Trade, Not Aid - Key to Africa's Economic Growth -Kyeremanten

Washington -- Trade, not aid, will provide the key to unlock Africa's tremendous potential as the world's richest continent, and the African Growth and Opportunity Act (AGOA) provides the key for Africa to open the door to trade with the United States and the ever-expanding global economy.

Alan Kyerematen, minister of trade, industry and special presidential initiatives in Ghana, made that point December 8 in an address to the 2003 private sector session of the Third AGOA Forum, which met in Washington.

Kyerematen told his audience of ministers, ambassadors and business executives, "It is no longer a contentious issue that trade is one of the most important tools for expanding growth in the global economy -- thereby enhancing the well-being of the people of this world. For us in Africa, developments in the post-Cold War world have made the choice between aid and trade quite obvious. The unpredictability of aid flows and the strings attached to them have made aid an unreliable instrument for the achievement of rapid, sustainable development."

The Ghanaian minister pointed to a "sharp decline" in the level of official development assistance to Africa in the last two decades, noting that many donor nations are now talking about being "development partners" rather than maintaining a "paternalistic relationship" with development countries.

"Against this background," he explained, "the pressure on developing countries -- especially those in Africa -- to find alternatives to aid flows to finance their development has become acute. "

As part of that effort, he lamented that African countries have been unable to attract the desired benefits of world trade, which overall, has doubled over the last two decades. Africa's share of world trade has fallen despite this global increase, he said, from four percent to 1.5% within the same period. While foreign direct investment has been growing globally, sub-Saharan Africa's share still stands below one percent, he noted.

"These figures," Kyerematen recalled, "point to the increased marginalization of African countries to world trade, despite the heavy sacrifices their people have made -- having undergone painful economic reforms such as structural adjustment involving trade and exchange liberalization, the removal of subsidies, massive job losses and drastic reductions in government expenditures, which affect the delivery of social services such as health, housing and education."

Under such conditions, he said, "it is not difficult to appreciate why many in Africa -- both rich and poor, young and old, the ordinary man in the street, the politician, the parliamentarian, the businessman, the farmer, the academician and the civil servant --have all begun to question where are the so-called benefits of trade" from the World Trade Organization, Free Trade Agreements or AGOA.

Kyerematen warned that there are many indigenous factors limiting Africa's ability to take full advantage of the world trade environment -- a weak supply capacity, poor infrastructure, a lack of incentives for domestic production, poor or uncompetitive technology, a lack of short, medium and long-term capital and the high cost of capital in general, weak macro-economic fundamentals and a lack of negotiating capacity on trade issues.

"Adding to this litany of woes, " he said, are "the unfair trading rules that favor the developed countries, the undemocratic and non-inclusive decision-making process within the global trading regime, the competitive advantage enjoyed by the developed countries -- either gained artificially through subsidies or other trade distorting domestic support measures -- or generally through the use of competitive technology, production and marketing experience, access to cheap sources of finance and strong negotiating skills."

For trade to serve as the engine of growth for Africa, he said, Africans need to reduce, eliminate or counter the (aforementioned) adversities while at the same time addressing the challenges posed by indigenous factors that are limiting trade."

AGOA, free trade agreements and the WTO all reinforce each other and "therefore need to be pursued on parallel tracks," he said.

AGOA provides the "best opportunity" for Africa to be connected economically to the largest consumer-driven economy in the world, the United States. Even though AGOA is very advantageous to Africa, Kyerematen cautioned AGOA should be viewed as a "necessary condition," but "not sufficient" in and of itself, to achieve full economic development in Africa.

Besides AGOA, he said, Free Trade Agreements (FTA) are "one of the most effective ways to fast track the economic integration of Africa" because they pave the way for Africa to be integrated into the global marketplace.

With all its imperfections, the multilateral trading system under the WTO, he said, still remains the most transparent, predictable and secure way to expand free and fair trade among nations.

In closing, Kyerematen made the following points:

-- AGOA stands as the essential framework through which African countries can gain accesses to the U.S. market. He praised AGOA for helping African countries take advantage of the U.S. trading system in ways "that may have never been possible under the general, multilateral trading system." Both Asia and Central America achieved dramatic economic growth only through similar market access opportunities from the United States, he said.

-- Although AGOA is generally considered an extension of the Generalized System of Preferences (GSP), he praised AGOA for its scope, structure and content that go beyond simple trade preferences, and for its incorporation of investments, trade capacity building, institutional strengthening and greater linkages for Africa.

Concluding his remarks, Kyerematen said, "Despite its imperfections, the multilateral trading system...still remains the most transparent, predictable, secure conduit to expand free and fair trade."

(The Washington File is a product of the Bureau of International Information Programs, U.S. Department of State. Web site: http://usinfo.state.gov)