A Valentine’s Day without some flowers and chocolate would be rather underwhelming. In the EU, about 85% of cocoa beans used in chocolate manufacturing are imported from West Africa and 38% of cut flowers are sourced from Kenya. As such, the benefits of international trade are explicit. Nonetheless, the 2020s are witnessing far-reaching shifts in the liberal trade order. The pervasive anti-globalisation sentiment of the 2010s was the tip of the iceberg. Moreover, memories of 1930s protectionism are now rekindled. COVID-19, the war in Ukraine and the ever rising geopolitical tensions between the US and China have exacerbated the decline of the golden age of trade and friendship. Even though it was assumed that disruption of the global value chains (GVCs) during the pandemic was a passing cloud, it is now being recalibrated solely on the basis of geopolitical and geo-economic interests. Priorities are now upside down, with protectionism on the rise whilst efficiency is forced to take a back seat.
David Ricardo’s theory of Comparative Advantage underpinning the liberal trade order is now disregarded by nations that have championed for it for two centuries. The theory espouses that a country should specialise in goods and services it can produce the most efficiently. This leads to more economic welfare and cheaper goods. The model is the foundation of globalisation, which led to the development of global value chains as we know them. For instance, a car could be produced in different parts of the world, with the various components being manufactured in multiple countries. However, reshoring, which entails returning manufacturing of goods back to the company’s country of origin, and friendshoring, which transfers production to ally countries, are taking precedence. Moreover, government subsidies for ‘strategic’ sectors like semiconductors, export controls and local content requirements are dismantling the free trade model. Sacrificing economic efficiency for political strategy will come at a cost. Just like the rest of the world, Africa must also reorient its economic relations with the world.
The relationship between trade, economic growth and poverty is intertwined. While trade alone is not sufficient for economic growth, it is an essential condition. Historically, no country has grown economically through autarky. Ironically, Africa has been integrated into the global trade system since time immemorial, yet the continent currently captures only a tiny portion of global trade. Moreover, despite its rich resources and trade networks, the World Bank estimates that by the end of this decade, 90% of incidences of extreme poverty will be found in Africa.
It seems that to be rich, one must not only trade, but trade in the right commodities. As dependency theorists posit, those who mainly trade in primary goods remain poor yet those who trade in manufactures grow richer. This explains the global north and the global south economic disparities. It is not rocket science: primary commodities are cheap whilst finished goods fetch higher prices. Recent trade statistics from the UN Conference on Trade and Development (UNCTAD) demonstrate that whereas most of Africa is part of the World Trade Organisation (WTO) and the General Agreement on Tariffs & Trade (GATT), its global trade in export merchandise stands at a measly 3%. The effects of globalisation in Africa are evident, however, premature deindustrialisation, high unemployment rates and income disparity continue to belabour the continent.
A Tale of Two ‘Cities’
The dwindling fortunes in Africa vis-à-vis Asia could partly be explained by the industrialisation trajectory of both regions which share a similar history of
underdevelopment. Although most African countries are part of the institutions of the liberal trade order, they barely feature in GVCs. Conversely, Asia, regarded as ‘the world’s factory’ has benefited immensely from its integration in GVCs. The current friendshoring by the rich world, led by the US and the EU, presents an opportunity for Africa’s inclusion in higher-value segments of the supply chain, through investments in Africa’s manufacturing sector. Attracting these investments would reduce extreme poverty, spur industrialisation and create the much-needed jobs for the demographically-young continent. Unfortunately, as is custom, economic strategies by both the US and EU show that Africa is not among the ‘BFFs list’ who will be part of supply chain ‘friendshoring’, contrary to diplomatic pleasantries often used by Heads of State during speeches. In May 2022, the US launched the Indo-Pacific Economic Framework (IPEF) with partners and key allies in Asia and Oceania, anchoring trade and value chains among its main negotiation pillars. The partnership was criticised by China as a pretext by the US to not only counter it strategically but also hasten decoupling from China’s industries. Apple, the American tech giant, historically relied on Chinese factories for the production of most of its products. Nonetheless, a recent move by the company shifted production of the iPhone from China to India, while MacBooks will henceforth be produced in Vietnam, demonstrating a prime example of decoupling and friendshoring. Comparing the IPEF with the Build Back Better World (B3W) project—a G7 initiative led by the US to counter China’s relations with Africa—plans for inclusion of African countries in value chain initiatives are barely featured. Additionally, of the five objectives of the EU’s Global Gateway Initiative, including Africa in GVCs is not mentioned. Despite promises of solidarity, Africa, it seems, cannot count on the developed North.
The African Union’s (AU) theme of the year 2023 is: “The Year of African Continental Free Trade Area (AfCFTA): Acceleration of the AfCFTA Implementation”. In the context of reshoring and friendshoring, this theme could not have come at a better time. Just three years after its establishment in 2018, AfCFTA is one of the world’s largest free trade areas. Its fundamental objective is to boost intra-African trade from the current 18%. Juxtaposing Africa with the rest of the world, this figure is dismal; intra-EU trade is more than 70% and intra-North American trade is approximately 60%. Consequently, success of AfCFTA is essential in bolstering Africa’s position in the global market by eliminating the current market fragmentation of the 55 AU economies. Ironically, even though Africa does not trade a lot internally as mentioned earlier, it trades the most in goods manufactured within Africa. This is proof that fostering regional value chains (RVCs) instead of the global value chains (GVCs) will be indispensable in building resilience in times of disruption. Kenya knows this best: at the height of the COVID-19 pandemic, the Kenyan horticulture sector took a serious hit as exports to the EU—its main market—were severely hampered.
A New Epoch
Free trade is as relevant now as it was during the time of David Ricardo. Specialisation and free trade encouraged competition and led to more innovation and lower prices. A British person can enjoy Kenyan tea while the Kenyan relishes a bottle of Scotch. Unfortunately, times have changed and free trade is now bound by political goals. In light of the rising geopolitical tensions, the danger of unchecked dependency on trading partners is now well-recognized as commodities could be used as a geopolitical weapon. Fortunately, Africa is cognisant of the fact that it remains a primary commodities producer and has been unable to industrialise and move to higher-value goods. Evidently, other regions have different priorities on who they consider worthy to trade with. The current trends in international trade offer a new dawn for the continent to look more inward and build industrial and technological capacity at home through intra-African partnerships. For a good cause, like a neglected lover, Africa must now be ready for some ‘self love’ and focus on itself.
Written by Victor Kirima; Edited by Judith Bauer
Photo credit to: Rohan Reddy, Unsplash