientation strategy.

Sputnik: In your opinion, can we talk about commercial wars and energy wars in Africa?

Yonov Frederick Agah: Conceptually, war is antithetical to trade; trade is about mutual benefit. I’ll give you an example. An importing country gets quality products at cheaper prices, the consumers’ welfare is enhanced; so, trade is about win-win and war is about destruction, mutual destruction. Nobody wins at war; the parties to a war mutually self-destruct. And that is why some political scientists argued that at the end of the day, even when you take up arms against yourselves, the war will end at a round table where you would negotiate how you will stop your hostilities.

Trade is about win-win situations. And if you look at a situation like the current tensions, the first impact of the current tensions is that they are preventing private sector people from taking investment decisions; because you don’t know what is going to happen next. They are preventing them from even ordering goods because they don’t know what will happen after the orders have been placed. So, that has an impact on global economic growth and global trade growth. But the benefit for trade for each country comes out of this growth; so, as soon as global growth is contracted, those who may have thought they were going to get more also start losing. So, at the end of the day, you self-destruct; it becomes harmful for everybody. So, if the essence of the current multilateral trade cooperation regime was to help everybody, to prevent the tensions that we have experienced from 1930-s till today, the Great Depression, which also led to the Second World War; ad you know that historically, since 1947 when the new multilateral framework was placed, we’ve not really had a world war because the interdependence among countries has also eliminated or minimised the risk of war. So, it depends on how you want to look at it.

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If you think there is a commercial war, you’re self-destructing; if you think there’s an energy war, you’re self-destructing because in terms of energy you know where we are going, and the challenge with sustainable development, climate change effects, everybody becomes a loser. So, from a trade perspective, we don’t even want to talk about wars because everybody has the right to take an action, but by the time you look at the final harmful effects, they are the ones that push people to pull on the breaks, to resist the temptation. And in any case, part of what we are here every day is just rhetoric; some of the so-called even tariff increases that you see, some are even to come into place.

It’s like okay, we hit you with this tariff, then you begin to seek carveouts; by the time you think that wave has come into effect because of this agreement we postponed from October to December. I’m not saying it’s not happening, but it creates uncertainty; it creates tensions. And those uncertainties are what is driving down the global economy. And at the end of the day, everybody will lose, and the poorest or smallest of the economies, developing economies, will lose more. That is the risk.

Sputnik: The WTO claims that a country should not discriminate between its trading partners and should not discriminate between its own and foreign products, services or nationals. Is there discrimination of this kind in Africa? If so, what should be done to reduce it?

Yonov Frederick Agah: The principle of non-discrimination is inherent in all WTO agreements; that’s the work of the organisation. So, at the end of the day, you commit to yourself; but that doesn’t also stop countries from putting in place certain policies. What we have that I think many people don’t realise is that inherent in this principle are rights, your right to do certain things; but inherent in the same principle are your duties not to do certain things. And when you do certain things that you’re not supposed to do and another member thinks it’s commercial interest impaired by your policy or measure, that’s where we see the work of the WTO is virtually like to straightforward negotiate an agreement where you have the MFN national treatment, non-discrimination principles entrenched; you have the monitoring and limitation, which ensures you all adhere to what you agreed.

And then you have the dispute settlement function where a member thinks that another member is violating those obligations they can go to dispute settlement. So, it is these three that make the system work; although from a developing country perspective, there’s the fourth dimension that is emerging, which is capacity building. Even as much of these rules convey rights and obligations, you need to understand the rules to enable you to take advantage of your rights and obligations. So, we do a lot of training in capacity building for members to not only understand how these rules work and affect them, but how they can also exercise their rights when they feel that another member may have taken measures that are adverse to its commercial interests.

Sputnik: According to some experts, integration trends in Africa are still very formal. Although full or partial free trade zones and customs unions have been created, the level of economic interdependence and complementarity is extremely low. What are the economic and political reasons for this situation? If free trade blocs are unable to cope with the tasks, what would?

Yonov Frederick Agah: I think before you go to regional blocs or global environment, you need to first look at the national framework. The conceptual understanding is that trade is the instrument for development. So, if a country has decided that trade is the instrument for development, it can use trade in three ways. It can use trade through its bilateral relations with other countries; it can use trade at the regional level, and it can use trade at the global level. If you look at Africa and the regional economic communities, when you look at African countries and their participation in the WTO, these are complementary processes that enhance the opportunity for any African country that wants to use trade as a tool for development; they are not mutually exclusive. So, if Morocco is producing for the Maghreb region, or Morocco wants to join ECOWAS and Morocco produces for ECOWAS, the same company in Morocco that is producing for the Maghreb region and ECOWAS can produce for the rest of the world. What happens is that company becomes more profitable because it’s not just producing for Morocco, it is producing for the Maghreb region, it is producing for ECOWAS and it’s producing for the world.

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In terms of economies of scale, capacity realisation is high, unit costs are low, exposure to technology, exposure to earnings, good jobs it is going to create, the amount of foreign exchanges meaningful for Morocco will be higher. So, Morocco will benefit. And the more of such companies Morocco has, the better would Morocco be integrated into the trading system. What we also need to bear at the back of our minds is that although trade today is not like trade before, now the production networks are diverse and widely spread; and if we talk of global value chains, these value chains are not global, these value chains are regional. So, if Morocco is part of ECOWAS, it means that can source from ECOWAS; if Morocco is part of the African Continental Free Trade Area, it means that Morocco can source from the African Continental Free Trade Area. So, Morocco becomes more competitive; Morocco is not producing depending on what it has, you can establish a mid-industry, for example, in Morocco and use beef from Senegal, from Nigeria, from Mali, from any of the neighbouring countries to export to Europe, for example. I’m saying that because history and experience has shown us that when you look at value chains in Europe, they are not between European countries and other countries, they are within the EU member states; when you look at global value chains in North America, they are not between North America and African countries, it is largely American, Mexican, Canadian companies sourcing from the US, Mexico and Canada; or if we look at Asia, China sourcing from Thailand, Vietnam or ASEAN, Thailand, Malaysia and Indonesia.

So, it depends on, again like I said, on how the national policy framework is designed. If you design yourself as trade oriented, these regional economic communities become complementary vectors on how you use your trade policy as a tool for development. But if you do not design your national policy in an export trade oriented manner, all these arrangements mean nothing to you. Before selling you must produce, so if you don’t have complementary policies because for you to produce and sell efficiently you need basic infrastructure: power, roads, ports, and they also need to be efficient; if you don’t have this, you have a problem. You even need transparent policies, what about your customs; once you have a bad trade policy, you end up with a corrupt customs; and once you have a corrupt customs, everything else in your economy goes bad. These are different things you look at. You want people to come and invest in your country, so you need a good intellectual property regime. Why do I bring my technology to your country if I’m not sure it will be secure? Why do I bring my investment to your country if you have capital controls? Why do I bring my investment to you country if you don’t give me the right of establishment, if your immigration policy cannot allow me to bring in the right personnel to run my investment? Trade works, which is true, but it needs more to work well. Even your macroeconomic environment, how do you control inflation and interest rates? If they are not stable, you can’t be trading. If you have a very high level of inflation, your companies can’t be exporting this month at ten dollars, next month at twelve dollars; in six months, your price has moved from ten dollars to 15 or 20. If it is not the same rate of inflation in the importing country, you become more competitive.

So, for you to succeed, you need both the hard infrastructure that makes the cost of production low, and the soft infrastructure that creates a stable environment for your operators. And in most cases you also need incentives because for certain sectors the incentive framework is what you will require. Many of us has been to Morocco over a vast period of time; once you’ve drawn your attention to attracting tourists; if you begin to see how the major hotel chains are coming and the government needed to put in place incentives for them to come; if they don’t do that, they won’t come. And if they don’t come, tourists who are used to staying in Mövenpick, or Hilton, or Sheraton, or Hyatt, won’t come. Therefore you have Hilton, you have Sheraton, you have Hyatt; if I go there I can stay at the Westin or the famous (hotel). It depends on what the government wants; the incentive structure becomes like an invisible hand that drives the private sector where you want to see your economy. The finance minister was telling me proudly: “We have the 100 million mark in tourists,” but did it happen by accident? It happened by a conscious policy over a period of time.

Sputnik: About 30% of the countries in Africa are not members of the WTO. Are these 30% obstacles to achieving the WTO’s goals on the continent? What steps are being taken in regards to this?

Yonov Frederick Agah: Will the country be in the WTO or not is an individual national decision. If you look at Africa today, you have many countries on the accession; I think almost all the African countries that are not part of the WTO have acquired an observer status or under negotiations. But to negotiate accession into the WTO is very difficult, sometimes political, sometimes conditional by national processes. If you have an unstable government or lack of commitment from political leadership, it can be very difficult. For example, for Sudan, for the whole of this year the accession has been on hold because of the political challenges within the country. For the neighbours, I think Algeria once seemed to be making progress, but then everything was paused because even the parliament can’t function in terms of the legal reforms that they need to carry out. If we take the case of Liberia, after the civil war and the commitment of the leadership under Sirleaf to succeed, it worked. So the question as to whether that membership would affect trade depends; you don’t really need the WTO to trade if you want to trade. You only need the WTO to convince your trading partners that you are a good trading partner. That’s the reality.

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Being a WTO member doesn’t automatically make you a trader. Conversely, you don’t need to be a member of the WTO to trade. Remember the first part of our conversation about having a national strategy, like you need an original framework, like you need the WTO; so, if you are not a member of the WTO and you have things to sell, people will buy them from you. The challenge is that you will be negotiating bilaterally; so, for each partner you may have a different regime. Because you have a different regime for each partner, your businesses will have to be adjusting their models with every partner. But when you belong to the WTO, then certain minimums call more regimes to begin to operate; you are talking of MFN, national treatment, non-discrimination. And you can work within groups; you are less subjected to bilateral pressures because as a country you want to negotiate with the United States, you can be under enormous pressure; but if as Africa, the 54 countries, you want to negotiate with the US, the individual countries can hide under the African union and resist any direct bilateral pressure that the US may exert.

So, coming together creates strength so that even the weaker becomes stronger; that’s the advantage. And because you have now tied yourself to the WTO regime, you are telling everybody “I am transparent, I am predictable; if I misbehave, you have the right to challenge what I’m doing.” So, you become a better partner. But if those things don’t matter to you, you could stay outside the WTO and still trade, and run the risk of people hitting you each time. So, when you have a problem, a country a tax suit and arbitration somewhere; a country a tax suit and arbitration elsewhere, will you have the resources to be running around settling disputes? That will be difficult. If you are a member of the WTO, everything is done in one place for you; your businesses will not be looking for trade between my country and the US, trade between my country and the EU, trade between my country and Brazil, there will be more like trade between my country as a member of the WTO, trade between my country as a member of ECOWAS, trade between my country as a member of the African Continental Free Trade Area. So, you are looking at three regimes; but if you are on your own, you have a challenge with ECOWAS, you have a challenge with the African Continental Free Trade Area, not just with each of the 54 African countries, with the WTO, with the 164 members, each of them. That is complex to manage. That’s the kind of an answer I would give you, it depends on a country. I would encourage a country that is not a member of the WTO to accede, harmonise its policies, provide certainty to its business environment, which will then bring in the investments and technology that that country needs to advance its development.

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