Protectionism or Trade: Alternatives for Africa’s Economic Growth

Valentine O. Ogunaka Ahmadu Bello University, Zaria African Liberty Essay Competition 19 July, 2012 What is good for Africa? What does she need to become prosperous? What is the level of her economic growth? These questions provide insights into the dichotomy between Protectionism and Trade. Which of the alternatives is best for sustaining the economy of the African region? It is essential to note that Africa’s economy have in recent times survived recessionary shocks and gained some strength; political instability and maladies gassed by corruption, profligacy, estranged and baseless policies with foreign aid have robbed the economy of maximizing its full potential. These facts justify why macroeconomic reforms have been dysfunctional in the continent and shall serve as a pointer in picking an alternative. Debates on Protectionism versus Trade (trade herein implies “Free Trade”) have ensued radically among several economic pundits, governments and fiscal architects. The basis of the arguments does not exclude Africa. By international economics, supporters for both policies have emerged; thus taking sides. Some argues that boundless growth and prosperity for Africa is only attainable if economies are allowed to operate freely without governments’ intervention and discrimination of goods across borders. They claim that Free Trade would explicitly eliminate barriers, enhance market flexibility and by ‘comparative advantage’ reward all trade partners. Protectionists reject that assertion. They propose that governments’ legislations will rather save jobs and give African countries some sense of economic freedom and autarky where emerging domestic industries will be protected from overseas competition and therefore contribute immensely to the growth of national economies. Such regulations entail imposing bans, high duties, implementing quotas and any attempt to restrict trade between countries. I shall nullify this argumentation and proceed to treat each alternative policy as a case of its own in Africa. This will check into their validity and decide the most beneficial to Africa’s undefined economy. Choosing Protectionism for Africa Protectionism is not alien to Africa; but ubiquitous as governments in the Sub-Saharan region have always resorted to the so-called ‘revival’ policy at the slightest mishap to ‘protect’ and develop the resident economy. Compared to other regions in the world, Africa has a dysfunctional trade bloc which is inured to low-level internal trade, thus favouring richer western countries in the stereotyped ‘trade for aid’ system. Protectionism in Africa takes different forms. Recently, a trade war must have resulted between West African neighbours following the ban on Ghanaian movies from entering Nigeria as retaliation that the Ghanaians have longed banned the distribution of Nigerian films in their country. This sketch of protectionism is wherefore: ‘Ghollywood’ slams tariffs on actors to make them costly-to-hire; ‘Nollywood’ imposes taxes on Ghanaian actors before their participation in Nigerian productions; or both movie industries grant licenses (embargo) to their actors with intent to protect ‘careers’, promote production and increase sales. Similar form of protectionism extended when Ghanaian authorities seized shops of Nigerian businessmen operating in Ghana as government policy demands they must have $300,000 capital and employ at least 10 Ghanaians before being considered legal. The aforesaid facts bring to mind the quote attributed to early French economist, Frederic Bastiat, “When goods don’t cross borders, soldiers will.” With inference to Ghana-Nigeria ‘trade war’ and ‘fair trade’ respectively, Protectionism truncates diplomatic ties and breeds isolation between African countries. Can one dispute that the mutual cooperation between Nollywood and Ghollywood has churn out great actors and wealth. Won’t protectionism encourage smuggling of movies across borders and hackings over the internet? Nigeria has ‘inextricable’ ties with protectionism, using tariff and non-tariff barriers. A presidential adviser in Nigeria was quoted (in Al-Ahram Weekly): “I can assure you that my pen is always ready to ban more items as long as they are available in Nigeria.” In the 1980’s, agricultural products like grains and oil were mainly subject to high custom duties. This now includes beverages, cassava, tobacco, and poultry. Rationale for the policy is not new: ‘shield’ fragile industries from foreign competition; develop the economy; checkmate food, security, employment, sanitary and health issues; and even generate revenues. Lamido Sanusi, Nigeria’s Central Bank governor backed this argument. Citing United States’ protectionism against Britain in the steel sector, he emphasized related needs to ‘protect’ infant industries until they are due to compete internationally. Considering that protectionism expanded the economy of a less developed America upon independence from Britain and established it as a major power, one is tempted to deduce that a developing Africa should imitate. But the ghastly effect of this policy on economies during the Great Depression is cautionary. East Africa bears the Tanzanian case that served to ‘protect’ its weak manufacturing sector from the stronger Kenyan’s. Adopting a lopsided taxing system against Kenya; exports percentage augmented to $112m in four years. This sounds impressive but Tanzania ruminated against itself when it barricaded Kenya Airways from purchasing Air Tanzania Cooperation. Protectionism had also spread from Uganda, Guinea, and South-Africa among others. Pan-African protectionism increases inexorably, but some questions linger: What has this policy contributed to Africa’s economic growth? Is it a dependable trade policy? Should we adopt this alternative? This will be answered shortly. Let I delve into the particulars of Free Trade. Permitting Trade for Africa Free trade is not peculiar to Africa. The campaign for trade liberalization in Africa as the key alternative to prosper Africa’s economy has trumpeted greatly, but sadly not in actual effect. This can be analyzed from two perspectives: primordial African trade and modern African trade. From the historical standpoint, trade was actually freer in old-traditional Africa than nowadays. Early Africans exchanged whatever they had for what they didn't. Camel ships transported goods across the Sahara. Kush for example, the Iron center of ancient Africa took trade seriously. They negotiated terms with Egypt and exchanged gold, iron and exotic products for manufactured cottons. Also, caravans from the North bartered with the Ghanaian Empire (center for West-African trade) through a silent exchange system. Muslim traders offered condiments and Ghana reciprocated with gold; fair enough to disregard deficits. In East Africa, Kilwas Kisiwani, a community in Tanzania enjoyed wealth as it was a great merchandise of gold, iron, ivory, coconuts and animal products. It was the trade center to Southern Africa. Primordial African communities also believed in globalization. They exported commodities to Europe, Arabia, India and China. Integrally, these gave rise to ancient civilizations that flourished, thus birthing the illustrious Trans-Saharan trade routes, great empires, cultures, occupations and alternative sea routes. It was an era of prosperity for Africa. Modern Africa is yet to tread that path. The bitter observation is: trade within the region is infamously low (an average of 11%) wherefore there are about fifty trade barriers across borders. From perceptual experience, exporting goods to China from Tanzania is cheaper than exporting the same amount of goods to Libya. This is pathetic. But stakeholders are not ignorant to the supposition. The economic agenda of the African continent has been overwhelmed recently by calls for pan-African trade which would forge holistic coalition to a single market, a central bank, common currency and customs union. This eventually creates Free Trade Area; but a cloud of doubt lingers amid whether such ambition is achievable, particularly in a region where governments are characterized with rhetorics and would rather continue to trade (60%) with the West (for aid). Pan-continental Trade with industrialized countries tend to validate protectionists’ claims that it strips the infant African market to unfair competition, undermines food production and further depletes her resources. This distorts reliability on Free Trade as a good alternative to foster Africa’s economic growth. But analysts believe that free trade if implemented rightly and especially within is profit-oriented and sustainable in the long run. Determinants Beyond economic arguments, I cannot protect what I cannot handle. Therefore, I will not recommend protectionism for Africa. As an enemy of itself, it has achieved the opposite of its aims. African countries that rank high in protectionism are yet to combat poverty and massive unemployment. Commodities’ prices soar and businesses aren’t competitive. A government that adopts this policy does so basically to ‘protect’ special-interest groups to the detriments of common citizens. This will condemn Africa to eternal depression. The values of trade cannot be overridden. As elucidated by Adams Smith, for all nations, trade breeds specialization and prosperity. Should Ugandans produce for themselves and costly what can be obtained cheaply from Ethiopia? It is so foolhardy because trade flows as seen from old-traditional Africa fosters development. Pointless interventions and restrictions ground innovation plus African ‘regionalization’. What a weak link to prosperity! African economies urgently need practical economic integration to prosper. Incumbent Mozambican President, Armando Emilio Guebuza has stressed it: The choices are clear: either we integrate and survive united, or we fragment and we perish in isolation. In conclusion, it is pertinent and beneficial if Africa review and espouse its old, proven pattern of trade. Free trade policy is the fundamental alternative to substantial Africa’s economic growth.