AERC’s collaborative research project on "African Imperatives in the New World Trade Order" was motivated by the need to acquire a deeper and fuller understanding of these issues. In particular, the project focused on an analysis of the effect of both the domestic policy environment and external market access conditions on the system of incentives facing African economic agents and how these agents responded to policy changes. The project was based on a series of detailed sector-specific country case studies using a common analytical and empirical framework for each sector, to the extent that available models and data allowed. By covering a variety of economic sectors in a range of countries, the project sought to explore broad comparative perspectives and draw policy conclusions of general applicability to the Africa region.

As the principal sector of the typical African economy – accounting for the dominant share of gross output, employment, export earnings and food supply – agriculture is critical for both overall economic growth and poverty reduction. This project examined in some detail the agricultural sectors of Cameroon, Côte d’Ivoire, Ethiopia, Ghana, Kenya, Nigeria, Tanzania and Uganda, with particular reference to changes in domestic policy regimes and external market access conditions.

An important finding of the project is that as these countries sought to reform their macroeconomic and trade policy regimes in varying degrees and over different time periods since the early 1980s, they achieved a range of contrasting results. Ghana led the wave of reform in 1983, and was followed in the second wave, around 1986, by Côte d’Ivoire, Kenya, Nigeria and Tanzania. The third wave, starting in 1989, included Cameroon and Uganda. Ethiopia finally joined the reform bandwagon in the early 1990s.

For each of these countries, currency devaluation was the most radical macroeconomic policy change, with nearly all the countries experiencing sharp devaluation episodes during their reform programmes. Trade liberalization and the liberalization of agricultural pricing and marketing arrangements constituted the core of sectoral policy changes. The deepest trade liberalization was achieved by Uganda, Côte d’Ivoire and Cameroon. Nigeria took the lead in the liberalization of agricultural pricing and marketing arrangements by abolishing rather than just reforming its marketing board system.

The case study countries faced remarkably similar external market access conditions, determined largely by several preferential trading arrangements with the European Union, the United States and other members of the Organization for Economic Cooperation and Development (OECD). The benefits derivable from these arrangements were reduced, to some extent, because of stringent rules of origin, low preference margins and limited product coverage. Hence, several significant market access barriers, such as tariff peaks and tariff escalation, sanitary and phytosanitary measures, and trade-distorting domestic support and export subsidies, continued to hinder the expansion and diversification of African agricultural exports.

Against the background of domestic and external policy changes, several of the case study countries experienced strong and positive responses in producer prices, agricultural output and exports. In Côte d’Ivoire, cocoa, coffee and cotton experienced strong growth in the 1990s, stimulated by sustained producer price increases that were, in turn, generated largely by devaluation. In Ghana, the share of world prices received by cocoa farmers rose from 51% in 1997 to 67% in 2001 due largely to devaluation and a more liberal agricultural pricing policy. As a result, agricultural production, which had declined through the early 1980s, doubled during 1990–2000.

In Nigeria, agriculture grew strongly (at 7.3% on average) during 1986–1990. As the pace of reform slackened, however, growth decelerated to 4.6%, in 1991–1995 and 3% in 1996–2000. Meanwhile, real domestic prices of Uganda’s major crops rose during 1984–1987, but declined subsequently in line with the trend of world prices.

The other case study countries experienced similar mixed or moderate results. Cameroon’s agricultural products registered above-average price increases after devaluation. In Tanzania, agriculture’s real growth rate rose only marginally as a result of the reforms, from 2.8% in 1976–1980 to about 3% since the mid 1980s. In Ethiopia, the annual growth rate of agricultural products was not significantly different before and after policy reform.

But the reforms also generated significant structural changes. In Cameroon, the share of cash crops in gross output declined by 11 percentage points between 1986 and 1999, compared with an increase of 14 percentage points in the share of food crops. This trend was reversed in Kenya, where production of food and industrial crops

Conceptually, changes in macroeconomic and trade policy influence changes in food security status at both national and household levels through their impact on agricultural prices, output and trade volume. Results for Cameroon showed that policy reform was associated with an improvement in income, food consumption and food security at the national level. At the household level, however, there was a net deterioration of food security status, as decreases in producer prices and wages combined with an increase in consumer prices. For Ghana, the indicators of food security improved at both national and household levels, although this trend was reversed in the second half of the 1990s. In addition, export-crop households did better than food-crop households because devaluation – which boosted export crop prices – also reduced the real prices of most food crops.

In Kenya, decline in domestic food supply and fall in food import capacity led to increasing food insecurity at both national and household levels. Similar results were obtained in Malawi and Uganda. But the results were mixed in the case of Tanzania: while most national-level indicators of food security worsened during the 1990s, at the household level the proportion of the population below the food poverty line fell over the same period.

Finally, national level indicators for Nigeria showed considerable improvements in the food security status in the 1990s.At the household level, policy reform appears to have narrowed the income differential between urban and rural households.

Expansion of the manufacturing sectors of African economies, as a means of stimulating their growth and diversification, has been a long-term preoccupation of many of the region’s governments. Yet, most African countries have not achieved the threshold level of manufacturing sector size, structure and dynamism required to help them escape the vicious cycle that has restricted their significant and sustained entry into foreign markets. The broad features of the manufacturing sectors of African economies and their domestic and external policy environments are illuminated by the case studies of Cameroon, Côte d’Ivoire, Ethiopia, Ghana, Kenya, Nigeria and Uganda undertaken in this project.

For each of these countries, the manufacturing sector constitutes a small part of GDP. Kenya has the most diversified manufacturing sector, whose contribution to GDP rose to 13% in the 1990s from about 11% in the 1960s and 1970s. Nigeria’s manufacturing sector is larger in size than that of Kenya but it contributed less than 8% of GDP in the 1990s. During 2000/01, the sector’s contribution to GDP varied from 6.2% in Ethiopia through 9% in Ghana to 9.7% in Uganda. In relation to exports, the sector’s contribution ranged from less than 5% in Nigeria to almost 30% in Kenya. In each of the case study countries, the manufacturing sector largely serves the domestic market. It is also typically dominated by the processing of agricultural produce and production of simple manufactured consumer goods.

Each of the sample countries has experienced a major shift in its domestic trade regime, from an inward-looking protectionist stance to a more liberal if not entirely outward-oriented one. Liberalization, including tariff rate reduction and compression as well as currency devaluation, began for most of them in the middle to late 1980s, although this did not start in Ethiopia until about a decade later. This policy shift was associated with a negative impact on the manufacturing sector, at least over the short to medium term. In Côte d’Ivoire, for example, the manufacturing sector’s turnover growth fell by almost 24% over the 1985–1993 period, while value-added declined by 11%.

The number of manufacturing enterprises in Cameroon fell by over 56% between 1986 and 2000 and the work force declined by more than 15%. Ghana’s manufacturing sector, which enjoyed a dramatic improvement in growth rate (averaging 12.7%) during 1984–1988, experienced a substantial slowdown thereafter, with annual growth rates averaging only 2.3% (1989–1993) and 3.3% (1994–2000). The Kenya study reveals a similar pattern: the substantial growth rate of 9–10% per annum experienced during the protectionist period of the 1960s and 1970s decelerated to an annual average of 4.8% in the 1980s and 2.2% in the 1990s.

In spite of the limited export orientation of the manufacturing sector in most of the case study countries, improvements in external market access conditions appear to have influenced the destinations of their manufactured exports. About 71% of Cameroon’s manufactured exports, for example, went to the EU in 1999, largely because of the Lomé preferences. In the case of Côte d’Ivoire, however, only 46% of manufactured exports was attracted to the EU by Lomé preferences; over 30% was exported to other African countries, particularly through the trade liberalization scheme of ECOWAS. This regional preferential trade arrangement is also credited with the increase (from 17% in 1988 to 31.5% in 2001) in the share of Ghana’s non-traditional exports in total exports.

Similarly, about a third of Kenya’s manufactured exports is sold in the regional market of COMESA, while another third goes to the EU with the assistance of Lomé preferences and 6% is absorbed by the United States. In particular, as much as 89.5% of Kenya’s total textile exports goes to the United States under the African Growth and Opportunity Act (AGOA) preferential trade arrangement.

Liberalization of trade in services can, in principle, be achieved through four mechanisms – unilateral, bilateral, regional and multilateral – which may be

 In general, however, the most important policy reforms for reducing barriers to trade in services must be made at the national level. It is here that the changes have to be made to permit foreign services providers not only to enter the domestic market but also to participate on an equal footing with local suppliers. Africa’s services trade liberalization experience spans the main mechanisms, with a concentration on the unilateral liberalization of domestic regulatory systems.

The ten countries covered in the case studies of the services sector were Congo, Côte d’Ivoire, Ethiopia, Ghana, Guinea, Kenya, Nigeria, Sierra Leone, Togo and Uganda. With the exception of Ethiopia (which is not a member of the WTO), all these countries have made services trade liberalization commitments under the General Agreement on Trade in Services (GATS). Out of a maximum of 12 services sectors, these nine countries made commitments in the number of services sectors indicated in the following: Togo (3), Nigeria (4), Guinea (5), Kenya (5) Côte d’Ivoire (6), Ghana (6) and Sierra Leone (10).
 

The sectoral distribution of liberalization commitments shows that tourism and travel-related services is the most popular area, with all nine countries having made commitments. By comparison, the distribution of countries that made similar commitments in the other services sectors is as follows: transport and communication (6), financial services (5), construction and engineering (4), business (3), education (3), recreational, cultural and sporting services (3), and environmental and other services (1).

Much of the liberalization of trade in services achieved in the sample countries has resulted from unilateral reform of their domestic regulatory systems, which covers a wider range of services than those for which they have made commitments under GATS. In addition, most of the case studies limited their coverage to such services sectors as financial services, telecommunications and transport. The case studies of Ethiopia, Ghana, Kenya, Nigeria and Uganda, which focus on financial services, suggest that the primary objective of the reform of the domestic regulatory system was to improve the efficiency of financial institutions. In most cases, the reform process involved the privatization of state-owned financial institutions (primarily banks and non-bank financial institutions) and the attraction of increased foreign participation.

As a result, the financial sectors of the case study countries have become more liberalized, particularly in terms of entry conditions, and this appears to have induced increased foreign ownership and participation. But while various indicators of access to financial services have registered an upward trend, it does not appear that efficiency has increased by much. In addition, liberalization has also been associated with financial distress and crises, owing to constraints imposed by relatively weak banking supervisory capacities and continued reliance on the banking system for financing fiscal deficits.

Liberalization of telecommunications is examined in the case studies of Congo, Côte d’Ivoire, Ghana, Guinea, Kenya, Nigeria, Sierra Leone, Togo and Uganda. The liberalization processes and results achieved in these countries are remarkably similar. The reforms revolved around changing domestic regulatory systems to permit the opening up of the sector to private investment. Among others, changes permitted the licensing of a second national operator for the fixed-line telephone segment and the liberalization of the fixed wireless and mobile telephone segments. In terms of results, there has been an explosion in the number of mobile telephone subscribers coupled with a sharp increase in teledensity in each of the countries. But the prices of telecommunication services have remained high and the quality of services has continued to be poor. Many of the deficiencies are traced to the lack of effective regulatory mechanisms in virtually all the case study countries.

The project results reveal significant differences in the impact of similar domestic and external policy changes across sectors and countries in Africa. In particular, within the same case study country, both the effectiveness and the speed of response of the main economic sectors (agriculture, manufacturing and services) show marked differences with respect to similar policy impulses. Agriculture has typically been the most export-oriented and has usually responded more robustly to improved external market access. By comparison, the historical inward-orientation of African manufacturing may be largely responsible for the sector’s mostly negative response to trade liberalization. But even within the agricultural sector, there appear to be significant differences between export and food crops in terms of their responses to trade liberalization.

In summary, therefore, the project generated three major policy lessons. One is that country-specific and sector-specific research and analysis should inform policy making. The second is that in view of the non-homogeneity of African countries, the articulation of common African positions – especially in the context of regional and multilateral trade negotiations -– may turn out to be more complex than is often assumed. A final policy lesson is that radical trade liberalization that is implemented before the strengthening of an economy’s supply response capacity is unlikely to yield the desired results.

T. Ademola Oyejide, coordinator of the African Imperatives research project, is Professor of Economics and Director of the Trade Policy Research and Training Programme (TPRTP), Department of Economics, University of Ibadan, Nigeria.