Africa still stands marginalized in the global trade mix

In recent times, one of the most remarkable trends is the proliferation of global trade, investment flows and communication linkages between countries around the world, referred to as globalization.

The extent of the trend towards integration is clearly reflected in the rising importance of world trade and capital flows in the world economy that would aid developing countries to create better economic environments, speed up development and enhance global harmony.

This seeming comfort, over the years has become costly to the developing nations, with the increasing dependence on foreign capital flows, rising underemployment and an ever-widening wealth chasm, creating a deep sense of mistrust in trade and globalization

The gap is so huge that, the British Prime Minister Theresa May made reference to globalization in her speech at the World Economic Forum in Davos calling on world leaders to help developing countries, left behind by the process and embrace genuine free trade to make the world tomorrow better than today.

She warned that Globalization can bring benefits to culture, economy and trade for a country but can also be damaging if countries are unable to keep up.

This enormous disequilibrium between the developed and developing country has created a demand and supply of currencies in the global arena, resulting in continuous fluctuations in the exchange rate of currencies which has led to the huge decline in financial markets in Africa, pushing them more into portfolio investment- transactions in equity securities, such as common stock, debt securities, banknotes, bonds, debentures- by countries to protect their currency from devaluation.

This decision of Foreign Portfolio investments shows that not only have African Countries missed the trend on trade globalization, they have also been marginalized in the global market chain.

But the likes of the former head of the International Monetary Fund,(IMF) Michel Camdessus, argues that it will lead to the modernisation of economies, removal of trade barriers and to the elimination of want.

He says the prospects are good for “achieving more rapid poverty reduction and faster growth”. But Critics including Todd Moss, a financial expert, believe that Africa has been a major victim of globalization. To him, Africa has been at the margins of the global economy for much of the post-independence period. In terms of trade, it has been one of the least integrated regions of the world. Africa’s share of world trade has dropped from 4 percent to 1.5 percent over the last 40 years.

For Economist Falz Mat, Africa as a continent is seen as a cheap market to get agricultural products and raw materials by the West. Similarly, former Kenya’s Director of Internal Trade, Seth Otieno, says that liberalisation of trade has been a disaster for many in Kenya. “Globalisation is a curse to many sectors, especially agriculture, in Africa,” he opined.

According to the United Nations Conference on Trade and Development (UNCTAD),  there are indications that show how Africa has also been missing the large expansion of international trade. Africa’s share of  FDI inflows fell to $54 billion in 2015, a decrease of 7 percent over the previous year, according to the World Investment Report 2016.  An upturn in investment into North Africa was more than offset by decreasing flows into sub-Saharan Africa, especially to West and Central Africa.

The UNCTAD report, also recorded that inflow to Asia developing countries reached,  $541 billion – a 16 percent increase – remained the largest FDI recipient region in the world . The growth was primarily driven by increased FDI in East and South Asian economies. while Latin America and the Caribbean stayed flat in 2015 at $168 billion.

Interestingly, inflows to Europe rose to $504 billion, accounting for 29 percent of global inflows, North America reached $429 billion with USA major gainers.

AFRICA: The state of trade

In contrast to its rapid population growth which holds the promise of a large emerging consumer market as well as an unprecedented labour force, Africa only commands a meager 0.38 percent of global manufacturing output contributions according to United Nations Industrial Development Organisation 2015,  compared to a 21.7 percent share for the Asia Pacific region, 17.2 percent for East Asia and North America’s 22.4 percent share.

The failure of Sub-Saharan Africa’s manufacturing industry, is parallel to the increase in the growth of inflation, unemployment and underdevelopment. Most governments have demonstrated an inconsistent commitment to industrialisation, while struggling to develop adequate infrastructure, a skilled workforce and a decent business environment, rather relying heavily on resource-based economy.

Nigeria, Africa’s largest economy, once had a booming textile industry. In the golden era of this industry between 1985 and 1991, the sector had an annual growth rate of 67 percent and as at 1991, employed over 350,000 people who made up 25 percent of workers in manufacturing. Then the textile mills in operation were about 180. But today the story is different as all but 25 of the textile mills have shut down with most of the mills running at less than 40 percent of installed capacity and employing 25,000 people no thanks to cheap products from China and India.

Also many years ago, Kenya has a lot to thank sugar cane for. In the west of the country, the industry has paid for hospitals and schools. But one of the oldest factories now is empty after going into liquidation – closed by a combination of debts, bad management and the falling price of sugar. Action Aid Kenya estimates that the sugar industry has lost 16,000 jobs and a further 20,000 have gone in transport and packaging.

The problem stems from Kenya opening its markets to the world market. The price of sugar on the world market, some may argue, is kept low because of sugar from heavily subsidised European sugar beet farmers. Most of the sugar being imported into Kenya is surplus sugar from other countries. It is being sold at a much lower price than Kenyan sugar costs to produce – leaving the local sugar farmers unable to compete. The European Union says it helps developing countries by buying some of their sugar at higher EU prices. But in reality, the amount of sugar bought from Kenya by the EU is not enough to make a significant difference.

Also in South Africa, Cheap chicken imports led to severe job losses. South African company, Rainbow Chicken Limited Foods (RCL Foods) disengaged  about 1,200 workers at its poultry farms, and could shed even more jobs in future due to cheap chicken imports from the US, Brazil and EU countries.

Significant potential, but still not globally competitive

Looking forward, Africa’s favourable demography, rising urbanization and extensive agricultural resource base no doubt underscore the potential of the region’s manufacturing industry. Rising needs for education standards also signal that—perhaps for the first time in its history—the region is on its way to developing the human capital that is required to industrialize. Policymakers are also beginning to place greater emphasis on manufacturing, with the region’s slightly gloomier economic outlook.

Despite World Bank’s argument for continuous proliferation of China’s manufacturing products, Africa’s main advantage, experts believe relative to its peers is the size and youthfulness of its workforce.

But a large part of the problem is the fact that African countries lack the industrial infrastructure that their Asian counterparts have refined in recent decades.

Regardless of  this shortcoming, many experts argue that Africa has the potential to become the world’s low-cost manufacturing hub.

They say a cheap workforce, allied with an abundance of raw materials and low-cost agricultural products, mean many African countries are well placed to replace south-east Asia as the most attractive, and cost-effective, region for self dependence and better contribution to global economy.