Africa in Fact- February 2013- Trade

Non-tariff barriers choke African trade

Wheeling and dealing in the DRC

South Sudan’s oil-for-food gambit

Flying solo: unilateral trade liberalisation

Africa in Fact

The Journal of Good Governance Africa

Issue 8 | February 2013 I www.gga.org

2 | Africa in Fact | Issue 8 | February 2013 | www.gga.org |

Let the people trade

Our desire to trade is irresistible. To get our goods to market we cross deserts and high

mountain ranges, evade robbers and greedy governments, learn foreign languages,

and build roads and railways. Stopping people from trading clearly requires a special

effort.

Yet African trade is insignificant. It accounts for a mere 3% of world trade and

African countries conduct just 10% of their trade with each other. Impassable roads,

limited railway connections and dilapidated ports stymie Africa’s traders. These non-

tariff barriers and others, such as delays at borders and corrupt customs officials, deter

commerce. Despite half-hearted attempts by African governments to address these

hindrances, it is still common for truckers to wait for days to cross borders, even if their

hundreds of licences, permits and other required documents are in order.

As if these challenges were not enough, many African governments make it

difficult to do business in their countries. Of the world’s ten most challenging business

environments, nine are in Africa, according to the World Bank. The Heritage Foundation

ranks the bulk of African economies as repressed or mostly unfree.

Tariffs and duties, imposed by governments to generate revenues and protect

selected industries, make cross-border trade less attractive. They shelter domestic

producers and restrict consumers to local offerings. Many of the benefits of increased

trade—such as greater choice, lower prices and stronger economic growth—could

be realised even if tariffs were reduced unilaterally. Compared to lowering non-tariff

barriers, it would be much easier for governments to cut tariffs and duties.

The continent is awash with regional economic associations, but many of them

have failed to live up to their promise. The loss is even greater because integrated

markets are especially valuable for small economies. Integration opens up large export

markets and provides access to larger pools of resources and know-how, according to a

2009 report by the Asian Development Bank.

Greater trade between countries that are members of regional economic

associations also helps drive infrastructure development. Economies come alive when

citizens exchange more information, technology and knowledge. Dynamic economies

attract more foreign direct investment.

What has trade got to do with governance? Governments can easily boost trade

by reducing tariffs, thereby raising incomes and tax revenues. They can also attract

foreign investment by reducing business and labour regulations, increasing transparency

and accountability, and speeding up border traffic. What’s more, stronger trade links

between countries promote peace: trading nations that are economically dependent on

each other are less likely to fight, and more likely to prosper.

John Endres

CEO of Good Governance Africa

Africa in Fact | Issue 8 | February 2013 | www.gga.org | 3

CONTENTS 2 Let the people trade

4 About our contributors

5 Non-tariff barriers choke African trade by Karen Hasse

Crossing an African border can be tedious, lengthy and expensive. Recently, a long queue of vehicles stretched as far as 20km into Zimbabwe on the main highway to the Beitbridge border post, one of the busiest in Southern Africa. Delays such as these, along with cumbersome documentation requirements and unpredictable procedures at borders, cost businesses and governments more than tariffs.

9 Wheeling and dealing in the DRC by Kevin Bloom

In the north-eastern Democratic Republic of Congo mining company Randgold’s managers recently took it upon themselves to do President Joseph Kabila’s work—they built their own road to get their precious metal to market. This road has brought in traders and cheap goods, and links the Democratic Republic of the Congo with Uganda. Nonetheless, the area remains infamous for conflict and crime. Must all conglomerates in the Congo build their own infrastructure while accepting an unusually high security risk?

15 South Sudan’s oil-for-food gambit by Simon Allison

In development circles, everyone from the African Development Bank to the Mo Ibrahim Foundation praises the benefits of countries working together to remove trade barriers and ease continental cooperation. South Sudan has applied to join the East African Community. But, by joining this common market alliance, will South Sudan risk economic disaster with a rush of cheap goods, labour and services from East Africa?

18 Flying solo: liberalising African trade by Ivo Vegter

Agriculture promises a significant export opportunity for Africa. But the Doha round of trade talks, aimed at including the developing world, has been deadlocked for years. Attempts to reduce or dismantle farm subsidies and import tariffs have routinely been met with strong political opposition. African nations should stop waiting for these negotiations to resume. If just one country erases trade barriers, both it and other nations may benefit.

23 A conversation with Ivo Vegter by GGA researchers

Ivo Vegter was a finalist for the 2011 Bastiat Prize for Journalism, an award that recognises writing that explains, promotes and defends the principles of a free society. Researchers at Good Governance Africa decided to challenge Mr Vegter’s free market faith.

28 The other China in Africa by Richard Poplak

In geopolitics, as in a Saturday at the track, sometimes you back the wrong horse. The 1970s and ‘80s were the good old days when the apartheid regime in South Africa, the pre-democratic Taiwanese government and Israel formed a cosy nuclear troika, trading technology, know-how and materiel. Since then, Taiwan has become an also-ran in the derby for Africa.

33 Diamonds are forever by Christopher Pala

As demand for the continent’s mineral wealth marches on, sub-Saharan Africa has weathered the current global recession. Its growth remains resilient with increasingly diversified flows of foreign investment. The United States, France and Britain were the top FDI sources, but other nations have joined the scramble for Africa.

Africa in Fact is published by Good Governance AfricaConstanza Montana, John Endres (CEO) EditorsMienke Steytler, Karen Hasse, James Stent Editorial assistantsSarah Zwane Layout and typesettingMeg Jordi, Tony Pinchuck Cover design

Opinions expressed are those of the individual authors and not necessarily of Good Governance Africa. Contents may be republished with attribution to GGA. Contact us at [email protected].


About our contributors

Simon Allison is the Africa Correspondent for the Daily Maverick, based in Johannesburg.

He has previously reported from Palestine, Somalia and revolutionary Egypt, for outlets

including Asia Times and Agence France Presse. Interests include reading, writing and—

fortunately given his chosen profession—African politics. He holds a BA from Rhodes

University and a master’s degree from the School of Oriental and African Studies.

Kevin Bloom has written for a wide array of South African and international

publications, including Granta, and the United Kingdom’s The Times and The Guardian.

Kevin’s first book, “Ways of Staying”, won the 2010 South African Literary Award for

literary journalism and was shortlisted for the Alan Paton Award. He is an honorary

writing fellow at the University of Iowa, having completed the fall residency of the

International Writing Program in 2011. He is currently co-authoring a book about

changing Africa.

Karen Hasse is a researcher for Good Governance Africa. She has a BA in journalism as

well as an honours degree in political science. She is currently working on completing

her master’s degree in political science/international relations. Her thesis deals with

the origins and outcomes of political contagion in the Arab Spring of 2011. In August

2012, she won the South African Association of Political Science award for best honours

essay in South Africa in 2011. She has a particular interest in the political and economic

development of African states.

Christopher Pala, an American raised in Paris, is a former foreign correspondent now

based in Washington, D.C. He has served as the Caribbean correspondent for United

Press International and as the Lagos, Nigeria, bureau chief for Agence France Presse.

He has reported from Russia, Central Asia and the Pacific for The New York Times, Le

Figaro, Science and other publications.

Richard Poplak is an award-winning freelance journalist and author who has worked

extensively in Africa and the Middle East. His first book was the highly acclaimed “Ja,

No, Man: Growing Up White in Apartheid-era South Africa”. His follow-up, entitled

“The Sheikh’s Batmobile: In Pursuit of American Pop Culture in the Muslim World”,

won positive reviews in The Economist and elsewhere. He is currently writing a book

and starring in a documentary series on Africa rising, called “Continental Shift”.

Ivo Vegter is a South African columnist writing on economics, politics, law and the

environment. He is the author of “Extreme Environment”, a book on environmental

exaggeration and how it harms emerging economies. In 2011 he was a finalist for

the Bastiat Prize for Journalism for writing that explains, promotes and defends the

principles of a free society.


Building blocs and removing hurdles

Non-tariff barriers choke African tradeby Karen Hasse

Somewhere near an African frontier, a heavily laden truck is wedged in a long

train of other lorries. Its driver has turned off the engine and snoozes in the cab. He and

other motorists have been waiting for hours, sometimes days, while their goods bake

under the hot sun. Crossing an African border can be tedious, lengthy and expensive.

Often, a full set of procedures on either side of the border results in delays,

making cross-border trade difficult and costly. “In Southern Africa, a truck serving

supermarkets across a border may need to carry up to 1,600 documents as a result

of permits and licences and other requirements,” wrote Paul Brenton, a World Bank

expert on African trade, early last year.

These trade barriers have excluded Africa from reaping the rewards of increased

economic interaction and interdependence. Yet Africa’s economic development and

ability to compete internationally depend on removing these roadblocks and liberalising

commerce. Supply and demand are becoming increasingly global, with firms taking

advantage of production facilities and markets far beyond their national borders.

Lowering restrictions on trade has encouraged trade specialisation in East Asia,

India and China. In India, freer trade has allowed medium to high technology sectors to

flourish and develop a competitive edge.

This could happen in Africa too. More trade between African countries might

encourage them to specialise to gain a competitive edge against neighbours that

currently produce similar, mainly primary, commodities. Intra-African trade has the

potential to diversify and grow African economies.

Africa’s share of world trade is tiny—only 3% in 2009, according to the United

Nations Conference on Trade and Development. Intra-African trade made up only

10% of total African trade. This stands in stark contrast to 22% between developing

countries in South America, and 50% between those in Asia.

African countries have recognised the potential to bolster economic development

through greater cooperation. This is the thrust behind African regional economic

communities (RECs), among them the Common Market for Eastern and Southern Africa

(COMESA), founded in 1994, the Southern African Development Community (SADC),

founded in 1992, and the East African Community (EAC), founded in 2000.

Through these regional alliances, states have committed to making trade

easier by removing tariffs and other barriers to trade. Progress in removing tariffs has

had some success. For example, SADC implemented a free-trade agreement in 2008,

removing tariffs on 85% of goods traded between member states.

But non-tariff barriers (NTBs) are even worse obstacles to greater African trade.

Losses incurred by businesses and governments due to delays, complex documentation

requirements and the unpredictable procedures at borders were higher than the costs



of tariffs in 2010, according to the United Nations Economic Commission for Africa.

NTBs include policies such as quotas and import and export bans. But one of

the chief NTBs to trade in Africa is what a 2012 World Bank report calls “thick borders”

—inefficient border posts and customs operations that inhibit trade.

Lack of coordination and uniformity in countries’ technical regulations, rules

of origin, standards, and policies on licences and permits create extraordinary delays.

They place a heavy burden on cross-border traders.

The average time to import between member states of SADC and COMESA is

38 days, compared to 22 days within Latin America and 12 days within the European

Union, according to the African Development Bank. Clearly, trade in Africa is over-

regulated.

But breaking the rules is widespread, too. Corruption is a major cost to cross-

border traders. Long waiting times at customs stations create the perfect scenario for

officials to elicit bribes to speed up the process, according to a recent survey on bribery

as a barrier to trade in the EAC by Transparency International and Trade Mark East

Africa, a non-profit organisation. At most of the customs stations on the Kenya-Tanzania

border, drivers spent 68 hours on average to get customs clearance, the survey found.

Of the transporters surveyed, 86% of those from Kenya, 82% from Tanzania,

55% from Uganda, and 50% from Burundi admitted to paying bribes. The annual

cost incurred on trade due to bribery in Tanzania made up about 18.6% of the value

of goods transported across Tanzanian borders.

Africa’s infrastructure deficit also plays a large role in hindering trade. Moving

goods efficiently is especially important given the large number of small, land-locked

states on the continent. But only 22.7% of African roads are paved, according to the

African Development Bank. The continent’s rail and port infrastructure is also largely

Top ten complaints in COMESA, EAC and SADC

1

10

12

15

16

20

19

15

30

47

11

2

2

1

2

3

6

18

14

6

Government policy and regulations

Government monopoly on import/export

Inadequate/unreasonable customs procedures and charges

Quantitative restrictions

International taxes, charges on imports and other tariff measures

Inadequate trade-related infrastructure

Issues related to sanitary and phyto-sanitary measures

Costly road user fees/charges

Issues related to the rules of origin

Lengthy and costly customs clearance procedures

0 10 20 30 40 50 60

Resolved complaints Unresolved complaints

Source: www.tradebarriers.org, retrieved January 9th 2013



crumbling or non-existent. According to the World Bank, 26.9% of firms in sub-Saharan

Africa identify transportation as a major stumbling block.

“There are ports, particularly in [the] Central West African cluster and East

Africa, which have serious barriers to operations,” a shipping coordinator for African

ports based in Cape Town told Africa in Fact. “In each port the [logistics] operations are

uniquely catered to working around constraints that do not exist in ports in developed

countries,” she said, asking not to be identified. “Other ports around the world—

[in] Asia, Europe, America—have automated systems, developed infrastructure,

government support and trade agreements that are upheld.”

Though some African ports are better than others, “the net effect on total cost

and on the bottom line of operating an entire network of vessels that call [on] almost

every feasible port in Africa is vast,” she said. NTBs make trade much more expensive,

hitting hardest small traders who do not

have the capacity to overcome such costs.

These barriers hinder the growth of small

businesses, as well as transferring increased

costs to the consumer. They may also be

preventing the development of sectors that

could gain comparative advantage and

drive African economic growth.

Some progress has been made

in removing NTBs. Members of the

grand tripartite Free Trade Agreement—

COMESA, EAC and SADC—set up a

mechanism for reporting, monitoring and

eliminating NTBs. Through this online

forum traders can report complaints

regarding NTBs, which are then drawn to

the attention of the relevant authorities. They can also track to what extent authorities

have addressed their complaints.

Since its inception in 2008, the system has registered 436 complaints, 326

of which it reports as resolved, and 110 as unresolved. Not surprisingly, the highest

number of complaints (53) relate to lengthy and costly customs clearance procedures.

While this system shows awareness of the problems posed by NTBs, it is

problematic in at least two ways. First, it fails to capture and address the experiences of

traders who do not report problems and those who are deterred from trading by NTBs.

Second, it offers only a case-by-case approach to tackling NTBs rather than a structural

approach. It relies on resolving individual complaints, thereby removing the onus of

eradicating the root causes of NTBs from governments and regulatory bodies.

On the surface, African leaders have shown zealous commitment to regional

economic integration and trade liberalisation by joining RECs. Overlapping member-

ships of RECs are common. The Democratic Republic of Congo (DRC) is a member of

While this system shows awareness of the

problems posed by NTBs, it is problematic. It relies

on resolving individual complaints, thereby

removing the onus of eradicating the root causes of NTBs from governments

and regulatory bodies.



four. But this creates other problems in meeting these diverse commitments. Tellingly,

SADC reported in 2010 that the DRC had ratified only two of its 56 protocols and

amendments.

The situation with NTBs is similar. For example, most of the 25 NTBs identified

by the EAC for immediate removal in 2008 were still in place in 2012, according to

the World Bank report mentioned earlier. In addition, a March 2012 report by the

EAC identified 16 new NTBs to be resolved.

“We do not have a good set of

indicators regarding non-tariff barriers by

which to hold governments accountable

for the commitments they have made,”

Mr Brenton told Africa in Fact in an

e-mail interview. “For example, we know

that small traders regularly suffer

harassment and have to pay bribes at

the border but we have no measures

to show whether things are improving

or not.

“The policy agenda for removing

non-tariff barriers is often a complex one—

much more complex than reducing tariffs,

which can be done literally at a stroke

of a pen. Removing non-tariff barriers

typically requires better regulations and/or

reform of institutions that apply regulations

affecting trade (such as customs),” Mr Brenton said. “Often the capacity to implement

a regulatory reform agenda is very weak.”

Political will is also a problem. Removing NTBs is expensive and difficult,

without the guarantee of immediate success. This makes it an unpopular endeavour

for African leaders intent on short-term successes to please their electorates and keep

them in power.

To remove NTBs, governments will have to work towards greater regional co-

ordination and efficient regulatory procedures; they will need to simplify the process of

cross-border trade and reduce corruption. Leaders will also need to eliminate deficits in

knowledge, administration and finance. This will likely require large-scale institutional

reform. At the same time, policies for removing NTBs in Africa will need to be tailored to

specific contexts by harnessing the understanding of experts and those who experience

them first-hand.

Above all, governments will need the foresight to invest now to achieve the

long-term benefits of dismantling NTBs. Without such action the outlook for African

trade and small-scale African traders will remain bleak. A great opportunity to speed

Africa’s development will remain untapped.

“The policy agenda for removing non-tariff barriers is often a complex one—much more complex than reducing tariffs, which can be done literally at a stroke of a pen. Removing non-tariff barriers typically requires better regulations and/or reform of institutions that apply regulations affecting trade (such as customs).”


To bypass the Democratic Republic of Congo’s hopeless government, a mining company

built its own road

Wheeling and dealing in the DRCby Kevin Bloom

In the north-eastern Democratic Republic of Congo (DRC), where the country’s

remote bush cuts a corner with South Sudan and Uganda, mining company Randgold’s

managers recently took it upon themselves to do President Joseph Kabila’s work. The

“elephant deposit” the company had acquired in 2009 from Moto Gold, at a reported

cost of half a billion dollars, had come with much promise but little infrastructure.

Initially, Randgold was flying in heavy machinery on C-130 transport planes,

and in the dry season using six-by-six cargo trucks to haul equipment across from the

Ugandan border. Yet even for these monsters, the overland trip could take up to a

week—less robust vehicles were routinely completing the 180km journey in more than

a month. So Randgold decided to give the DRC government the gift of a new gravel

motorway.

“We don’t mind paying for it,” said Louis Watum, the mine’s Congolese-born

general manager, in March 2012. “But then tell us how we get our money back. It’s a

national road.”

Randgold and their partners in the Kibali mine, AngloGold Ashanti, were

offered no tax breaks or incentives on the $8m it cost to grade and pack the artery. But

visit the region today and you will see hundreds of low-cost Chinese and Indian 125cc

motorcycles, known in this part of the world as wewas, arriving in town after a smooth

three-hour ride from the border. For these bike-borne traders and the customers they

serve, the Kibali road represents a link with Uganda’s economy and an introduction to

the world of modern commerce. Prior to Randgold’s intervention, the market in Watsa,

which abuts the Kibali compound, functioned solely on a barter system.

It was never meant to be like this. Going back to the immediate post-

independence era, a primary touchstone of the African development agenda has been

the establishment of regional economic communities to facilitate intra-continental trade.

In such a model, notes the African Development Bank, the creation of shared physical

infrastructure has consistently been highlighted as a major imperative in the drive “to

address the challenges of small domestic markets, weak productive structures, slow

progress on reforms/economic growth, and widespread conflict/political instability.”

By 2009 intra-African trade stood at 10% of the continent’s total trade—versus

22% for Latin America and 50% for Asia—proof enough that the regional strategy

has not worked so far. While inter-continental trade, particularly with Asia, has been

on the rise, factors such as Africa’s poor road network are responsible for high trade

costs between countries. (In a 2010 paper, the United Nations Economic Commission for

Africa noted that only 22.7% of all African roads are paved.)

Until Randgold arrived in the north-eastern DRC, the cost of trade with Uganda

meant that its citizens were forced to function within an antiquated commercial framework.



“In general, we welcome the Kibali project,” said Father Floribert of the Church

of St Barbe, whose parish attends to the spiritual needs of 20,000 locals. “It is good for

the welfare of the population. The road has a big influence, and we now have electricity

from the mine’s power station.”

What Father Floribert did not say is that aside from the range of currencies that

have started to change hands in the market, the road has also brought in prostitution

and drugs. Of course, this is often the price of modernisation. When measured against

the successes of one local businessman—a Mr Lenguma, who since the opening of the

road has accumulated a fleet of 30 buses offering regular transport between the DRC

towns of Kisangani and Goma, and Kampala, Uganda’s capital—it is accepted as a

worthwhile compromise.

In the broader context of the DRC’s development needs, there is a more pertinent

issue than the social ills that come from economic growth: can the Kabila government

adequately manage and encourage international investment in infrastructure? Or must

these conglomerates continue to accept an unusually high level of risk?

To most interested observers, the answer seems obvious: risk and the DRC are

synonymous. The infrastructural deficiencies, however, pose an even greater problem

than the ever-present threat of armed conflict: the CIA World Factbook cites a total of

153,497km of road in the country, with only 2,794km paved. The DRC faces what is

“probably” the most daunting infrastructure challenge on the continent, according to

the World Bank’s March 2010 Africa Infrastructure Country Diagnostic (AICD). Half of

the nation’s existing assets are in need of rehabilitation, the report noted, while its vast

geography, low population density, extensive forestlands and criss-crossing rivers all

act as serious obstacles to development.

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“To rebuild the country and catch up with the rest of the developing world,”

the report stated, “the DRC needs to spend $5.3 billion a year over the next decade,

a sum equivalent to 75% of its 2006 GDP. Of this total, as much as $1.1 billion a year

needs to be devoted to maintenance alone. The DRC’s recent infrastructure spending of

$700m a year falls far below the level needed to make an impact over the next decade.

Significant inefficiencies waste at least $430m each year, but even if these problems

were corrected, an infrastructure funding gap of the order of $4 billion a year would

remain.”

By “significant inefficiencies”, the AICD authors, Vivien Foster and Daniel

Alberto Benitez, may have been referring to—among other things—evidence of

large-scale corruption in Beijing’s showcase $6 billion ore-for-infrastructure swap with

Kinshasa, a Sino-Congolese joint venture otherwise known as Sicamines.

A commission set up by the DRC’s National Assembly in early 2010 uncovered

this graft. It revealed that $23m in signature bonuses had been stolen, part of a $50m

package that Chinese companies owed Congo’s mining parastatal Gécamines. That

$50m in turn, was part of a $350m fee the Chinese—represented in the deal by China

Railway Engineering Corporation (CREC) and Sinohydro—had agreed to give the DRC

government on signing. The agreement

also called for the government to grant the

Chinese parastatals access to concessions

holding over 10m tonnes of copper and

600,000 tonnes of cobalt (estimated to be

worth $100 billion). In return the Chinese

would oversee and provide loan capital for

the construction of roads, railways, schools

and hospitals.

To fully grasp the potential impact

of the Sicamines joint venture, by all

accounts the most ambitious and important

infrastructure project in the DRC’s post-

independence history, it helps to understand the circumstances behind the deal. A

superficial reading of the joint venture interprets it as just another demonstration of

Beijing’s determination to gain access to Africa’s resources, and this is no doubt true.

But there are background subtleties to the negotiations that reveal much about its

prospects.

First, as Johanna Jansson observed in an October 2011 research paper for

the South African Institute of International Affairs, the state-owned enterprise CREC

(not the Chinese government) initiated Sicamines, and only looked at the DRC in the

wake of its failure to secure mining concessions in Latin America. Second, after a shaky

coalition won Mr Kabila the 2006 legislative elections, it was clear that for him to be

re-elected in 2011 he would need to deliver on his promise of a massive public works

programme. Third, although the Western donor community, present in large numbers

The state-owned enterprise CREC (not the Chinese government) initiated

Sicamines, and only looked at the DRC in the wake of

its failure to secure mining concessions in Latin America.



in the Congolese capital and the war-ravaged east, was unable to come up with the

funds to assist Kabila—a direct result of the 2008 financial crisis—it quickly became

expert at criticising the Chinese intervention from the sidelines.

The Western donors’ major gripe was that the original Sicamines September

2007 memorandum of understanding (MOU) was skewed in favour of the Chinese

signatories, whose copper and cobalt concessions were said to be worth much more

than the infrastructure projects their loans would finance. Linked to this was the

complaint that China’s $9 billion loan, as stipulated by that MOU, was not concessional,

i.e. the interest rates were not low enough and the repayment periods not long enough

to qualify for the favourable terms traditionally granted to poorer countries. In the

context of the country’s sizeable external debt—which was sitting at the time at $13.1

billion (or more than 100% of the DRC’s 2008 $11.7 billion GDP)—it was argued that

the clause requiring the Congolese government to guarantee repayment of the loan

through investment in the mining operation was unreasonable. No other international

player in the DRC’s mining sector, said the critics, had such a government guarantee.

As far as the West was concerned, it therefore appeared that Mr Kabila could

not fully mitigate the risk of investment in the DRC—even when he wanted to. During a

May 2009 trip to Kinshasa, the DRC’s capital, Dominique Strauss-Kahn, then head of the

International Monetary Fund, convinced the

president to request changes to the MOU.

A redrafted agreement, the final version

of which was signed in October 2009,

dropped the Congolese state guarantee

on the mining investment, instituted more

favourable repayment terms, and reduced

the deal’s total worth from $9 billion to $6

billion.

Henceforth, when it came to Sica-

mines, there would be only two remaining issues over which Western observers could

protest: the above-mentioned evidence of large-scale corruption and the deal’s apparent

inequitable nature. Are these grievances equally legitimate? Some experts think not.

Whereas the corruption probe provides no room for debate or justification,

the deal’s fairness remains murky. The allegation that the Sicamines deal is heavily

skewed in favour of the Chinese “fails to consider that once the loans for infrastructure

refurbishment are fully reimbursed, the Sicamines joint venture will start paying taxes in

accordance with the mining code, just like other large-scale mining ventures operating

in the country,” Ms Jansson wrote. “The agreement would thus only be skewed if value

for ‘money’ (mining titles) is not ensured in the pricing and implementation of the

infrastructure projects. However, even in this event, the agreement would only be

skewed until the loans for infrastructure refurbishment are reimbursed and Sicamines

enters the regular tax regime. To be exact, Sicamines would only be different from other

mining ventures until this time.”

As far as the West was concerned, it appeared that Mr Kabila could not fully mitigate the risk of investment in the DRC— even when he wanted to.



As of June 2011, according to Ms Jansson, the road between Beni and Niania

in North Kivu province, at a reported cost of $57m, was the only infrastructure project

financed through Sicamines that had been completed. My own March 2012 visit to

the DRC confirmed that Boulevard Triomphale, Boulevard Sendwe, and phase one of

Boulevard du 30 juin in Kinshasa had either been completed or were about to be

(although no costs on any of these projects were forthcoming).

Clearly, relative to the national road and rail network the Kabila government

plans to build in the DRC, the impact of the Sicamines initiative has so far been miniscule.

Look at any map of the venture and you will see a so-called “Chinese corridor” that

links this vast country’s nodes. There are plans for a road connecting Kinshasa to the

port of Matadi on the Atlantic coast (a rail line already services this route). Going east

from Kinshasa, a road and rail system stretches to Ilabo, then turns south-east towards

Lubumbashi and the copper-rich Katanga province (again, an existing rail line runs

from Ilabo to Lubumbashi, and beyond into Zambia). From the south-east corner,

another major highway runs north through the beleaguered Kivu provinces, then into

Orientale province and the border with Uganda (to presumably hook up with the road

that Randgold recently built). A final stretch runs west again to Kisangani.

In short, thousands of kilometres of highways that are yet to be built. Ms

Jansson’s research shows that the largest Sicamines project currently underway is the

Transport networks in the DRC

© UN, Michelin, Phillipe Rekacewicz, d-maps



stretch from Lubumbashi to Kasomeno in Katanga, a $138m CREC assignment that

runs for under 150km. Other than a 15km section in North Kivu, and another short

run from Bukavu to Kamaniola in South Kivu, all the Sinohydro assignments still on the

books are in Kinshasa. To put that in perspective, Matadi to Lubumbashi is 2,700km

by road.

Still, it is important to remember that the mining part of the Sicamines joint

venture is only due to kick-off in 2014, with full capacity expected in 2016. “If the deal

had to fall apart now,” Kimbembe Mazunga, Mr Kabila’s adviser on infrastructure, said

in March 2012, “we will have gotten $500m in infrastructure and the Chinese will have

gotten nothing.”

While Mr Mazunga’s sum includes the Central Hospital in Kinshasa, built by

Sinohydro at a cost of $200m, it may be slightly exaggerated. Nevertheless, it is unlikely

the Chinese will pull out and let their investment go to waste. As with Randgold and

every other mining conglomerate operating in the DRC, the Sicamines risk is firmly

on the investor’s side. As with Randgold, which believes it is sitting on 40m ounces of

gold—and is on track to start mining in 2013—the Chinese intend to stay and build

infrastructure until the price of that risk is returned a hundred-fold.

By implication, and assuming governance on issues such as anti-corruption and

taxation is even mildly effective, success for Randgold and Sicamines would translate

into success for the region. New roads would significantly bring down the cost of trade

and markets that have been functioning for decades on a barter system would be

introduced to the modern age.

Assumed travel times in DRC by road type

80

3025

3 510 8

46

1714

2 3

10 8

Paved

Four-wheel drive

Loose gravel

Trail

Ferry crossing

Rail

Rivers

0

10

20

30

40

50

60

70

80

Dry season Wet season

km/h

, ave

rage

Sou�rce:�International�Food�Policy�Research�Institute,�2009


South Sudan risks economic disaster if it joins the East African Community, but farming

could improve the odds and reduce its reliance on oil

South Sudan’s oil-for-food gambitby Simon Allison

Regional economic integration is all the rage these days. In development

circles, everyone from the African Development Bank to the Mo Ibrahim Foundation

praises the benefits of countries working together to remove trade barriers and ease

continental cooperation, holding up these alliances as a possible solution to many of

Africa’s economic ills.

So when the new nation of South Sudan was born on July 9th 2011, it was

only natural for its leaders to look to integrate their stuttering, almost non-existent

economy into a regional marketplace. The country’s geographic location in north-east

Africa qualifies it for a few different bodies, including the Inter-Governmental Authority

for Development (for the Horn of Africa) and the Community of Sahel-Saharan States

(CEN-SAD), a Muammar Gaddafi-inspired North African bloc.

But the obvious choice was the East African Community (EAC), the most

progressive of Africa’s regional economic bodies because of its substantive gains in

economic integration. Notable achievements include the relaxing of visa restrictions,

allowing EAC nationals to work legally in any EAC country, and the gradual removal of

border tariffs to allow for the freer movement of goods. It is not yet a completely free

common market, but it is closer to this than anywhere else in Africa.

A mere three months after independence, South Sudan applied for EAC

membership. This request is still being processed, but it is “a matter of when, not if”,

said a senior South Sudanese official involved in the process. The hasty application,

however, meant that there was little time for public consultation or a proper assessment

of the potentially severe impact of membership. “The proper studies have not been

carried out,” said Jeremiah Swaka Moses Wani, undersecretary of the justice ministry.

This sentiment was echoed by Samson Warra, economics lecturer and principal

of the University of Juba in the South Sudanese capital. “Citizens were not sensitised to

the EAC application. No one knew about it until after the fact,” he told Africa in Fact,

criticising the government for operating with a “guerrilla mentality”, which includes

unilateral decision-making.

Messrs Wani, Warra and others would have liked a more considered approach

because not everyone is completely convinced that joining the EAC will be good for South

Sudan. It is Africa’s youngest country and its economy is nascent and unstructured. An

influx of cheap goods and services from East Africa, along with a rush of skilled labour,

might bring more harm than good.

“Ninety per cent of the economy depends on oil,” explained Mr Warra. “There

are no factories, no industries, few businesses. There is nothing to tax.” In 2012 the

government took a political decision to stop pumping oil through Sudan’s pipelines,

sharply exposing the new nation’s reliance on crude: almost overnight, oil revenue



went to zero, forcing the government to suspend major infrastructure projects and

withhold paying civil servants for several months.

Although difficult, the decision forced South Sudan to focus on other areas of

revenue generation, particularly customs and tax collection. It has also underscored the

need for South Sudan to diversify its economy urgently: the oil will run out in the future.

(Government officials concede the oil may run out in about 25 years; other experts say

it may run out even sooner.)

It is highly unlikely that South Sudan will be able to develop its industry or

manufacturing sectors without protection in the form of subsidies or import tariffs.

“The concern about South Sudan’s industry and manufacturing sectors is legitimate,”

said Abrahim Diing Akoi, planning adviser at the ministry of finance and economic

planning. “Our neighbours’ capacity is higher than South Sudan’s. When you have an

open-door policy, the people with more capacity will take advantage.”

This is already happening. South Sudan is completely reliant on cheap imports

from neighbouring countries as it makes almost nothing of its own, not even basics

like soap. Thousands of Ethiopians, Kenyans and Ugandans are flooding Juba. These

foreigners are using their better education, access to finance and regional experience

to develop small businesses or import products. They are dominating South Sudan’s

meagre economic activity.

This has given rise to xenophobic sentiments and violence. In August the

Kenyan government grew so concerned about reports of its citizens being killed in South

Sudan—nine in the last year alone,

according to Richard Onyonka,

Kenya’s assistant minister of foreign

affairs—that they issued an official

protest note to the South Sudanese

government. This intolerance is likely

only to increase if South Sudan joins

the EAC and its neighbours wield

their economic clout more strongly.

“This will bring bloodshed between

South Sudanese and foreigners,” Mr

Warra warned.

Charles Anyama, a Kenyan

consultant working at the South

Sudan Chamber of Commerce,

agreed that EAC membership might

hurt the economy’s ability to grow

but argues that the government has

little choice in the matter. No matter

what happens, South Sudan cannot

compete with its neighbours in terms

% of total merchandise exports, EAC

to developing economies

to high-income economies

within region outside region

2000 2010 2000 2010 2000 2010Burundi 17.0 12.0 0.0 20.4 61.9 51.3Kenya 40.0 37.4 18.7 15.6 39.6 38.2Rwanda 7.3 58.4 16.1 21.2 42.6 19.7Tanzania 18.2 19.6 17.8 33.3 63.1 38.4Uganda 30.9 50.9 2.2 6.8 63.8 39.3

% of total merchandise imports, EAC

from developing economies

from high-income economies

within region outside region

2000 2010 2000 2010 2000 2010Burundi 23.8 28.6 8.1 17.4 46.7 44.4Kenya 8.4 12.3 16.0 38.4 75.0 48.3Rwanda 33.9 50.1 5.4 12.7 37.6 36.1Tanzania 20.2 16.6 21.1 42.1 58.6 37.1Uganda 39.9 27.1 15.6 23.3 44.4 49.5

Source: UN Conference on Trade and DevelopmentComponents may not add up to 100% due to trade with unspecified partners or with economies not covered by World Bank classification.



of industry and manufacturing, he said. “There is no capacity here for that, no skills,

and they will take generations to develop.”

It is far better to focus the country’s limited resources on areas where it can

develop and have a genuine competitive advantage. This is oil, of course, but also

agriculture. Most of South Sudan is part of the Nile River basin. It has vast swathes of

fertile, uncultivated land. “The EAC’s common market will help keep South Sudan’s

agricultural output competitive, giving it the opportunity to dominate that sector in a

way they simply can’t in others,” Mr Anyama said.

This is also the finance ministry’s plan. “Oil is not going to last forever and

everyone is aware of that,” Mr Akoi said. To diversify away from oil, the government will

focus on infrastructure and agriculture, both of which will benefit from the “international

standards and best practices” that must accompany EAC membership. Even better, the

EAC will enforce those standards—something South Sudan is not necessarily able to do

on its own.

Essentially, by applying for membership of Africa’s most progressive regional

body, South Sudan is taking a calculated gamble on agriculture at the expense of

any serious local manufacturing or industrial development. The country will continue

to import almost everything it consumes, with the exception of food, and is likely to

continue to rely on its neighbours to provide a skilled labour force. This is all well and

good if the agriculture sector takes off; if it does not, once the oil dries up, South Sudan

will have nothing to fall back on.

The question now is whether this gamble will pay off and the country can real-

ise its agricultural potential. Early signs are not promising. Political infighting and a

chronic lack of skilled civil

servants are hamstring-

ing the government,

which struggles to ful-

fil even the most basic

government functions.

Thanks to the oil boycott,

it is nearly bankrupt. The

big test will come when

the oil taps are switched

back on, giving the

government the funds it

needs to realise its am-

bitions. Ironically, South

Sudan’s best chance of

diversifying its economy

away from oil comes

from using its oil revenues effectively by investing in needed infrastructure and skills

with an eye towards long-term rewards.

East African Community members

© d-maps.com; WTO


Erasing trade tariffs, subsidies and customs agreements between countries

Flying solo: unilateral trade liberalisationby Ivo Vegter

The Doha round of multilateral trade negotiations, an initiative of the World

Trade Organisation (WTO), has been deadlocked for more years than negotiators have

spent making progress.

Launched in late 2001 in the Qatari capital, the Doha round was especially

aimed at including the developing world in the process of liberalising trade across

the world. By 2006, with almost no progress made in gaining better trade terms for

developing countries, it had foundered on intractable disagreements about agricultural

subsidies in developed nations such as Japan, the United States and especially Europe.

Agriculture promises a significant export opportunity for the developing world.

It enjoys trade protection in developed countries amounting on average to some 3%

of the value of agricultural produce. Politically, these farm subsidies and import tariffs

are hot potatoes. Attempts to reduce or dismantle them routinely meet with strong

political opposition and sometimes even violent protest. In November 2012 proposals

to cut the European Union’s budget by reducing agriculture subsidies led to protests

in the countries that were the biggest beneficiaries of such largesse. Chief among them

is France.

Several attempts have been made since to jump-start the talks. However, they

remain firmly on ice, leaving member countries in both North (developed countries)

and South (developing countries) without an apparent incentive to reduce barriers to

international trade.

But is it sensible for developing countries to insist on their own trade protections,

pending concessions from the rich world?

Pascal Lamy, WTO director-general, warned in May 2012 that world trade

growth was decelerating. Trade in 2012 was predicted to grow about 4% in volume,

down from 5% in 2011 and an average of 6% in the previous 15 years. “This 2012

forecast is mostly a consequence of sluggish growth in advanced economies, particularly

in the eurozone,” he explained. “The contribution of trade to growth in emerging and

developing countries is also decreasing and is forecast to further decline.”

Subsequently, in September 2012 the WTO revised even those estimates

downwards, anticipating only 2.5% growth in 2012 and scaling back 2013’s growth

expectation to 4.5% from 5.6%. For 2012, the WTO anticipates 1.5% growth in

developed economies’ exports (down from 2%) and 3.5% growth for developing

countries (down from 5.6%). Imports for developed economies are “nearly stagnant”,

at 0.4% (revised sharply downwards from 1.9%), but a more robust 5.4% increase in

imports is expected in developing countries (down from 6.2%). Trade analyses such as

HSBC’s Global Connections Report also indicate that export and import trade volumes

are growing among emerging markets.



Contrary to the rhetoric of the anti-globalisation movement, free trade does

not benefit the rich world at the expense of developing countries. (Its association

with broader “structural adjustment programmes” imposed on struggling emerging

economies in the past, not all of which have been benign or successful, has tarnished the

idea.) While particular sectors, companies or individuals—those that were protected by

trade “protectionism”—may suffer from increased competition, the overall gain from

free trade over autarky (self-sufficiency) in any goods or services is positive.

Columbia University economics and law professor Jagdish Bhagwati and his

co-authors made this clear in “Lectures on International Trade”, where they discuss

how to “measure the gains of trade”. Notwithstanding the loss in customs revenue to

the fiscus, or the losses to formerly protected industries, the formulae in their textbook

do not even contemplate that the measure might be negative.

Even Paul Krugman, a famed economist not known for his strong free-market

views, once said: “The appreciation that international trade benefits a country whether

it is ‘fair’ or not has been one of the touchstones of professionalism in economics.”

The Forum for Research in Empirical International Trade published a paper

in September 2010 that examined the effects of 283 trade agreements. “Free trade

agreements lead to a rise in bilateral trade even if the signatories include developing

countries,” according to the United States-based research organisation’s study.

Even more notably, the percentage increase in bilateral trade is higher for

South-South agreements, that is, among developing countries—than for North-South

agreements—that is, between rich and poor countries, wrote the authors, Alberto

Behar and Laia Cirera Crivillé, economists at Oxford University and Universitat Pompeu

Fabra, respectively.

South-South trade: going up

13% 13% 14% 14%16% 17%

18% 19% 20%

40% 41%

43% 44%46% 46% 47%

49%51%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20100

5

10

15

20

25

30

35

40

45

50

55

South-South exports as % of world exports

South-South exports as % of South exports

%

23%

54%

21%

53%

Source: UN Conference on Trade and Development, 2012



Patrick Barron, in an article penned for the economics journal Mises Daily

on July 31st 2012, went even further. He argued that regulatory and monetary

interventions harm only those who impose them. He provided a simple example to

illustrate this idea. If a country imposes a trade tariff against a foreign competitor, or

worse, a prohibition on trade, such as one might do against Chinese textiles or Iranian

oil, who is really harmed?

No seller of merchandise has an inherent right to trade with anyone else, just

as your local grocer cannot compel you to purchase his wares. If you prohibit yourself

from dealing with that seller, you either feel no effect (if you would not have traded

with him anyway) or you are forced to go further and pay more. Therefore, the effects

of self-imposed trade restrictions against your trading partner can only harm you, Mr

Barron argued.

Refusing to trade with the corner grocer may benefit the supermarket further

down the street. The supermarket may

favour regulatory intervention that certifies

the grocer’s wares as somehow inferior,

more expensive, or even illegal, to protect

its business from competition.

Such protection, however, always

hurts the consumer. Producers are nothing

more than a special-interest lobby seeking

preferential legal treatment—tariffs on

competing products or bans on imports—

to help themselves overcome competitive

hurdles that would encourage customers to buy elsewhere, if they were left free to

choose.

“A just economic policy for a free and prosperous nation would be based on

the twin pillars of unilateral free trade and non-intervention into its own markets,” Mr

Barron concluded.

This notion is not new. As long ago as 1981, Paul Wonnacott and Ronald

Wonnacott, of the Universities of Maryland and Western Ontario, respectively, wrote

a paper pondering what curious conditions might motivate countries to conclude such

bilateral tariff reduction agreements, with all their drawbacks, when most of the benefits

are available to each country by unilateral action.

The theory may be sound, but does the notion that unilateral trade barrier

reduction can earn developing countries most of the benefits of trade deals with rich

countries hold up in practice? There is an easy way to check: if South-South trade is

significant by volume, and tariffs are higher in developing countries than in the rich

world, the conclusion follows.

“A whopping 42% of all trade guarantees provided by the [World Bank’s

trade finance programme] have so far been for projects between developing countries.

It’s a sign of a gigantic trend,” observed Frank Brandmaier in an article for Global

“A just economic policy for a free and prosperous nation would be based on the twin pillars of unilateral free trade and non-intervention into its own markets.”



Policy Forum, a non-profit policy watchdog. “Rising economic powers like China, India

and Brazil, but also smaller players like Mali or Vietnam, increasingly rely on each

other in terms of trade and investment, and their ties are fast-expanding. The share

of developing countries’ goods and services destined for other developing nations—

known as ‘South-South’ trade—increased from 29% in 1990 to almost half in 2008,

according to the World Trade Organisation.”

Meanwhile, import tariffs among developing nations, or between rich and

poor countries, often remain much higher than those between developed countries.

This means that a disproportionate share of the tariff burden falls on consumers and

importing manufacturers in the poor world, even as South-South trade grows.

It is almost impossible to attach a specific number to it, but developing country

tariffs are typically much higher than those in developed economies. As a result, some

economists have estimated that by dismantling trade barriers unilaterally, most of the

benefit of trade liberalisation could be obtained from the growing volume of trade

between developing countries.

For example, the “Cairns group” is a coterie of mostly developing countries at

the Doha negotiations that do not subsidise their agricultural exports. It cites a World

Bank study which looked at developing countries that sizeably increased their ratio of

Africa’s top and bottom five countries by average import tariffs compared to other regions, %

21.019.9

17.8 17.8 17.817.718.2

13.5

16.6

Djibouti

Sudan

Cameroon

Central A

frican Republic

Chad

Botswana

Seychelles

Lesotho

Angola

Mauritius

BrazilRussi

aIndia

China

South Africa

European Union

United States

0

5

10

15

20

25

7.7 7.6 7.6 7.3

1.4

7.6

1.4

13.7

10.29.49.5

12.6

9.6

7.77.2

4.6

5.95.3

3.52.8

2.1

%

Simple average most-favoured nation applied duties, 2011

Trade weighted average, latest available year (2010/2009)

N/A

N/A

N/A

N/A

Sou rce: WTO, 2012Simple average most-favoured nation applied duties exclude preferential tariffs or tariffs charged inside quotas. In calculating weighted average tariffs, more weight is given to tariffs on products with larger import flows.



trade to GDP and significantly reduced their import tariffs: they grew more than three-

and-a-half times faster than those developing economies that did not.

One of the reasons for the failure of major global trade negotiations is that they

do not lead to free trade agreements. They consist of tens of thousands of pages of

regulations and reciprocal tariff agreements. A true free trade agreement would fit on

a postcard, as Robert P. Murphy, an economics teacher at Hillsdale College in Michigan

in the US, once pointed out.

In reality, the complexities of trade treaties mean that they often fail, and even

when they do not, under-resourced countries—typically developing ones—are at a

disadvantage.

In light of the obvious failures of global trade negotiations, which remain

stubbornly deadlocked and incomprehensibly complex, perhaps it is time for African

nations to take a different tack: begin acting unilaterally, either as South-South trading

blocs, or as individual countries; and dismantle subsidies, tariffs and customs regulations

that pose barriers to international trade.

First-movers will be able to take the moral high ground the next time they

meet European, Japanese or American trade ministers to demand an end to the

unconscionable protection of rich-world farmers and factory owners. But much more

importantly, a great deal of the potential gain from trade liberalisation does not depend

on the agreement of the rich world. For developing countries to help each other develop

is, indisputably, a worthy policy.

Case in point: tariff reduction and export trade growth in Ghana, 1981–2007

1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 0

5

10

15

20

25

30

35

40

45

50

0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

Average applied tariff rate (%)

Exports of goods and services (% of GDP)

Merchandise exports (current US$, billions)

% US$

Sources: World Bank; WTO; UNAfter liberalising in the 1980s and taking advantage of favourable terms of trade, close to 30% of Ghana’s GDP growth came from exports. Building on this foundation, the dominant contributors to rapid GDP growth in recent years are government consumption and investments.


Economic freedom trumps political freedom

A conversation with Ivo Vegter

Ivo Vegter was a finalist for the 2011 Bastiat Prize for Journalism, awarded by the

International Policy Network, a non-governmental charity committed to eliminating

barriers to enterprise and trade. The prize recognises writing that explains, promotes

and defends the principles of a free society. It celebrates journalists whose writing

emulates the great 19th century French classical liberal philosopher and politician,

Frédéric Bastiat. Researchers at Good Governance Africa decided to challenge Mr

Vegter’s free market faith.

What countries have unilaterally opened their markets to trade, and what were the

results?

The classic case is the unilateral repeal of Britain’s Corn Laws in 1846 by Sir Robert Peel,

when efforts to extract reciprocal agreements from continental trading partners failed.

Besides heralding an unprecedented rise in economic growth and material prosperity,

it earned Britain world leadership in finance, insurance and shipping, which had all

suffered at the hands of a law that protected only the interests of wealthy, politically-

connected landowners. Moreover, Britain’s unilateral action prompted the spread of

trade liberalisation throughout much of Europe.

A more recent case is that of Chile between 1974 and 1990, which demonstrates

the economic benefits of unilateral trade liberalisation. Sebastian Edwards and Daniel

Lederman of the National Bureau of Economic Research in the United States provide

a good overview. Interest rates declined. The currency at first fluctuated but soon

stabilised in a gradually strengthening curve. Industrial exports rose while raw-material

exports fell in almost perfect inverse correlation. GDP growth was between 4% and 8%

for most years other than the 1982–83 recession, compared to minus 6.2% in 1974–

75. While unemployment at first rose in tandem with trade liberalisation because of

Free trade…cuts the cost of living Free trade gives people access to cheaper goods produced outside

their countries, making their money go further.

stimulates economic growth

Economists estimate that cutting trade barriers in agriculture, manu-facturing and services by one third would boost the world economy by $613 billion.

raises incomes Increased trade allows people to maximise their productive potential and as economic growth rises, so do incomes.

promotes competition and innovation

Tariff reduction and the removal of non-tariff barriers in the 1980s and 1990s allowed East Asian countries to significantly increase their comparative advantage in technological products, which went from 47% of total exports in 1987–1999 to 71% in 2004–2006.

gives consumers more choice

A wider choice is not only about importing final products, but also applies to imports of materials and equipment for more efficient local production.

Sources: OECD, 2008; www.wto.org; www.heritage.org, accessed January 10th 2013



sectoral disruption, Chile ended this period with an unemployment rate of 5.3%, down

from 13.5% in 1974.

How would unilateral trade liberalisation increase trade among developing countries?

Is it not likely that consumers would prefer to buy better and cheaper products from

developed countries, which are at a comparative advantage?

I’m far from convinced developed countries are capable of producing better and cheaper

products than developing countries. The geographic constraints on many goods and

services are lower than in the past but not negligible: witness the success of down-

market shops in Africa selling inexpensive manufactures made in the developing world.

The Chinese are strong players in this sector, but so are other fast-growing developing

countries. Besides raw-material exports and the potential for industrial growth if input

costs are reduced, there are already many inexpensive goods manufactured throughout

the developing world. The rich world would shun many of these inexpensive products.

Even when these goods do not meet unique needs and could in principle be displaced

by rich-world imports, they often are not, because of a combination of adequate quality

and low price. Comparative advantage for the developed world exists, but it is far from

universal.

Unilateral trade liberalisation would remove the bargaining chip of access to markets

that could elicit reciprocal liberalisation. Would this remove the potential for greater

export-led growth?

Yes, provided that this potential exists in practice, which I do not believe it does.

Tariffs and subsidies in the developed world are typically much lower than those in

the developing world. The ability to import less expensive raw materials for use by a

nascent industrial sector would boost the cost competitiveness of both domestic sales

and exports.

The political reality is demonstrated by the failed Doha trade talks. Develop-

ing nations have no reason to believe that the developed world will be able to resist

domestic lobbies—especially agriculture—without sparking riots in the future. If

voluntary reciprocity does not materialise, there is a strong argument for taking the

moral high ground and shaming the rich world into opening the markets they now

protect. It is useless to retain a bargaining chip for something the other side will not

bargain for.

Could opening markets to cheap imports wipe out Africa’s local and sometimes infant

industries? What is more important, protecting jobs or securing cheaper goods?

Leaving aside the question of comparative advantage in the developed world, which

I addressed above, the infant industry argument is not borne out by theory or data.

Correlation is easy to find, but causation much harder to show.

There is no reason to believe that governments are better at predicting success

than markets. They would need to know which industries could realistically benefit

from protection, how long it should last, and its magnitude. Lacking consistent answers



to such questions, protection is a practical gamble (if not a patronage racket), rather

than a theoretically-sound policy.

Most importantly, it is very difficult to wean industries off protection, once

granted. Witness the motor assembly industry in South Africa, which was granted

a seven-year protection scheme on “infant industry” grounds in 1995, only to have

benefits extended to 2020, a quarter-century on. Ironically, the industry oversaw a 25%

reduction in employment despite the protection, which neatly undermines the political

motive for granting protection in the first place. (According to Frank Flatters, who

conducted a detailed and largely critical study of post-1995 motor industry protection,

measures to protect the industry prior to that date were aimed at import substitution

rather than exports, and produced a wide range of low-scale, high-cost products.)

It is not clear that protectionist policies have helped industrial nations. Japan,

for example, did protect its heavy industries and experienced growth in this sector.

However, it experienced much faster growth in a sector that it did not protect, and in

which it ultimately built a far greater comparative advantage: electronics. Ultimately, it

can thank unprotected industries for most of its economic development.

The development of Germany and the US under protectionist conditions, by

comparison with Britain, is also sometimes cited as evidence for this claim. However,

Germany and the US had higher labour productivity, adopted mass-production

techniques more rapidly, and their labour moved quickly from agriculture to industry.

Though Britain developed its industries before the US and Germany, this was no longer

a comparative advantage by the time the latter two began their rise.

Industrialised countries that developed behind protective tariffs would have

grown even faster if they had not wastefully diverted resources to protectionism, argues

Stephen Broadberry in a December 1993 paper published in The Journal of Economic

History.

I do not believe that people living in developing countries are less capable than

anyone else. However, they may labour under other geographical, climatic, historical

or political constraints. Even if there were cases where the comparative advantage of a

country is low across all sectors, access to cheaper goods would still benefit those who

choose not to migrate. And this would be true even in the worst-case scenario in which

the economy of the holdouts (those who chose not to migrate) is limited to poor and

rustic agrarianism.

If the benefits of South-South trade outweigh the benefits of South-North trade, would

it make sense to reduce trade barriers only between countries at a similar level of

development?

That would indeed be a good start, and in any political negotiations on the subject of

trade, this might be a compromise worth considering.

However, Jagdish Bhagwati, the editor of the 2002 book called “Going

Alone: The Case for Relaxed Reciprocity in Freeing Trade”, argued that “there is an

economic case for reciprocity in freeing trade.” But if other countries do not follow “it



makes sense to go with unilateral

freeing of trade,” he said. “Such

unilateral freeing of trade can,

and occasionally will, trigger a

reciprocal response, implying

what I call sequential reciprocity.”

This latter case is what I

mean when I refer to taking the

moral high ground and shaming

the rich world into dropping their

remaining trade barriers.

So even in North-South

trade, unilateral action would

produce some level of gain, which would be sacrificed if the developing countries

waited for simultaneous reciprocity from the rich world.

If developing nations adopt rapid unilateral trade liberalisation, they risk recession,

steep declines in output, and increases in unemployment as experienced by other

countries that followed this “shock therapy” approach (e.g. Eastern Europe). Would not

a gradual approach (including reciprocal liberalisation) better protect industries and

jobs and ensure development?

This is a fair fear. There will undoubtedly be a degree of adjustment needed and such

adjustment can be traumatic.

Some workers in previously-protected industries will have to improve their

productivity or find other work for which they are not at present qualified. This will hurt

some. The end of their protection, however, will benefit far more people and restore an

unjust system to one that treats everyone equally. This will, of course, be cold comfort

to the affected workers.

The business sector should therefore realise the need for retraining displaced

workers and invest in the requisite programmes to supply this need, if only to ensure the

competence of their own future labour force. Greater corporate involvement is needed

in education, including a return to trade and artisan apprenticeships, particularly in the

context of failing government schooling.

The political consequences of shock liberalisation may be politically poisonous as people

fight for their jobs despite lower prices for consumables. A possible reversion to a more

closed system could not only lead to political instability but also investment forfeits

from those who had invested under the assumption that trade liberalisation would be

sustained. Under these circumstances, is gradualism not a superior strategy?

I am not convinced that as a matter of policy the fight by a few for their (unfairly

derived) livelihood ought to outweigh the broader, though less intense fight for lower

prices. A shrewd political leader ought to be able to make the case that in public policy,

special interests should not trump the general interest, no matter how loudly the special

Regional breakdown: % of South-South exports

1995 2000 2005 2010

From Africa To Africa 63% 35% 31% 29%

To Latin America 6% 12% 13% 9%

To Asia 31% 53% 56% 62%

From Latin America To Africa 5% 4% 6% 5%


To Asia 24% 20% 30% 42%

From Asia To Africa 4% 4% 5% 6%


To Asia 91% 90% 91% 87%

Source: UN Conference on Trade and Development, 2012



interests complain, or how sympathetic one might be to the particular special interest

in question.

Admittedly, this is exactly the problem facing France and its farmers, so moral

idealism is trumped by hard political reality even in developed countries. However, as

in the cases cited above, trade liberalisation certainly is possible, even if undertaken

without reciprocity, and even against the opposition of those who stand to lose their

unjust protection. The political coalition-building and compensation programmes that

Chile used to achieve liberalisation, as

documented in the Edwards and Lederman

paper I cited above, make a good case

study.

In under-developed countries the political

risk of free trade is high due to an inelastic

labour market that has not developed a

diverse labour profile. In such situations,

a “strongman” (such as presidents Paul

Kagame of Rwanda or Uganda’s Yoweri

Museveni) may be the only system of

government that can withstand the initial

economic shocks. What takes priority: free

trade or free people?

This is a fascinating question that really

deserves a far longer answer. Over time,

and noting that I learnt a deep appreciation

for political freedom having witnessed the liberation of South Africa as a student, I have

come to the conclusion that if given a choice between economic freedom—the right to

work, produce, and trade without undue taxation or iniquitous licences—and political

freedom—the right to elect those who would be constitutionally bound to protect life

and property—I would choose economic freedom.

Most of the liberties that make a people free are economic in nature. Political

freedoms are never ideal and absolute. A democracy, for example, sounds like freedom,

unless you are part of a culturally distinct but voiceless minority. The tyranny of the

majority can be just as oppressive as the tyranny of a strongman.

Many advocates of free markets, in the absence of a sound constitution

guaranteeing the economic liberties they seek, have advanced the notion that a so-called

“libertarian dictator” might be a better political alternative to democracy. Chile, again,

is a case in point: it threatened to become a first-world country thanks to economic

liberalisation, even under a harsh military dictatorship. Although it is arguable that

discontent with temporary disruption is easier to suppress with a jackboot, I would

not go as far as to say this is a preferable scenario. I would, however, concede that

economic freedom trumps political freedom, in the unfortunate case where a choice

must be made.

If given a choice between economic freedom—the

right to work, produce, and trade without undue taxation

or iniquitous licences—and political freedom—the right

to elect those who would be constitutionally bound to protect life and property—I

would choose economic freedom.


Taiwan is an also-ran in the derby for Africa

The other China in Africaby Richard Poplak

In geopolitics, as in a Saturday at the track, sometimes you back the wrong

horse. Consider the case of the Republic of China (ROC aka Taiwan) and the Republic

of South Africa, circa the 1970s and ‘80s. Those were the good old days, when the

apartheid regime, the pre-democratic Taiwanese government and Israel formed a cosy

nuclear troika, trading technology, know-how and materiel.

In 1980 Taiwan agreed to send South Africa over 4,000 tonnes of uranium

for a weapons program designed to make the Cubans in Angola think twice. By 1987,

Taiwan had over $100m staked in the South African economy. Trade between the two

nations totalled $997m—a 67% jump on the previous year. Taipei, Taiwan’s capital,

pumped cash into private ventures in South Africa’s Bantustans in the late 80s, a move

that likely would have made even Margaret Thatcher blanche.

When apartheid teetered and fell, there was no possible way for this relationship

to end well. And yet, it took several years for the affair to sour properly. Even then,

it could have been worse. When the African National Congress (ANC) won the first

democratic elections in 1994, the party was buoyed by wave after wave of lofty human

rights rhetoric, and a constitution that brought tears to the eyes of even the toughest

apparatchik.

South Africa was reluctant to drop trading partners given the state of its

finances. The move from the ROC, itself a nascent, noisy democracy in 1994, to the

People’s Republic of China (PRC), a country that routinely treated its citizens in much

the same way that the previous South African regime had treated the black majority,

was never going to be an easy decision. Taiwan, reading the tea leaves, made $15m in

donations to the ANC’s election coffers in 1994, and dropped millions more on wining

and dining comrades in Taipei and elsewhere on the island.

For those African countries that had yet to recognise the PRC, the looming 1997

changeover in Hong Kong (from nominally British to nominally Chinese) proved to be

the jumping-off point. Beijing made subtle noises, implying that this ancient trading

route into the mainland would no longer be open to countries that did not have official

ties with the PRC. The South African Communist Party and other far-left cohorts in

the ANC alliance were only too happy to join forces with their ideological brothers. In

December 1996 South Africa announced that it would break off ties with Taiwan. By

1998, the split was official—Taiwan had recalled its ambassador and cancelled a raft of

aid programmes. It was all very sad.

But it was exactly what Beijing wanted. Glancing at an Excel spreadsheet, it can

hardly be said that South Africa, or Africa at large, missed the Taiwanese, considering

that trade with the mainland hit the stratosphere as the zeroes trucked along. (Taking

Africa as a whole, it sat at over $200 billion by the end of 2012, according to Standard

The other China in Africa


Bank.) These days, only 23 states officially recognise the ROC, including the likes of

Paraguay, Saint Lucia, Nauru and, least notably, the Holy See.

In 1998 along with losing South Africa, the island lost Guinea-Bissau and the

Central African Republic, followed by Liberia in 2003, Senegal in 2005, Chad in 2006

and Malawi in 2008.

The four African countries that

still maintain embassies are not exactly

heavy hitters: Burkina Faso, the Gambia,

São Tomé and Príncipe, and Swaziland.

The four are strategically irrelevant (apart

from São Tomé’s oil deposits) and confirm

Taiwan’s political sidelining.

While the continent’s giants, South

Africa and Nigeria, keep trade missions

in Taipei, 45 African nations have no

diplomatic ties whatsoever. And again, it was not for want of trying: Taipei extended

Chad a $125m loan in 1997. São Tomé, on the other hand, was secured with a $30m

loan in 1992.

So, what are African countries missing, if anything at all? Chequebook

diplomacy, for one thing. And plenty else besides, according to the naturally bullish

Africa Taiwan Economic Forum (ATEF). The six African countries formally trading with

Taiwan share a population of roughly 230m and private Taiwanese companies trade

Taiwan and China’s trade with Africa

19941995

19961997

19981999

20002001

20022003

20042005

20062007

20082009

20102011

0

20

40

60

80

100

120

140

Taiwan

China

$bn

Sources: Taiwan Bureau of Foreign Trade; National Bureau of Statistics of China; IMF

The four African countries that still maintain embassies are not

exactly heavy hitters: Burkina Faso, the Gambia, São Tomé and Príncipe, and Swaziland.



with 53 African countries. “Taiwan’s trade and investment relationship with Africa

is minute when compared with other regions in the world,” states the ATEF’s media

release. (Taiwan’s trade with East Asia and the Pacific in 2011, for instance, was $334

billion compared to only $14.7 billion with Africa, according to Taiwan’s Bureau of

Foreign Trade.)

The forum’s job is to correct that imbalance by acting as the de facto Taiwanese

liaison between African nations and Taipei. “The Africa Taiwan Economic Forum is held

jointly by the four embassies and two trade offices of the African countries represented

in Taiwan and the Ministry of Foreign Affairs of ROC,” according to the release.

If the ATEF’s stated focus is anything to go by, Taiwan views Africa as a potential

manufacturing centre—a place where Taiwanese machinery and turn-key plants can

be installed and maintained, employing the cheap labour, now dwindling at home, that

powered the Asian tigers into middle-income status.

Indeed, Taiwan’s modern history suggests that an authoritarian government

can successfully and rapidly industrialise—

Taiwan developed in much the same

way China did, only 30 years earlier.

(Substitute the brutal authoritarianism of

the anti-communist Kuomintang for the

communists.) Groups like ATEF and the

Taiwan African Business Association (TABA)

have traditionally expressed interest in

Africa as a place to sell heavy equipment

and establish factories. In 2007, over 80

Taiwanese companies signed on to TABA.

Like Chinese policymakers on the

mainland, Taiwanese officials tend not to see Africa as a basket case, but as a region of

almost unlimited potential. “Taiwan companies, however, without official backing like

counterparts in China, have to adopt another strategy to tap the African market,” said

Eden Chou, TABA founder and chairman, in 2008.

“[In 2007] TABA successfully led three Taiwan trade delegations to different

African nations, achieving initial success to build business ties,” Mr Chou said. “But I

have been telling Taiwan firms eagerly interested in Africa that the most effective way

for Taiwan players is to find suitable partners there, and then educate them in business

concepts. In short, we should look at Africa with the view to cultivate the potential

market, seeking to achieve mutual success rather than only selling products for short-

term business relationships.”

In other words: the long-term trading play. This is more easily said than done.

Even in a place like the Gambia, which one would imagine is not the most highly sought-

after dance partner, the ROC has been flamboyant in its largesse.

The Gambia ditched the PRC in favour of the ROC in 1995. In the 20 years that

the PRC had relations with the West African nation of 1.8m, they built the Independence

The Gambia’s President Yahweh Jammeh is a man of capricious tendencies. In swinging away from the PRC, he was able to wrangle considerable concessions from Taipei.



Stadium, the so-called Friendship Hostel and several health centres. But the Gambia’s

President Yahweh Jammeh is a man of capricious tendencies. In swinging away from

the PRC, he was able to wrangle considerable concessions from Taipei.

“The two countries will continue to work together in strengthening the

cooperation between them,” said Dr Njogu Bah, the Gambia’s minister for presidential

affairs, in October 2012. This “strengthening” was surely enhanced by the $300,000

cheque that Taiwan gave to Dr Bah for development purposes—which, it should be

noted, pales beside the 16m euros Britain and the European Union donate every year.

What Mr Jammeh has perfected is a game the Caribbean islands have been playing for

almost 15 years—exploiting Taiwan’s need for UN Security Council votes and regional

bases against the looming diplomatic bulldozer in Beijing.

The last trade data available for the Gambia and the PRC dates back to

2001, before the massive rise in Sino-African economic cooperation properly began,

according to China’s Ministry of Foreign Affairs. “Major exports from China to Gambia

include textiles, Chinese native produce and animal by-products, light industrial and

hardware products,” the ministry states,

“with textiles and tea accounting for about

90% of the total export volume. In 2001,

China’s exports to the Gambia totalled

$72.5m. China had no import [sic] from

Gambia.” The Gambia, it would seem, is

hardly a trading prize.

The same cannot be said for Nigeria

or other sizeable African countries. In this,

it helps to acknowledge the softening of

positions between the PRC and the ROC when it comes to trade expansion, especially

in the developing world. There is considerable fluidity between the mainland and

Taipei, despite varying degrees of sabre rattling. And here’s why: Taiwan is ranked

13th in the 2010–2011 Global Competitiveness Report of the World Economic Forum

(WEF). Sub-categories of the WEF report show Taiwan at 7th place in innovation,

1st in world patent productivity, 3rd in cluster development, 7th in government

procurement of high-tech products, and 8th in abundant supply of scientists and

engineers. Also, in 2010 Business Environment Risk Intelligence, a US risk analysis

company, ranked Taiwan 4th in “profit opportunity recommendation”, out of

roughly 80 countries.

Companies from the mainland are only too happy to provide the raw materials

and labour to power Taiwan’s burgeoning knowledge economy. According to a

government-backed Taiwan trade institution, “the signing of the Economic Co-

operation Framework Agreement between Taiwan and China last June has paved the

way for more trade pacts between Taiwan and other economies in the years to come.

Preferential trade agreements will help Taiwan link up with the whole Asia-Pacific

region, thus strengthening its position as a global distribution hub.”

Companies from the mainland are only too happy to provide the raw materials and labour

to power Taiwan’s burgeoning knowledge economy.



Taiwan has been stumping all across Africa, including Mozambique, Cameroon

and Nigeria, to establish relationships—usually taking a business-to-business stance.

Even in South Africa—or, rather, especially in South Africa—while business is not

exactly booming, the relationship does represent a diversified trading to-and-fro.

According to South Africa’s Department of International Relations and Co-operation,

South Africa’s main exports to Taiwan include iron ore, steel, machinery, aluminium,

motor vehicles and parts, coal, wood and wood pulp, copper, precious stones, metal and

gold, granite, organic chemicals, wool, tobacco, corn starch, preserved food and fruit

juices. Taiwan’s main exports to South Africa include computer machinery, bicycles,

motorbike and automobile parts, plastic resin, yarn and fabric, iron/steel products, toys,

sports equipment, hand tools, rubber and optical goods.

That said, the numbers are hardly anything to write home about. According

to Taiwan’s Bureau of Foreign Trade, in 2011 Taiwan conducted the most business

with Angola, China’s top oil supplier in Africa, which ranked as Taiwan’s 20th

highest trade partner ($6.1 billion or 0.97% of Taiwan’s total trade) and came above

South Africa, which was ranked 29th ($3 billion or 0.39%). Swaziland was the highest-

ranking Taiwan-recognising state with a total trade volume of $17.7m (0.003% of

total trade). Overall trade with Taiwan’s African allies amounted to just over $34m

in 2011.

But we live and work in a global economy, and the ROC and PRC are

increasingly tethered economically. Taiwan and Africa have not yet properly said their

goodbyes, and are unlikely ever to do so.

Taiwan or lost?

0

1

2

3

4

5

Trade with Africa as a percentage of total Taiwanese trade

Trade with Africa as a percentage of total Chinese Trade

19941995

19961997

19981999

20002001

20022003

20042005

20062007

20082009

20102011

%

Sources: Taiwan Bureau of Foreign Trade; National Bureau of Statistics of China; IMF


Africa’s growth and foreign investment resist the world recession

Diamonds are foreverby Christopher Pala

Sub-Saharan Africa has weathered the current global recession. Its growth

remains resilient with increasingly diversified flows of foreign investment, according to

economists and academics.

“The recent crisis that impacted Europe and the United States so hard has

largely spared Africa,” says Punam Chuhan-Pole, lead economist for Africa at the World

Bank. “We expect the growth rate for Africa excluding South Africa will be 6% in

2012,” she adds. “With South Africa, that would be only 4.7%.”

Foreign direct investment (FDI) in Africa soared from $9.7 billion in 2000 to

$57.8 billion in 2008 before stabilising at an average of $43 billion in 2010 and 2011,

according to the United Nations Conference on Trade and Development. Though still a

small fraction of the $384 billion invested in Asia and the $187 billion going into Latin

America, Ernst & Young, a business service group, reports that the number of FDI projects

in Africa rose 27% in 2011, while FDI created 162,173 jobs, 16.3% more than in 2010.

The top FDI source in 2011 was the United States with 124 projects, followed

by France and Britain, says Ernst & Young’s Michael Lalor. Most of these projects were

Into Africa: top 20 investors

United S

tate

sFr

ance

United K

ingd

om

India

United A

rab E

mira

tes

South

Afri

caSp

ain

Germ

any

Canad

aPo

rtuga

l

China

incl.

Hong

Kong

Switz

erla

ndJa

panIta

lyAust

ralia

Keny

aNig

eria

Nether

lands

Saudi A

rabia

Russia

0

2

4

6

8

10

12

14

16

%

Sou rce: Ernst & Young, 2012Countries ranked by cumulative contribution to new FDI projects (2003–2011)


Diamonds are forever

in South Africa, Nigeria and Ghana and focused on information technology, business

services, communications and financial services, though US capital investments were

higher for oil development projects in Angola and Nigeria. (In comparison, China

contributed only 3.4% of all new projects between 2003 and 2011.)

Peter Thoms of Africa Capital Group, a California-based investment firm,

believes this is just the beginning. “People are starting to understand that African

growth is not a blip,” he says. “It’s one of the few places in the world where markets

aren’t saturated and you can still get in on the ground floor.”

Hillary Clinton, America’s secretary of state, visited Africa in August 2012 with

a retinue of executives from giant American corporations. “The days of having outsiders

come and extract the wealth of Africa for themselves, leaving nothing or very little

behind, should be over in the 21st century,” she said in a speech in Dakar, Senegal.

The remark was widely interpreted as a jab at Chinese investors, mostly state-owned

concerns which bring their own workforces and remove mostly raw materials.

A striking development in the last few years is the emergence of new investors

in Africa. Other new players come from the ranks of developing nations. After the

US, Britain and France, India is fourth, investing in car-making, financial services and

software in such countries as Kenya, Nigeria, South Africa and Tanzania, Mr Lalor says.

The United Arab Emirates is fifth, bankrolling real estate, financial services, tourism and

transportation, mostly in North Africa and Ethiopia. South Africa is the continent’s sixth

largest investor, with interests in financial services, communications, food and mining

in Ghana, Mozambique, Namibia, Nigeria and Zambia, according to Ernst & Young.

China overtook the United States in 2009 as Africa’s single largest trading

partner. “While China is also investing substantial amounts into infrastructure (generally

through government-to-government agreements in return for resource concessions),

private investment in greenfield or expansion projects is still relatively low, and ranks

11th,” Mr Lalor explains.

Why is Africa booming and is this expansion, the longest since the 1970s,

sustainable? These were major topics at the African Studies Association meeting of 1,300

academics in Philadelphia in December 2012, reports Peter Lewis, director of African

Studies at Johns Hopkins University’s Paul Nitze School of Advanced International

Studies.

“Some said it was due to factors like high commodity prices that are external

and reversible, and that it was driven by outside investments that could also dry up,”

he says. “But others, including myself, see plenty of evidence that it’s sustainable and it

has a big indigenous component, like the youth bulge in the population structure that’s

producing a vibrant new class of African entrepreneurs.”

Other factors commonly cited are debt settlements, the strengthening of

democratic institutions and a more business-friendly environment. A series of debt

resolutions, involving rescheduling and forgiveness, took place in 2006 and permitted

African countries to borrow on better terms, Mr Lewis says.

Some countries improved their rating in Transparency International’s Corrup-

Diamonds are forever


tion Perceptions Index. Between 2009 and 2012, Rwanda rose from 89th least corrupt

of 180 countries surveyed to 50th. Lesotho jumped from 37th to 30th place and Liberia

moved from 95th to 75th.

“Fiscal and monetary policies have improved, and so has the way many

countries manage their trade, their financial sector and their business regulations,”

the World Bank’s Ms Chuhan-Pole says. “All these things make their economies more

efficient.” But there has been less progress on good governance and on social equity,

notably property rights, accountability, transparency and corruption. Nigeria’s oil

income is around $60 billion a year, and

where it goes is still opaque, she adds.

“Most of the investment flow is still

going to the major extractors, like Nigeria

and Zambia,” Ms Chuhan-Pole points

out. “But that’s not necessarily benefiting

many people because most resource-

rich countries are in the bottom fifth of

the human development index,” which

combines purchasing power with education and life expectancy. “While it’s true that

many African resource-rich countries are middle income, with GDP per capita of over

$1,000, most of their people still live in great poverty,” she says.

On the other hand, populations in Ethiopia, Ghana and Rwanda are seeing

more progress than those in resource-rich countries and some of their economies are

also diversifying faster. For the most part, this is a result of steady economic growth, a

deepening of democracy, stronger leadership and falling poverty rates. “Unfortunately,

diversification has been slow and a third of sub-Saharan Africa still relies on one

commodity for more than half its exports,” she says.

Foreign direct investment contributes to a country’s growth and is a measure of

foreign confidence. “FDI uses financing from the investing country to boost productive

capacity in the recipient country, and that’s very good,” observes Montfort Mlachila,

an economist at the International Monetary Fund. Investors from developing countries

are playing a particularly positive role. “Unlike most American, British or French

companies, these often take responsibility for building infrastructure. Brazil’s Vale, for

instance, is building a railway in Mozambique’s Tete province in conjunction with a

coal-mining project.”

However, he cautions: “Some recipient countries give so many tax breaks to

investors that they receive fewer benefits than they could.” The Zambian government,

for instance, benefited less than it could have from a big increase in copper prices, in

part due to generous write-off allowances.

Whatever the mix of investors, Africa is facing its brightest prospects in decades.

The continent is home to 10% of global oil reserves, 40% of gold, a third of cobalt and

many other base metals. “With China and India growing the way they are,” says Ms

Chuhan-Pole, “demand for these resources is not likely to drop.”

There has been less progress on good governance and on social equity, notably

property rights, accountability, transparency and corruption.