From Africa Recovery, Vol.15 #3, October 2001, page 29

'There is no level playing field for Africa'

AFRICA RECOVERY TALKS TO... UNCTAD'S Kamran Kousari

Mr. Kamran Kousari is one of the senior African development specialists at the UN Conference on Trade and Development (UNCTAD) and has been responsible for a number of the agency's major reports on Africa. Over the past year, UNCTAD has been pushing strongly for doubling foreign aid to Africa -- a "Marshall Plan." Africa Recovery interviewed Mr. Kousari at UNCTAD's headquarters, in Geneva.

UNCTAD is calling for a "Marshall Plan for Africa"? What do you envisage?
Kousari: It sounds like a paradox to say that Africa needs more aid today in order to be less dependent on aid in the future. But that is exactly how the Marshall Plan worked. If we double official development assistance (ODA) to Africa from today's $10 bn a year and maintain it at $20 bn a year for about 10 years, there would be sufficient national savings, investments and private flows to replace the need for aid.

The Marshall Plan provided a major injection of capital which helped revive the economies of Western Europe after the wreckage of the Second World War. The final payments were never disbursed. They weren't needed because the European economies had begun to grow on their own.

The situation in Africa today is similarly dire. In the 1980s, after the global recession began, the prices fetched in global markets by Africa's commodity exports started to plummet. Many countries were forced to borrow to make up for the shortfall in revenues. They became "net borrowers" from international financial institutions and bilateral donors. This is when the structural adjustment experiment took shape in Africa. It has been devastating because one of its basic principles is the reduction of the role of the state in the economy.

Market-oriented policies, trade liberalization and capital account openness have dominated the continent's economic policies. In sub-Saharan Africa, "getting prices right" did not lead to greater supply response. Furthermore, there was no entrepreneurial class to step in to fill the void left by the state. Also, the markets were weak or non-existent and the public and private institutions needed to manage a market economy just were not there. Since independence, the productive capacity of many countries had been based on state-owned enterprises. In the agricultural sector, the state ran commodity boards that regulated prices and ensured that farmers received minimum prices for their produce. It also provided a range of other services farmers need that won't be provided by the private sector.

It is clear that the structural adjustment experiment has gone sour. Poverty in sub-Saharan Africa has increased. From 300 million people a decade ago, some 380 million people are now living in absolute poverty, under $1 a day. This speaks for itself.

What needs to happen now?
Kousari: We need a frank assessment of the effects of macroeconomic and structural adjustment policies on growth and on income distribution policies. The new "poverty reduction" policies, which redirect public spending to health and education, are useful but probably won't have a lasting impact on poverty as long as policies in areas like agriculture, trade, finance, exchange rates, enterprise deregulation and privatization don't succeed in raising growth and ensuring better income distribution. If these policies are to succeed, they must be combined with sufficient resources invested in human development, physical infrastructure, as well as institution- and capacity-building.

The basic principles of structural adjustment programmes that form part of HIPC [Heavily Indebted Poor Countries initiative], have not changed. It is like giving an aspirin to someone who is in serious pain. Poverty reduction must be linked to policies that will set the stage for sustained growth and development. In short, what is needed is a greater reliance on the market than was allowed in the post-independence era and a greater role for the state than is allowed in the context of structural adjustment.

Can foreign direct investment help?
Kousari: There is a lot of talk about the role foreign direct investment (FDI) can play in Africa. But the fact is that investment of private capital follows growth. It doesn't lead growth. There has been some investment in privatized sectors, like telecommunications, where there is a captive market. But selling assets will only give governments short-term liquidity, it won't have a long-term impact on development. The Latin American experience is telling in this respect.

Of course, the quality of FDI is important. Is FDI buying existing assets or bringing in new assets? Is it generating employment and creating new capacity? Is it helping to spread technology within the country? Is it helping to penetrate new markets? Most African countries, apart from those which derive most of their earnings from extractive industries, are still dominated by agriculture. FDI could create value-added activities in the agro-industrial sector; it could create new plants and new capacities. But unfortunately, this type of FDI is not flowing into Africa at the moment.

Could the global market-place become a "level playing field" for Africa?
Kousari: If African producers could develop their competitiveness before being subjected to the full forces of the market, then you might be able to say that the system is a "level playing field." But we need also to consider the relative weight of the trading partners. Most African countries don't have the necessary legal and institutional capacity to hold their own against the interests of developed countries. They are at a disadvantage in arguing in the World Trade Organization [WTO] dispute settlement body and they can't make credible threats of retaliation as some major trading countries can do.

There have been various measures giving preferential and differential treatment for the poorest countries. But these will expire in a few years, and anyway the benefits they bring have already been eroded in the push towards trade liberalization. Much more should be done to give preferential treatment to these countries. How else can Africa compete with the huge technological and marketing capacities of companies based in Canada, the EU, Japan and the US?

Then there are issues like the application of sanitary and phytosanitary requirements [see article Africa opposes new round of trade talks], which also affect Africa's ability to compete. Kenya has successfully diversified into the production and export of cut flowers but it has run into difficulties dealing with the various standards that are applied in different developed country markets. The phytosanitary provisions should be defined in objective terms, negotiated by an international body, and developing countries should have their say. Standards should not be based on unilateral judgment, and Africans should at least be given training in how to meet these standards.

Photo: © AIM / Santos Finiosse

The issues are quite technical, but they have a real impact on the world. Thousands of fishing families were affected when the EU stopped importing fish from Lake Victoria [in East Africa] because, it said, the lake was polluted. It may or may not have been. I am not a judge of pollution or of the health hazards of eating fish from Lake Victoria. But fish is so vital to Africans in this region that the international community should have helped to get rid of the problem and compensated the fishing people and their families. Instead, it put up barriers and said, "You cannot export your fish anymore." We talk of poverty alleviation but nothing was done to help these very poor people. Farmers in the EU get compensated to the tune of millions of euros when their cattle has to be destroyed. How can African governments, which are already heavily indebted and run on shoe-string budgets, afford such compensation?

When it comes to battles over trade issues, size matters. In trade disputes between the US and the EU over the hormones-in-beef question or the banana issue for example, where billions of dollars are at stake, major trading countries can exert sufficient pressure through retaliation in order to ensure compliance. But there is no level playing field for African countries that are going up against EU barriers. No level playing field for Kenya trying to export cut flowers. Do Africans have the legal training or the ability to employ slues of lawyers to come to Geneva and convince the WTO dispute settlement panels of their case? You know, this talk of trade liberalization should be taken with a grain of salt.

Certainly, I think that everyone should play by the rules of the game. But when it comes to supply, capacity, capital and technology, Africa will certainly find itself at a disadvantage. It is like saying that the rules of the game of rugby are the same for everybody. Then you bring in a team of professional rugby players to compete against a bunch of twelve-year-old kids. The rules are the same, but who is going to win?

How could a "Marshall Plan" for Africa help?
Kousari: First, money is needed to rebuild a lot of public and private institutions. The state has been reduced to such an extent that it is no longer able to operate properly as a state institution. Now, we have a state that has neither the capacity to run enterprises nor the capacity to regulate and govern the activities of the private sector.

A possible development model for Africa is actually East Asia, where the private sector worked in partnership with the public sector. The state identified areas where it thought the private sector might have a competitive advantage and it supported entrepreneurs willing to invest in those sectors. State support included time-bound protection, easier access to credit at advantageous terms, export credit, provision of certain subsidies, lower tariffs on imported capital goods or intermediate goods,* and the provision of infrastructure support.

* Like machinery and other capital goods,
intermediate goods are also part of the production chain,
for example, imported pesticides or fertilizer in agriculture.

It doesn't take an intellectual Houdini to see that Africa must be able to enjoy the same flexible policies that the emerging market economies had during the early stages of industrialization -- like infant-industry protection, the ability to subsidize local producers and provide local business people with loans at below-market rates. For African producers to be competitive in international markets -- which have become highly capital- and technology-intensive -- they need long-term "breathing space." They need better access to markets for manufactured goods.

And, of course they have to get their policies right. In East Asia, the carrot and stick approach was taken. The carrot was the provision of time-bound support, credit, finance and protection. The stick was the threat of removing this support. That model could easily be applied in Africa where conditions now are no different from East Asia in its early stages of industrialization.

Initially, Africa's industrial development could be based on commodities. Creating additional value on raw commodities by processing them before export would be a good start. Africa needs to diversify both into new areas of activity and by producing more processed goods. Instead of exporting coffee beans, African exporters could diversify into "designer" coffees. In metals and minerals, there is scope for going into manufactured or semi-manufactured products. It doesn't require a great deal of technological sophistication.

If they applied the same policies as in Asia, adjusted to individual countries, there isn't any reason why Africa couldn't start a major growth process. If Africa were provided with financing, given policy flexibility, as well as access to markets, I don't see why it couldn't attain the same type of growth that East Asia had. Once they have access to markets, they will build the capacity to supply products.

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