Poverty alleviation in Africa: the trade and globalization perspectives

Globalization and international trade, which is its subset, are dynamically reinforcing. Trade among countries stands out as one of the most veritable levers of global interconnectedness. Africa’s contribution to global trade in 2017 was 2.4%. It grew by two percentage points to 2.6% in 2018. These performances are not cheering as they are only marginal. Be that as it may, the twin factors of globalization and international trade are critical for raising the standard of living of countries that effectively take advantage of them. Both naturally broaden the market frontiers and facilitate the growth of production technologies. As a result of that, they have strong catalytic effects on national economic output growth. Taking maximum advantage of these levers of growth demands the acquisition of relevant technologies for productivity enhancement and improved capacity to penetrate the growing global markets. Globalization, therefore, stimulates attendant technological transfers and technological progress that naturally rides on its back. And because of these inherent benefits, countries shy away from implementing policies that work against globalization. But by how much is Africa benefiting from these twin drivers of prosperity? With a total trade from Africa to the rest of the world in 2018 averaging a paltry US$760 billion compared to the rest of the world, is Africa truly part of the global trade activities?

It is important to stress that seemingly distinct advantages from trade and globalization are often overplayed and recommended hook line and sinker as the solution to the poverty situation in Africa. There is, however, no doubt that trade is superior to aid in facilitating the prosperity of the continent. Many pieces of evidence suggest that the latter only facilitates the mentality of poverty alleviation and the reinforcement of poverty at a much broader level. However, at the individual level, trade, whether it is domestic or international, has high likelihoods of inducing prosperity for all the parties involved. Even though that trade mainly involves mutually beneficial exchanges, some parties benefit more than the other. And because trade and exchange may include some level of rivalry and competition, the parties that gain more from it can displace those who do not. Trade between Africa and the developed industrial world presents actual examples of these unfortunate scenarios. Consider, for example, the trade in cocoa. The trade prospects of African cocoa farmers appear to tie umbilically to the chocolate makers in Canada who determine both the price at which they would purchase the cocoa as well as the quantity that they would buy. As if that’s not bad enough, the chocolate manufacturers that are richer, with better access to capital, can backward integrate into more advanced forms of commercial cocoa farming to displace African farmers completely.

Unfortunately, because individual trading agents in Africa cannot quickly meet up with the level of capital required to venture into high-technology and high-income yielding manufactures, they are naturally restricted to primary commodity exports. So, who benefits from international trade and on whose terms are trade taking place at the global level? Africa’s export potential is mostly on primary commodities while depending on the developed world for industrially manufactured goods. Disparagingly, most of these primary commodity exports feed into the making of high-tech industrial manufactures dumped in our markets. Consequently, while the primary commodity exports command relatively low prices, these imported manufactures are sold at far much higher prices. So, the terms of trade are not in favour of Africa unless the continent regresses backwards to acquire the technological competence to also go into sophisticated manufacturing. The Prebisch–Singer hypothesis (PSH), provides a theoretical justification for this by postulating that there is a long-run negative trend in prices of internationally traded primary commodities related to those of manufactured products. Unless we do this, Africa will continue to lose the economic and trade advantages that it ordinarily should have because of its vast natural endowment. One way out of this is to shift from the comparative advantage mentality, which appears to quarantine Africa, to primary commodity exports. We can also have a comparative advantage over time in the manufacturing of high-tech goods if we identify such industries and use state power to protect and develop them. Japan did the same with vehicular motor manufacturing and specifically the Toyota brand.

Without capital, therefore, it is challenging to maximize the benefits from globalization and international trade. Even though these twin factors positively strengthen the entrepreneurial exposures of the continent, albeit, at an individual level, those benefits would most likely cede to the developed world that possesses more significant capital. Until we can establish comparable capacities for processing most of our natural endowments and be able to produce some of the high-tech industrial manufactures, it will be difficult for us to sustainably trade with the rest of the world on equal terms. Regrettably, if we do not trade with the rest of the world in relatively same terms, we shall remain the dumping ground for all sorts of imports from various parts of the world. Strengthening the continent’s capacity to overcome this challenge is where our investment banks need to be at the forefront. They hold the forte for mobilizing and allocating capital in such a way that Africa can effectively participate in the gains from globalization.

Developing countries’ transition to globalization also often leaves in its trail a lot more people that are vulnerable to poverty. Typically, the transitioning process benefits in higher multiples those who have the capital to make the right kind of investments required for participation in global trade. These include investments in new equipment, new skills, and bidding for the right human resources at higher wage levels. Unfortunately, most Africans [more than 90%] lack the capital required for such participation. Less than 2% of Africans have the capacity for commercial production of any exportable primary commodity. Consequently, that 2% reap the large-scale export advantages leaving the rest in a much more disadvantaged position. Even though this can only be for the short-term if there are trade policies that address these transition-creating disadvantages, in many instances, many participants slide into poverty over more extended periods.

Similarly, by creating discriminatory prosperity opportunities, globalization orchestrates deeper divides in income and well-being. And because reaping the benefits of globalization is primarily a function of capital raising capacity, only a small percentage of the continental population can optimally enjoy it. And as popularly refrained, the rich get richer, and the poor get poorer. While this is an inevitable consequence of capitalist growth and prosperity, in the absence of consciously articulated reforms to address its potential severity, the socioeconomic chasm will widen inexorably. Tolerable levels of inequality that leave none in abject poverty conditions while supporting a substantial percentage of the middle class should be the target benchmark. Again, it begs the question, is the new liberal economists’ prescription of international trade premised on the principles of comparative advantage the best for Africa?

It is unarguably not. Another apparent tragedy in the comparative advantage driven international trade is that most of the primary commodities where African countries have their export advantages are substantially price inelastic. Considerable reductions in price are not likely to stimulate more than corresponding changes in the demand for them. Such an inelastic demand condition is not the case with sophisticated manufactures that Africa supposedly does not possess a comparative advantage. Consequently, if that status quo is left unchanged, then the continent will continue to stagnate. At the same time, the rest of the world advances on the wings of comparative advantage driven globalization. The answer is to jettison the comparative advantage paradigm and consciously orchestrate competitive advantages in those areas and products with high demand elasticities.

Again, Africa often bears the brunt of the extremities of the rivalry that latently prop global trade. Many analysts agree that globalization is the hidden undercurrent behind most conflicts in Africa. The Liberian war of the 90s, the conflicts in the Democratic Republic of the Congo and South Sudan are good examples. The underlying objective was to have cheap access to African gold, diamonds, and crude oil. Many argue that it might be the same scenario that is currently playing out in the protracted insurgency in the northern parts of Nigeria. There appears to be unconfirmed suspicion of illegal mining of solid minerals in much of the areas where Boko Haram insurgency is at its crescendo. While this may occur only in isolated circumstances, whenever they do, they orchestrate massive levels of poverty on their trail. It is also right to assume that such conflicts are behind much of the economic hardship and misery experienced in the areas and countries where they occurred.

Another tragic consequence of globalization is the conversion of emerging countries of Africa into the depot of not only cheap natural resources but also of labour. Because of the unequal terms of trade and compounded benefits accorded the developed countries with colossal capital at the expense of many developing countries, the differences in the price of labour makes it convenient to poach their professionals. For instance, highly qualified medical practitioners in Africa are continually migrating to Europe and the United States because of the enormous wage differentials. It is in the same vein that our natural resources leave our shores as cheap resources commanding small prices. Ironically, the same way they leverage our migrated labour to unleash higher socioeconomic welfare for their citizens, they equally use our cheaply procured natural resources to manufacture expensive products that we also buy. In effect, we become open fields with reserves of cheap labour and natural resources for exploitation.

On a final note, while globalization and international trade are good for our prosperity by stimulating entrepreneurship and pro-market rivalry, they leave poverty in the tracks if there are no trade reform policies to manage the widening gap in opportunities that they create. Unfortunately, these kinds of reforms do not appear to be in meaningful existence within the continent. Secondly, accepting that Africa’s comparative advantage is in commodity exports is equal to agreeing to live in perpetual poverty. No developed country acquired its capacity for high-tech industrial production by accepting completely free trade on the back of the comparative advantage principle. Competitive advantages which eventually become comparative advantages come into existence through state protection of industries of interest.