Trade, Aid, Subsidies and Trade, Aid, Subsidies and Development in AfricaDevelopment in Africa

By Thompson AyodeleBy Thompson AyodeleInstitute of Public Policy Analysis Institute of Public Policy Analysis

NigeriaNigeriawww.ippanigeria.orgwww.ippanigeria.orginfo@ippanigeria.orginfo@ippanigeria.org

Development in AfricaDevelopment in Africa

What makes a country poor?What makes a country poor? How does a country move from poverty to How does a country move from poverty to

prosperity?prosperity? Is prosperity a miracle?Is prosperity a miracle? Does foreign aid work?Does foreign aid work? Does trade work?Does trade work? Is aid more important than trade in achieving Is aid more important than trade in achieving

development and economic growth?development and economic growth?

Is aid free?Is aid free?

Rudolfo (1998) says: “Aid as a simple Rudolfo (1998) says: “Aid as a simple philanthropic does not exist, there is always philanthropic does not exist, there is always some some interestsinterests, although this does not seem , although this does not seem to be explicit.”to be explicit.”

The The interestsinterests could be either economic or could be either economic or political political

Political InterestsPolitical Interests Most of the French government aid was channeled Most of the French government aid was channeled

to Francophone African countries. to Francophone African countries. In 1990 alone, Francophone countries received 61 In 1990 alone, Francophone countries received 61

% of France’s total development assistance. % of France’s total development assistance. Britain’s aid policies are similar to that of France, Britain’s aid policies are similar to that of France,

focusing mainly on its Anglophone countries. focusing mainly on its Anglophone countries. Most of Belgium foreign aid is channeled to its Most of Belgium foreign aid is channeled to its

former colonies, Rwanda, Burundi and DRC. former colonies, Rwanda, Burundi and DRC. The primary motives for granting aid by former The primary motives for granting aid by former

colonial power are largely to influence the political colonial power are largely to influence the political and economic policies of their former colonies and and economic policies of their former colonies and to bring them in line with their own interests, and to bring them in line with their own interests, and not necessarily to assist them. not necessarily to assist them.

Economic InterestsEconomic Interests

In 1997, over 50% of the $26 billion in global In 1997, over 50% of the $26 billion in global overseas development assistance by the overseas development assistance by the E.U member states were tied to goods and E.U member states were tied to goods and services from donor companies services from donor companies

In 1996, more than 25% of aid from OECD In 1996, more than 25% of aid from OECD countries was given in form of Technical countries was given in form of Technical Cooperation/Assistance Cooperation/Assistance

Foreign Aid in AfricaForeign Aid in Africa Sub-Sahara Africa alone received total aid of Sub-Sahara Africa alone received total aid of

some $83 billion between 1980 and 1988some $83 billion between 1980 and 1988 Standard of living fell by 1.2% a year during this Standard of living fell by 1.2% a year during this

period period During the 1965 – 1984 period, 18 African During the 1965 – 1984 period, 18 African

countries had growth rates of less than 1% per countries had growth rates of less than 1% per annum. annum.

The worst performers were Benin, Burkina Faso, The worst performers were Benin, Burkina Faso, Chad, Ghana, Mozambique, Liberia, Somalia, Chad, Ghana, Mozambique, Liberia, Somalia, Sudan, Uganda and Zaire Sudan, Uganda and Zaire

Relief to Uganda and Mozambique was negligible, Relief to Uganda and Mozambique was negligible, reducing debt service from $166 million to $149 reducing debt service from $166 million to $149 million and $113million to $110 million million and $113million to $110 million respectively. respectively.

By 1998, Mozambique already with $6 billion debt By 1998, Mozambique already with $6 billion debt found itself repaying more than $100 million a year found itself repaying more than $100 million a year in debt service. in debt service.

The actual relief amounted to little more than $10 The actual relief amounted to little more than $10 million a year, leaving it to use 20% of its earnings million a year, leaving it to use 20% of its earnings into debt repayment. into debt repayment.

To partake of the “national cake” which in To partake of the “national cake” which in most cases is aid from the wealthy most cases is aid from the wealthy countries. African countries experienced:countries. African countries experienced:

Between 1981 and 1996, nearly half of the Between 1981 and 1996, nearly half of the countries in Africa experienced violent conflict countries in Africa experienced violent conflict between government and opposition groups. between government and opposition groups.

In 1999, an estimated 4 million people had lost In 1999, an estimated 4 million people had lost their lives as a direct result of political violence. their lives as a direct result of political violence. Another 3 million became refugees. Another 3 million became refugees.

During the 1980s, at least 92 successful or During the 1980s, at least 92 successful or unsuccessful military takeovers were recorded, unsuccessful military takeovers were recorded, affecting 29 African countries. Seven Africans affecting 29 African countries. Seven Africans heads of state lost their lives whilst in office in the heads of state lost their lives whilst in office in the 1980s and 1990s 1980s and 1990s

President Yoweri Museveni of Uganda President Yoweri Museveni of Uganda once said:once said:

"The biggest request we are making of "The biggest request we are making of Western countries is to open their Western countries is to open their

markets . . . Debt relief has saved us markets . . . Debt relief has saved us some money, but the real money will some money, but the real money will

come from trade. Give us the come from trade. Give us the opportunities, and we will competeopportunities, and we will compete."."

Percentage of Labour Force in Percentage of Labour Force in AgricultureAgriculture

Angola: Angola: 85%85% Burundi: Burundi: 93%93% Cameroon: Cameroon: 70%70% Eriteria: Eriteria: 80%80% Ethiopia: Ethiopia: 80%80% Gabon: Gabon: 60%60% Ghana: Ghana: 60%60% Guinea: Guinea: 80%80% Kenya: Kenya: 75%-80% 75%-80%

Lesotho: Lesotho: 86% 86% Liberia: Liberia: 70%70% Malawi: Malawi: 86%86% Namibia: Namibia: 47%47% Niger: Niger: 90% 90% Nigeria: Nigeria: 54%54% Rwanda: Rwanda: 90%90% Senegal: Senegal: 60% 60%

South Africa: South Africa: 30%30% Sudan:Sudan: 80% 80% Tanzania: Tanzania: 90%90% Togo: Togo: 65% 65% Uganda: Uganda: 82%82% Zambia: Zambia: 85%85% Zimbabawe: Zimbabawe: 66%66%

Between 60 % and 80% of the export of Between 60 % and 80% of the export of countries such as Benin, Burkina Faso, countries such as Benin, Burkina Faso, Burundi, Chad, Malawi, Mali, Rwanda, Burundi, Chad, Malawi, Mali, Rwanda, Sudan, Tanzania, Uganda and Zimbabwe Sudan, Tanzania, Uganda and Zimbabwe are affected by the domestic support are affected by the domestic support granted by WTO members granted by WTO members

Market Access: WTO Ministers’ Market Access: WTO Ministers’ PositionPosition

The Trade Ministers in Doha in 2001 The Trade Ministers in Doha in 2001 agreed to “substantial improvement in agreed to “substantial improvement in market access, reduction of with a view to market access, reduction of with a view to phasing out, all forms of export subsidies; phasing out, all forms of export subsidies; and substantial reductions in trade-distorting and substantial reductions in trade-distorting domestic support.” domestic support.”

Rich countries spend $1 billion a day to Rich countries spend $1 billion a day to support their farmers. support their farmers.

In 1997, support and protection to farmers in In 1997, support and protection to farmers in OECD countries was $280 billion. OECD countries was $280 billion.

In 2002, the same OECD countries In 2002, the same OECD countries transferred $318 billion in support and transferred $318 billion in support and protection to agriculture. protection to agriculture.

The E.U alone subsidies to its farmers is The E.U alone subsidies to its farmers is $86.6 billion annually.$86.6 billion annually.

Phasing out subsidies and protection in Phasing out subsidies and protection in high-income countries could attract new high-income countries could attract new investment and lead to increases in annual investment and lead to increases in annual income in developing countries up to $150 income in developing countries up to $150 billion and $400 billion. billion and $400 billion.

The U.S. and European subsidies drained The U.S. and European subsidies drained an additional 10% from little the income an additional 10% from little the income Malian cotton farmers managed to bring in Malian cotton farmers managed to bring in 2002. 2002.

West and Central Africa account for a 15% West and Central Africa account for a 15% share of world cotton exports; second after share of world cotton exports; second after the US. the US.

In 1999, cotton represented 43.9 % of In 1999, cotton represented 43.9 % of exported goods in Burkina Faso, 39.1% in exported goods in Burkina Faso, 39.1% in Benin, 32.2% in Chad, and 29.5% in Mali. Benin, 32.2% in Chad, and 29.5% in Mali.

According to the International Cotton According to the International Cotton Advisory Committee, the average price per Advisory Committee, the average price per pound of cotton was $0.92 cents, but pound of cotton was $0.92 cents, but subsidy represented $0.82 cents - subsidy represented $0.82 cents - amounting to 87 % of the international amounting to 87 % of the international market. market.

Direct support to 14 cotton producers rose Direct support to 14 cotton producers rose from $3.8 billion in 2000/01 to $5 billion in from $3.8 billion in 2000/01 to $5 billion in 2001/02. 2001/02.

When a farmer in the EU produces a ton of butter, When a farmer in the EU produces a ton of butter, under CAP farmers receive about $3,800. under CAP farmers receive about $3,800.

The wholesale price of a ton of butter in America is The wholesale price of a ton of butter in America is less than $1,400. less than $1,400.

CAP places a 153 percent tariff on foreign-CAP places a 153 percent tariff on foreign-produced butter produced butter

CAP tariffs of 140 percent keep foreign sugar out CAP tariffs of 140 percent keep foreign sugar out of the EU market of the EU market

That explains why European dairy production far That explains why European dairy production far outstrips European demand. outstrips European demand.

According to Institute of Economic Affairs, According to Institute of Economic Affairs, London, agriculture policies in the EU has London, agriculture policies in the EU has depressed milk products by more than 90 depressed milk products by more than 90 percentpercent

livestock by nearly 70 percentlivestock by nearly 70 percent meat by almost 60 percentmeat by almost 60 percent non-grain crops by 50 percent andnon-grain crops by 50 percent and grains by more than 40 percent. grains by more than 40 percent.