Trade An Engine of Growth for Africa

• Author: Robert Sharer
• Position: Chief of the Trade Policy Division in the IMF's Policy Development and Review Department

During the new round of trade talks, African countries should use their bargaining power to gain concessions in the areas of most interest to them-liberalization of world agricultural markets and increased access to industrial country markets. In exchange, they should further liberalize their own trade regimes.

Many sub-Saharan African countries have made substantial progress with economic reforms in the 1990s. They have reduced fiscal and current account deficits, lowered inflation, and embarked on market-oriented structural reforms, including trade liberalization. From 1992 to 1997, average growth in the region accelerated to 5 percent from 1 percent, and 32 of the 47 sub-Saharan economies grew by more than 3 percent a year. Real per capita GDP is rising after five consecutive years of decline. But to raise living standards and lift their populations out of poverty, African countries will need to grow even faster.

Empirical research has consistently shown close links between economic growth and export growth. Indeed, in recent history, no country with a closed economy and inward-looking policies has been able to achieve or sustain high growth rates. Empirical research also shows that economic growth is essential for the alleviation of poverty. Sub-Saharan Africa has lagged behind other developing regions in both export performance and economic growth over the past two decades. From 1975 to 1997, nominal exports and real GDP in sub-Saharan Africa grew annually by 4.7 percent and 2.2 percent, respectively, compared with 15.7 percent and 7.6 percent in six East Asian countries, and 9.6 percent and 3.0 percent in Latin America. Africa's share of world trade has fallen from about 4 percent in 1980 to less than 2 percent today.

A country's export performance is influenced by its natural endowments, by exogenous factors, and by its macroeconomic and structural policy environment. Strong export performance requires an appropriate macroeconomic incentive environment, complemented by structural reforms-including liberal trade policies-that enhance the supply response. Africa's export and growth performance has been hobbled by the restrictiveness of its trade regimes, as well as by the slow growth of per capita income, the region's distance from major markets, and high transport costs.

On the domestic front, African countries should give priority to liberalizing trade and adopting complementary macroeconomic and structural reforms. On the international front, African countries-which account for 27 percent of the members of the World Trade Organization (WTO)-should use their influence in the WTO to effect changes in the global trading environment that would facilitate the integration of poor countries into the world trading system. During the round of trade talks launched in Seattle, African nations should join forces to persuade industrial countries to liberalize agriculture and open their markets to Africa's exports.

Trade policy in Africa

Despite substantial progress during the 1990s, Africa's trade policies remain, on average, more protectionist than those of its trading partners and competitors. In a recent study of trade liberalization in countries with IMF-supported programs, the IMF developed an index of trade restrictiveness with three categories-restrictive, moderate, and open-to facilitate cross-country comparisons and track the evolution of trade policy over time. The study showed that in the early 1990s more than 75 percent of African countries had restrictive trade regimes; none had a trade regime that could be classified as open. Many of the countries have since undertaken ambitious trade reforms; by the end of 1998, the proportion of countries with restrictive regimes had fallen to 28 percent, while nearly 40 percent had open trade regimes...