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GREAT insights Magazine

The GVCs train should not crush poor economies under its wheels

December 2015

Kiiza, A. 2015. The GVCs train should not crush poor economies under its wheels. GREAT Insights Magazine, Volume 4, Issue 6. December 2015/January 2016.

In order to upgrade on global value chains (GVCs) in the extractives sector, Africa should ensure that the WTO ceases to be a war machine.

The 10th WTO Ministerial Conference (MC) is on African soil for the first time. The MC comes at a very critical time when the proclamation of ‘Africa rising’ has, to quote Rist (2007), become part of the ordinary buzz or hubbub to be heard in countless meetings devoted to issues ranging from agriculture, urban planning, and international trade to poverty reduction, personal well-being, and industrial production. Presently, this hubbub has become a cousin to another catchword, global value chains (GVCs) which is being idolised as a proverbial golden straightjacket that fits all. Indeed, with economic growth projected by the African Economic Outlook to reach 5% in 2016, there is a lot of optimism on Africa’s rising. This rising can largely be connected to Africa’s rich endowment with immense natural resources, domestic market, and trade with other emerging economies. According to UNECA (2013), between 2002 and 2012, oil, metals and other mineral exports accounted for more than two-thirds of export growth in Africa, while crude oil alone accounted for more than 50% of Africa’s merchandise exports in 2012.


Africa’s quest to upgrade the extractive sector’s value chains


However, despite an increase in the share of exports in the world market, Africa’s contribution to total world’s trade remains at 2.6%. This meagre share can be partially explained by the fact that Africa continues to be wrongly integrated in the GVCs as a supplier of raw materials to the developed countries. It has yet to upgrade to the higher value chain. Despite the lucrative extractives sector, Africa continues to face a daily widening gap of inequalities, aid dependence, indebtedness and a creeping trade deficit. In view of the failure of the extractives sector to help Africa’s member states catch up (or to be more precise, rise), the African Union has adopted the African Mining Vision whose major aim is to promote transparent, equitable and optimal exploitation of mineral resources to underpin broad-based sustainable growth and socio-economic development.


Why the WTO is relevant


As argued by the WTO (2012), the emergence of value chains offers a path to economic development, while at the same time has major policy implications for economic growth in developing countries. However, what the WTO fails to acknowledge is that globally, the poor have lost out, and that the loss has been greater still to Africa (refer to the LDCs issues, cotton issues and the overall Doha Development Round). It can be argued that the share of benefits from global economic growth reaching the world’s poorest people is actually shrinking. This argument is shared by the 2013 African Progress Panel report which argues that “some resource-rich countries have made impressive strides in improving the lives of their people”. However, the report cautions that “overall progress has been uneven and in some areas it has fallen short of expectations” and that “after a decade of strong growth, several Africa’s resource-rich countries remain at the bottom of the international league-table for human development”. It should also be noted that while resource-rich African countries have yet to catch up, they continue to bear an unfair share of the costs, including the effects of pollution and destruction of the ecology thanks to extraction of these minerals with, at times, no clear Environmental Impact Assessment and uncoordinated policies on mining.

While the WTO is an important body in ensuring that global trade rules are fair and non-discriminative (which is critical for LDCs to improve on their share of global trade), it continues to make trade rules that favour free trade in areas where rich countries are stronger. More prudently put, the WTO continues to be used by developed member states to push for rules and negotiations in areas that promote their strategic interests. The Trade Facilitation Agreement adopted at the 2013 9th WTO MC and the current push by developed member states, led by the USA, for the WTO to focus on areas like Information Technology Agreement (ITA), the Environmental Goods Agreement (EGA), and the Trade in Services Agreement (TISA) are some examples. At the same time, WTO developed member states, with the USA in the lead, continue to dub issues like major reforms to agriculture (particularly reductions in subsidies and tariffs provided by developed countries), Non-Agricultural Market Access (NAMA), special and differential treatment for developing countries as “undoable” despite the fact that these issues are critical for LDCs development, and all WTO members agreed to prioritise under the Doha Ministerial Declaration.

There is also a great desire by some developed members of the WTO, to set aside permanently the entire development mandate of the Doha Round, and to replace it with another agenda of the Singapore issues that would further the profit interests of their corporations. Following the trail of WTO consultations before the Nairobi MC could lead one to conclude that developed countries are determined to see the introduction of the rest of the Singapore issues (after the Trade Facilitation Agreement was successfully concluded and adopted in the Bali MC 2013), in place of completing the Doha round. While Singapore issues are less likely to be tackled by the Nairobi MC, their negotiations are more likely to be introduced in the post Nairobi-work plan. In other words, the Nairobi MC is most likely to act as a “springboard” to the commencement of negotiations of the rest Singapore issues, with or without substantial delivering on the Doha Round. Developed countries strongly argue that if WTO member states do not make way for the introduction of these issues, they would be holding back the WTO system from being updated and from being a relevant player in the 21st century (refer to the speech by the U.S. Trade Representative Michael Punke during the 2015 Global Services Summit), which in fact, means a relevant player for developed countries’ interests.


Trade is War: Towards an offensive agenda


To borrow Yash Tandon’s axiom of Trade is War, the serial war that the WTO intends to further wage on LDCs through using lethal weapons of already mentioned new issues will continue holding hostage LDCs’ economies and their efforts to upgrade to the higher end of GVCs. Singapore issues like investment need to be cautiously treaded given Africa’s inability to negotiate good investment Agreements, most especially in its extractives sector. The Africa Mining Vision accepts the fact that there is a need to improve the capacity of African states to negotiate with the resource Trans National Corporations (TNCs) on the resource exploitation regime, because these negotiations are generally extremely asymmetrical, where the TNC is highly resourced and skilled than the state. Also, because these resource exploitation contracts generally tend to have a very long tenure of 20 to 30 years (mining license), it is more pertinent that Africa gets the optimum deal at the outset. Therefore, LDCs should ensure that the WTO MC10 does not move to negotiating issues like investment and other new issues before it has had a strong foothold in the agenda setting and influence in the WTO, and before the present imbalances in the WTO are checked. To quote Rob Davies, South Africa’s trade minister’s remarks after the Bali MC: “We are of the view that there is structural imbalance in which the LDCs secured only best endeavour solutions while there is a binding agreement on trade facilitation” (South Centre, 2014). This is very true as expediting the entry of imports through a range of customs procedures (some which are very costly and administratively intensive) will not be a magic bullet in catapulting developing countries into competitiveness on the global scale.

The safe landing zone in the Nairobi MC that is being envisioned by the WTO should bring about balanced outcomes and should see the conclusion of the Doha Round, since the role of extractives sector in transforming Africa’s economy needs to be complemented by sectors like agriculture. However, unless developed countries reduce their trade distorting domestic support in the agriculture sphere (such as US cotton subsidies), Africa’s agricultural sector will continue to be underdeveloped and the people whom it employs will continue wallowing in poverty.


Resource-rich countries upgrading


In conclusion, as the GVCs train continues in motion and as many countries hasten to get on it, Africa remains wrongly integrated in the global economy in terms of trade as a net exporter of raw materials and net importer of manufactured commodities; investments (because of its wrong investment models) and at times, development policy (claims of Africa outsourcing development policies are common). Because of this, the Africa Mining Vision seeks, among others, to promote local beneficiation and value addition of minerals to provide manufacturing feedstock; promote the development of mineral resources (especially industrial minerals) for the local production of consumer and industrial goods; establish an industrial base through backward and forward linkages; and encourage and support small and medium-scale enterprises to enter the supply chain. These are determined as the prerequisites to Africa’s upgrading on her value chains in the extractive sector and subsequently connect to the GVCs at a higher and competitive end.

However, the above objectives risk being a mere rhetoric if the global rules do not favour LDCs “proper’ integration in the GVCs. A well implemented Doha Round can indeed improve LDCs market access to the developed markets and subsequently reduce on their overly high trade deficits. Thus, whether we buy the argument of Africa rising, or that the upgrading of value chains in her extractive sector will help Africa ‘catch up’, the glaring reality is that Africa is presently engulfed in an exploitative and totally unfair global system. By daring to think differently, one can argue that the contemporary extractive sector in Africa is biased towards Export-Led Growth (ELG) strategy rather than the Domestic Demand Led (DDL) strategy. The former subordinates human needs and human rights to corporate (extraction firms) greed and profit, while the latter puts the needs and rights of the people first.

Therefore, in order to achieve objectives set in the mining vision, Africa needs to ensure that the GVCs train won’t crush poor economy under its wheels. Since the Asian tigers have leapt, African lions should roar. However, this roaring can only be sustainable if Africa upgrades and effectively participates in the GVCs as a highly competitive player. Upgrading on value chains is a springboard for a country’s joining the GVCs at a high end and helps in calibrating a country’s efforts to achieve structural transformation and spatial development. Africa’s effective participation in GVCs, especially under the extractives sector, will require significant investment in technology dissemination, skill building and upgrading, but most of all, will require fair and pro-development global trade rules like implementation of rules in areas of agriculture, cotton, including Duty Free Quota Free Market Access, Special and Differential Treatment, NAMA among others before engaging on investment negotiations. Africa should not allow for the slightest chance of commencing on negotiations for Investment in the WTO before fully operationalising its vision. Africa should ensure that the WTO ceases to be a war machine that is being used by rich countries to ravage her economy and arrest her development efforts. This is more important than ever given Arica’s prospects to upgrade the extractives sector’s value chains.

 

About the author

Africa Kiiza is currently a student of M.Sc. Governance and Regional Integration, Pan African University. He has also worked with SEATINI, a sub-regional NGO working in Eastern and Southern Africa on issues of trade, investment and development.

africa kiiza

Africa Kiiza, Pan African University.


References

Rist, Gilbert (2007). Development as a buzzword. Development in Practice, Volume 17, Numbers 4–5, August 2007.

South Centre (2014). The WTO’s Bali Deal-How Balanced? South Bulletin, 4th March 2014, Issue 78.

UNECA (2013). Making the Most of Africa’s Commodities: Industrializing for Growth, Jobs and Economic Transformation. Economic Report on Africa 2013.

WTO (2013). World Trade Report 2013: Factors shaping the future of world trade. World Trade Organization.


Photo: A staff member of Honey care Africa works at the processing part of the honey production chain in Nairobi, Kenya. Credits: Nestlé/flickr/CC.

This article was published in GREAT Insights Volume 4, Issue 6  (December 2015/January 2016).

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Economic Transformation and TradeExtractive SectorsMiningValue chainsAfrica

External authors

Africa Kiiza