Development and building trade capacity
Rising Africa in World Trade? A Story of Traditional Commodities and New Products
International trade provides ample opportunities for the economic development of countries and regions. The fall in trade costs – communication and transportation costs greater access to international capital markets regional cooperation and last but not least the decrease in trade barriers – has supported global trade and output expansion over the last decades. Emerging opportunities and challenges resulting from technological economic and political developments differ however from region to region. Historical experience shows that much of the progress in economic growth and development also depends on the readiness of local business and governments to rapidly adapt and seize opportunities.
Implementing Trade Facilitation Reform in Africa
Trade facilitation is central to Africa’s competitiveness in the global economy. Costs related to trade facilitation make up a significant proportion of overall trade-related costs which in Africa are higher than in any other developing region. This acts as a barrier for the integration of African countries into global markets as well as greater intra-African integration. Improving trade facilitation is essential for lowering costs for African agricultural producers as well as supporting the development of higher value-added activities in agribusiness manufacturing and services including participation in regional and global value chains. Diagnostic tools used by the World Bank Group such as the Logistics Performance Index as well as country-specific diagnostics highlight the key challenges faced. The evidence also shows that performance varies with some countries making significant progress on reform programs to improve trade facilitation. With other developing regions having generally more advanced trade facilitation regimes the lessons from these regions can be instructive in designing and implementing reforms in Africa which the World Bank Group is actively supporting at the national and regional levels. A priority for the Bank Group is implementing trade facilitation programs that do more to reduce trade-related costs facing the extreme poor given the concentration of extreme poverty in Africa.
Trade, Investment and Development
Structural transformation is imperative for Africa’s economies. An unprecedented policy unanimity has emerged amongst African government and business leaders that to achieve sustained growth and development Africa must industrialize and secure a greater share of the benefits of its participation in global value chains. This requires further advances in a programme for ‘development integration’ that simultaneously combines market integration with purposeful industrial development intervention and cooperation to strengthen regional value chains underpinned by efforts to develop and rehabilitate cross-border infrastructure for greater connectivity across Africa.
Driving Economic Growth through Trade Policy Reforms and Investment Attraction in the Open World Economy: The Experience of China
China achieved a great leap forward in its economic development in the last thirty years supported by profound trade policy reforms significant infrastructure investment and utilization of foreign capital under the overarching state policy of reform and opening-up. Shares of manufactures and services in production have kept increasing and remarkable export performance has been scored during this period. Additions of labour and capital as well as competitive costs have largely shaped the economy’s comparative advantages up to now and they are likely to be replaced by increasing domestic consumption productivity growth and a greater reliance on services as the main factors sustaining future economic growth albeit at a slower pace. Nonetheless opening-up and domestic policy reforms going hand-in-hand will continue to play a critical role. The question that this paper addresses from China’s perspective may serve as a reference for the African economies seeking to establish a strong manufacturing base and to realise economic take-off with the help of a clear opening-up strategy and a proper trade policy toolkit.
Trade Rules, Industrial Policy and Competitiveness: Implications for Africa’s Development
Industrialization is one of the cardinal priorities for economies in dynamic transformation from a commodity base to a diversified value-added development stage. In major African economies as in other economies worldwide industrial policy is resurgent and back at the centre of economic policy. The sectors in focus revolve around manufacturing textiles and clothing footwear automobiles infrastructure information technology products petrochemicals aluminium smelting agro- and cut flower industries. African economies actively applying industrial policy include Algeria Egypt Ethiopia Kenya Madagascar Mozambique Nigeria Rwanda and South Africa.
From Marrakesh to Nairobi: Africa – A Force for the World Trading System: From the Past Twenty Years to the Next Twenty Years
Morocco’s membership of the GATT and WTO has been part of an overall strategy of the Government of the Kingdom of Morocco at the instigation of the late King Hassan II to introduce a package of institutional and socio-economic reforms which sought mainly to modify and diversify the structure of the national economy optimize the allocation of its resources and ensure its integration into the world economy. Being a Member of the Multilateral Trading System is also an expression of the government’s wish to integrate more fully into the world economy by anchoring its reforms in the legal primacy of an international agreement rather than just in domestic legislation as reaffirmed by the Constitution adopted in 2011. In doing so Morocco made opening up its economy a firm and irreversible commitment.
Trade Policy Trends in Africa: Empirical Evidence from Twenty Years of WTO Trade Policy Reviews
Trade liberalization has been a key component of economic development and transformation in the global economy since the middle of the last century and is a leading force in fostering globalization and connectivity in the twenty-first century. Trade reform has been on the agenda of African economies first under the IMF-supported structural adjustment programmes of the 1980s and the early 1990s and subsequently pursued within the multilateral legal and policy framework of the WTO. Following two decades of rapid trade growth in Africa the evidence suggests that significant barriers to trade remain within Africa impeding its integration to regional and global value chains. Considerable scope exists for the use of trade policy to accelerate and deepen sustained economic development and transformation. African economies should embark on the next generation of trade and associated structural reforms more aggressively and ambitiously.
Integration into Global and Regional Value Chains – How Is It Done? The Experience of Lesotho in the Textiles and Apparel Sector
Lesotho is a landlocked least-developed economy and a member of the Southern African Customs Union (SACU) the oldest customs union (CU) in the global economy. Forty per cent of the population lives under the poverty line. The economic base is narrow reliant on the textiles and apparel industry (for 59 per cent of total exports) subsistence agriculture remittances regional customs revenue and a degree of manufacturing. The apparel industry and agriculture constitute the backbone of the economy and the main employer. Faced with Lesotho’s geo-economic circumstances and development challenges the trade and economic response of government has been strategic. Domestic economic policy and structural reforms accompanied by a policy of economic diversification trade openness and integration have been pursued. A trade development plan was carefully designed for active integration into regional and global value chains. These measures have yielded significant welfare gains and economic livelihood dividends. Trade and economic policies are reviewing the next generation of reforms inter alia in the sectors of mining electricity and tourism which face challenges but have potential for growth. This chapter identifies and discusses the specific steps in the trade policy plan for Lesotho’s successful integration into the textile and apparel value chain specifically and more broadly into a global value chain.
Building Capacity in Africa to Facilitate Integration into Global Value Chains: Contributions from the ITC
While Africa’s share of global value-added trade has increased significantly during the past 20 years connecting African small and medium-sized enterprises (SMEs) to value chains and turning the support for greater intra-African trade into a reality remains challenging. Ensuring that the trade discourse is fully integrated into this development story is critical and countries especially those that have recently acceded have to be supported to recognise and take advantage of the global trading system and their WTO membership. To place a spotlight on trade-led growth for SMEs the International Trade Centre (ITC) launched its SME Competitiveness Outlook in 2015. This flagship publication identified three key determinants of SMEs’ ability to integrate into value chains: their ability to compete connect and change. The ITC’s capacity-building interventions which have a strong focus on African countries are centred on helping SMEs become more competitive and connect to value chains to drive the continent’s sustainable economic development.
Investment and Trade Rules: Increasing the Stock of African Foreign Direct Investment Flows
Trade can be a powerful engine for development. But harnessing trade for development in Africa requires investment to foster lasting economic transformation. Investment therefore is key to unlocking the potential of trade-led growth. While flows of foreign direct investment (FDI) into Africa paint a familiar picture of the dominance of extractive industries the reality is more nuanced and promising. The fact that FDI stocks in Africa are geared towards the burgeoning services sector offers immense potential for countries in Africa to access and climb regional and global value chains; however unless interrelated policy challenges are addressed Africa will not be able to optimize the benefits of FDI. Combined with efforts at national and regional levels the WTO should be better used by African countries to properly exploit the trade-investment nexus for the achievement of the United Nations’ Sustainable Development Goals.
African Union Priorities at the WTO
The African Union’s (AU) priorities at the WTO reflect the priorities of the WTO’s African member states that the multilateral trading system should contribute to the economic development of their economies through the elaboration of equitable fair and development-friendly rules. The position of the AU is consistent with the recently adopted United Nations Sustainable Development Goals (SDGs) which also see trade as being critical to achieving the goal of eradicating extreme poverty everywhere. The AU’s priority is therefore to see WTO outcomes that serve to facilitate the structural economic transformation and development of developing and least-developed African countries in line with the vision of the African Union’s Agenda 2063.
African Perspectives on Trade and the WTO
Twenty-first century Africa is in a process of economic transformation but challenges remain in areas such as structural reform governance commodity pricing and geopolitics. This book looks into key questions facing the continent such as how Africa can achieve deeper integration into the rules-based multilateral trading system and the global economy. It provides a range of perspectives on the future of the multilateral trading system and Africa's participation in global trade and underlines the supportive roles that can be played by multilateral and regional institutions during such a rapid and uncertain transition. This volume is based on contributions to the Fourth China Round Table on WTO Accessions and the Multilateral Trading System which took place just before the WTO's Tenth Ministerial Conference in Nairobi in December 2015.
Aid for Trade, Foreign Direct Investment and Export Upgrading in Recipient Countries
This paper examines empirically whether Aid for Trade (AfT) programmes and Foreign Direct Investment (FDI) inflows affect export upgrading and if so whether their effects are complementary or substitutable. Export upgrading entails export diversification (including overall export diversification as well as diversification at the intensive and at the extensive margins) and export quality improvement. The empirical analysis shows that total AfT flows have a strong positive impact on export upgrading and that LDCs as compared to Non-LDCs are the most important beneficiaries of this positive impact. While the impact of FDI inflows on export diversification in host economies is mixed these flows do exert a strong positive impact on export quality upgrading. Furthermore the impact of FDI on export diversification is higher in LDCs than in Non-LDCs. Incidentally AfT and FDI inflows appear substitutes (in an economic theory sense) in achieving export diversification and complementary in their effect on the improvement of export quality in recipient countries including LDCs. Results obtained on the impact of components of total AfT are inconclusive as they suggest both complementarity and substitutability with respect to FDI inflows in affecting export upgrading in recipient countries. Overall empirical results suggest that AfT and FDI inflows are effective in influencing export upgrading in recipient countries. However the results also highlight the importance of the interplay between these two kinds of capital flows in affecting export development strategies and FDI policies of recipient countries notably LDCs. We can infer from this study that AfT flows appear to play a particularly important role in ensuring that FDI inflows do not lead to further export concentration by putting in place the necessary conditions for export diversification.
Constraints faced by the poor
Analysis of the role of trade in contributing to poverty reduction needs to go beyond its impact on economic growth. As discussed in the preceding chapter economic growth will remain the key driver of poverty reduction globally and trade will continue to be a critical driver of growth. Nevertheless in the areas in which extreme poverty is now concentrated — South Asia and Sub-Saharan Africa — with predicted growth more than 370 million people in these regions are likely to remain extremely poor in 2030 amounting to around 4.5 percent of the global population. Strikingly 80 percent of these extreme poor will be in Sub-Saharan Africa.
Foreword
This is a critical year in the world’s collaborative effort to end global poverty and boost the incomes of the poorest. We will endorse the Sustainable Development Goals develop a plan for financing for development and reach for a landmark agreement to mitigate and adapt to climate change. If we are to end extreme poverty by 2030 we must do all we can in this final push to raise the incomes of the extreme poor. The Role of Trade in Ending Poverty makes the case for how trade can contribute to this ambitious goal.
Executive summary
The expansion of international trade has been essential to development and poverty reduction. Today’s economy is unquestionably global. Trade as a proportion of global GDP has approximately doubled since 1975. Markets for goods and services have become increasingly integrated through a fall in trade barriers with technology helping drive trade costs lower. But trade is not an end in itself. People measure the value of trade by the extent to which it delivers better livelihoods through higher incomes greater choice and a more sustainable future among other benefits. For the extreme poor living on less than $1.25 a day the central value of trade is its potential to help transform their lives and those of their families. In this way there is no doubt that the integration of global markets through trade openness has made a critical contribution to poverty reduction. The number of people living in extreme poverty around the world has fallen by around one billion since 1990. Without the growing participation of developing countries in international trade and sustained efforts to lower barriers to the integration of markets it is hard to see how this reduction could have been achieved.