25 October 2018
Originally published by The Telegraph.
The popular story of Africa has always been one of poverty. By one measure, five of the 10 poorest countries in the world are in Africa. The continent’s poverty is not because of lack of natural resources or arable land; those are available in abundance. It can be traced to corruption, abuse of human rights, disregard for the rule of law, dictatorship, over-taxation, mismanagement of resources, and policies that raise barriers to trade.
Contrary to the belief that Africa is inherently socialist, traditional African societies practiced free trade and private ownership of property. Land was owned by families who decided what to produce and who to exchange barter with. The family in traditional Africa was regarded as the primary unit of society, comparable to the modern day individual.
Land ownership was transferred from one member of the family to another; there was no state intervention in this process. The council of elders or the monarchs did not control what families produced in their farms and who they traded with. Ancient trade routes sprouted modern cities developed from the spontaneous order of trade, not by the decree of traditional rulers.
This history of open markets has instilled a certain intuition that recognises the value of fluid borders, limited taxation and policies that remove barriers to trade. This is evidenced by a number of free-market initiatives being advanced on the continent.
For example, on March 24, 2018, 44 African Heads of State met in Kigali, Rwanda and signed the African Continental Free Trade Area Agreement (AfCFTA). The free trade area is expected to be the world’s largest in terms of membership since the creation of the World Trade Organisation (WTO). If ratified by all 55 countries, it will cover more than 1.2 billion people with over $4 trillion in combined consumer and business spending.
The United Nations Economic Commission for Africa (UNECA) estimates that, with the implementation of the deal, AfCFTA could boost intra-African trade by $35 billion by 2022 and lead to a 6 per cent rise in continental export.
The prospect of a free trading Africa is inspiring. It will lift millions out of poverty, and inject billions into the economy.
However, this long-term desire could be thwarted by Africa’s continued dependence on foreign aid. According to figures from the China-Africa Research Initiative, African countries received $124 billion in Chinese loans between 2000 and 2016. The continent as a whole receives roughly $50 billion of international development assistance annually.
Yet, instead of improving the living conditions of the 600 million people who live below the poverty line, much aid is making the rich richer and the poor poorer. It catalyzes the vicious cycle of corruption and poor economic structure, hindering economic growth.
There is a clear correlation between increased aid and corruption. It increases the resources available to already-corrupt elite groups, thus tipping the balance of power further into the hands of the executive arm of government.
Africa’s over-reliance on foreign aid and loans will limit development in the region.
Instead of free trade and prosperous economies, we will have abject poverty and fall further behind other regions. Zambia is feeling the heat of its default on foreign loan repayment in the hands of China. Other African countries at the mercy of foreign lenders will also pay through their dues – it is only a matter of time.
Africa needs access to markets. And in leaving the European Union, Britain can be a key player in providing that access. The UK will be able to open itself up to trade and provide our continent with an opportunity to improve its access to the world’s fifth largest economy.
While the East African Community’s current access to the UK market is by no means terrible, barriers to modern trade go beyond just tariffs. Many restrictions and preferences lie beyond the border and customs controls. Regulatory standards, for example, often require costly levels of compliance, while subsidy regimes such as the Common Agricultural Policy impact on Africa’s ability to compete.
The Initiative for Free Trade and Eastern Africa Policy Center launched a paper in Nairobi this week which analyses ways to improve access to the UK market for East Africa. I am proud to have penned the foreword to this paper, which highlights precisely the sorts of obstacles that East African companies currently face when exporting into the UK. I am pleased to commend their recommendations to anyone interested in the development of my region.
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