Deep-rooted commodity trap lies behind Africa's poverty Kamran Kousari Monday March 15, 2004 The Guardian
Gordon Brown and Jim Wolfensohn, writing in the Guardian on February 16 - "A new deal for the world's poor" - provided a candid assessment of the gulf between the promises and achievements of the international community in meeting agreed goals on health, education, child and maternal mortality, and poverty reduction. On their most optimistic calculations, two more generations will be born into abject poverty in the developing world before the UN's millennium development goals begin to be met. On one level, this dismal outlook is not surprising, since good intentions have not been backed by appropriate financial support from the international community. The call for a doubling of aid through a new international financing facility marks a welcome change of heart. It is no secret, however, that better health and education, higher life expectancy and poverty reduction are part and parcel of a larger development effort that cannot be achieved without faster growth and better income distribution. On this level, sustainable development is about finding the right policy blend. Here, opening up to global market forces bolstered by good governance and modest gestures towards debt reduction are still expected to do the trick. In reality, the economic legacies of two decades of market-driven adjustment packages are a weak investment climate, premature de-industrialisation and erratic growth, in many cases at or below population growth. Faulty economic logic has had its most damaging impact on Africa, where all these outcomes have been accompanied by a drop in the share of world exports from 6% in 1980 to 2% in 2002. But far from reflecting a reluctance to embrace globalisation, Africa has posted the highest trade to GDP ratio of any region outside east Asia. The problem is rather that growth depends on one or two primary commodities whose prices have seen a secular and persistent decline, placing a permanent pressure on foreign exchange earnings, frustrating investment-led recoveries and adding to the debt overhang. If terms of trade had remained at their 1980 levels, the share of the sub-continent in world exports would have been double its present level, its investment ratio would have been six percentage points higher and per capita income would be as much as 50% higher. In short, behind the poverty trap in Africa lies a deep-rooted commodity trap. That trap has all too often been fastened tight by the policy actions of the rich countries who have been extending a very visible hand to their own farmers through huge subsidies and market barriers to deflect the adverse impact of price movements, even as they have argued against similar instruments to protect far harder-hit rural communities in the developing world. With the ascendancy of the "Washington consensus", commodity agreements to achieve price stability and compensatory financing mechanisms to deal with short-term shocks have been discarded. And at the national level, many African countries undergoing structural adjustment and reforms have had to dismantle marketing boards that provided extension services to farmers and guaranteed minimum prices, leaving poor farmers alone to face increasingly concentrated markets and frequent shocks, both natural and policy-made. President Chirac of France recently called for an end to "the conspiracy of silence" on commodity issues. A new study of Africa's trade performance by the United Nations Commission for Trade and Development (Unctad) has heeded this call and suggested a series of changes to the policy stance of the international community towards commodity-dependent economies. This should begin with a renewed commitment to an international commodity policy to address not only price fluctuations but also the long-term decline in prices. This commitment would entail significant new funding targeted at improved supply management, economic diversification, as well as the building of much neglected infrastructure. In addition to new funding, a permanent exit solution to the debt overhang of these countries is essential and should go far beyond the present enhanced HIPCs initiative. More immediately, African producers of such goods as cotton and ground nuts should be compensated for loss of incomes arising from unfair subsidies and support in Europe and the United States. All these measures could be worked into the kind of new deal for the world's poor suggested by Brown and Wolfensohn. But in addition, developed country markets should be opened up through a reduction or elimination of tariff peaks and subsidies and African countries given the necessary policy space to design and implement trade, industrial and financial policies adapted to their individual requirements and circumstances. This would necessitate much lighter conditions attached to multilateral and bilateral lending. And any multilateral trade agenda without such goals could not credibly advertise itself as developmental. Finally, greater local institutional capacity has to be created to fill the institutional hiatus in areas such as research and training, transport infrastructure, information management and quality control, and the management of rationalisation schemes. Direct involvement by producers and exporters could also help ensure that the interests of producers are not sacrificed for those of bureaucrats, or the state. · Kamran Kousari is special coordinator for Africa at Unctad in Geneva; the Unctad study on "Trade performance and commodity dependence" was released on February 26.
