Mainstreaming Trade in National Policies - An ECA View

1. Mainstreaming Trade in National Policies - An ECA View Finance Ministers´Meeting, Kampala, May 2004 Presented by Hakim Ben Hammouda, Director, TRID

2. Table of Contents I - Africa’s Marginalisation from global economy II – National Policies to Counteract these trends III – International Negotiations and policy space for Africa’s development IV – Regional Integration in Africa

3. The Issues.... • Gradual marginalisation of Africa from the global economy • Insufficient external support • Severity of Poverty • Distance from MDGs • Insufficient employment creation

4. Africa´s Marginalisation from Global Economy

5. The pressing need to diversify out of commodities.. • Current trends misleading - no hiding secular decline in commodity prices • Cumulative terms of trade losses 1970-97 estimated at -120 percent of GDP • Nor have African oil producers fared better...

6. Some diversification, but insufficient..... % of Manufactured Goods in Exports, 1980-2001

7. And gradual loss of competitiveness internationally UNIDO´s Industrial Competitiveness Index

8. Limited gains from preferential schemes Industrialised countries recognised problem of insufficient market access, E.g. AGOA... • Adds 1,835 products to regular GSP products (approx. 4,650) • Significant increase in exports to US from South Africa, Nigeria, and Lesotho in 2002 • Some evidence of  in FDI

9. But are these measures sufficient? • 15% fall of US imports from SSA in 2002 • AGOA excludes “sensitive” products • Limited list of countries benefit from special textile preferences • Excessively strict rules of origin • “Short leash” of agreement (until 2008)

10. How to Counteract these trends? • Lack of coordinated policy to promote structural diversification • Pessimism regarding “picking winners¨ (although all Northern countries provide support for their industries) • Importance of Coherence and inter-ministerial coordination  Mainstreaming

11. What Is the Correct Role for Trade? Consensus amongst economists on beneficial characteristics of trade: • Source of foreign exchange • Increase in consumer choice • Scale economies (“learning by doing”) • Greater competition • Faster technological acquistion Yet in Africa liberalisation has so far failed to generate necessary synergies and effectively promote exports and reduce poverty

12. Mainstreaming Trade...the key to improving competitiveness? (i) trade reform by developing countries under a pro-poor agenda; (ii) assessing market access impediments; (iii) establishing the benefits of WTO and global rule making to developing countries; (iv) strengthening the capacity of developing countries to trade.

13. Strengthening the Supply-Side Main themes of ERA 2004 Proactive reform agenda in... • Energy sector • Transport Sector • Trade Facilitation • Fiscal Policy

14. Energy Sector Reforms • High Correlation between Export Diversification and energy consumption • Africa has lowest rate of electrification in world (23% of population) • More investment in sector – receives only 6 % of FDI between 1990-8 • Need for effective regulation of sector

15. Trade Facilitation & Transport Sector • Transport costs 6 times more expensive in Cameroon, Ivory Coast & Mali than Pakistan • Many barriers to trade simply unnecessary e.g. roadblocks • Simplification of Cross-border formalities (e.g. Tunisia Trade Net, ASYCUDA ) • Harmonization of customs procedures

16. Fiscal Implications of trade liberalisation... • Overall tax base excessively low and excessive dependence on trade taxes. • Fiscal deficits in 2002/3 around 7 percent • Trade liberalisation poses key challenge to Finance Ministries. • EPAs make subject all the more urgent

17. Need for micro-reforms to build long-term competitiveness In addition, reforms and adequate financial support required in the following areas: • Education • Health • Technology Policy • Agricultural reform

18. Negotiations on international Level • Agriculture is key to deeper integration • High Stakes in the negotiations on cotton • Reciprocal non-agricultural market access may wipe out industrial sectors • More progress needed on special and differential treatment • Will Singapore Issues be the Stumbling Block?

19. The Pending Goal of Regional Integration (1) • Lack of progress on multilateral front means greater emphasis on RI? • Intra-African trade only 10.5% of exports (though fast growth and figures distorted by primary resource exports) • Best hope for Africa to build its manufacturing sector?

20. The Pending Goal of Regional Integration (2) Objectives: • Removing non-tariff barriers • Establishing a common external tariff

21. Conclusions – towards a strategic approach to trade policy? (1) • Priorities? domestic saving and investment, greater investment in human capital, and structural diversification • Need to mainstream trade policy at national level

22. Conclusions – towards a strategic approach to trade policy? (2) • The need for policy space in international negotiations • Importance of achieving Doha development agenda • Importance of promoting regional integration