Martins Hile, Editor, Financial Nigeria magazine
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- Social Development
Brexit, fair trade and Africa 05 Jan 2021
At the eleventh hour, the United Kingdom and the European Union clinched a trade deal on Christmas Eve, marking the end of a four-year period of intensive negotiations for the orderly withdrawal of Britain from the EU. Both sides appeared to be largely satisfied with the deal despite the compromises that had to be made.
The free trade deal with the UK provides the EU some advantages. For instance, apart from having EU goods sold in the UK market tariff-free and quota-free (and vice versa); EU fishermen will still have access to Britain’s fish-rich waters, though the level of access will taper off. Nevertheless, the EU’s economy shrunk by about 15 per cent following Britain’s withdrawal agreement in January 2020. The bloc's share of international trade also reduced, although it remains one of the three largest players in world trade, together with the United States and China.
For Britain, the option of leaving the EU single market and customs union without a deal would have spelt terrible consequences for the UK economy, according to the Office for Budget Responsibility (OBR), a UK government agency. Over a period of 10 years, the country’s gross domestic product (GDP) would have reduced by an estimated 8.1 per cent. No-deal Brexit would have meant trading with the EU on World Trade Organisation (WTO) terms, which would have entailed imposing tariffs on UK imports and exports. Tariffs and non-tariff barriers would have caused an increase in costs for British businesses and consumers, job losses, among other repercussions.
These outcomes were probable because nearly half of Britain’s trade is with the EU. Therefore, a considerable disruption to the relationship with such a partner could not be without economic repercussions. Moreover, trade plays a key role in the UK's economy. It accounted for 63.5 per cent of the country's GDP in 2019.
Britain may have dodged a bullet by finally agreeing on a free-trade deal, howbeit limited in terms of access to the EU market. But it's not smooth sailing for Britain from here on. According to a CNN report, the deal covers mostly trade in goods and excludes key services like finance. This could potentially weaken the UK’s position among major world players in finance. Being in the EU enabled the UK to achieve its status as the world's biggest net exporter of financial services, with an $81.6 billion trade surplus in 2019, surpassing the United States, Switzerland and Singapore, according to a lobby group, TheCityUK. Only time will tell if the UK would lose its global competitiveness in finance post-Brexit.
But was remaining in the EU a best-case scenario for Britons who felt they were unfairly treated by the free-market deal? Britain's decision to leave the EU was viewed by many pundits as an outcome of the negative consequences of globalisation and the struggle against neoliberalism. Free-market policies and the idea of free movement of people, goods, services and capital within a free trade area are considered unfavourable by Brexit supporters. As far as these Brexiteers are concerned, a common market is an infringement on UK's sovereignty.
International trade, supported by the process of globalisation, is conceived as a system that gives countries mutual access to the markets of the trading partners. It is also a pathway for expanding economic opportunity and reducing poverty. But, without a doubt, there is lack of fairness in the international trading system. The benefits of trade have not been equitably distributed between countries and among citizens within countries.
Admitting the existence of this inequity, United Nations Conference on Trade and Development's Deputy Secretary-General, Isabelle Durant, said two years ago: “Trade has helped to make the economic pie bigger. But some people weren’t invited to the dinner table.” Just as many Britons felt they were not invited to the ‘dinner table;’ Africa has been dealt the short end of the stick in trade and globalisation.
Findings from a survey commissioned last year by the Pan-African Private Sector Trade and Investment Committee (PAFTRAC) showed 65 per cent of African CEOs said the global trading system was unfair to Africa. They further argued that this was a major constraint for growth on the continent.
There are a number of reasons Africa is on the receiving end of international trade inequality. For one thing, global trade is skewed against Africa due to lack of economic diversification on the continent. The continent's exports are mainly primary products. For instance, while over 65 per cent of goods exported to the EU from Africa in 2019 were primary goods, almost 70 per cent of goods imported from the EU to Africa were manufactured goods.
Protectionist policies, especially in countries like Nigeria, also limit trade on the continent. Successive administrations in Nigeria impose protectionist measures to varying degrees but often with the same aim, namely, to support local industries. In 2005, the IMF said in its Article IV consultation report that Nigeria’s trade policy regime “is one of the most restrictive in the world.”
Since 2015, there has been a restriction in the country on the purchase of foreign exchange for the importation of certain goods and services. The number of items ineligible for access to forex sale has increased over time from an initial list of 41 items six years ago.
Besides the high tariffs and restrictions on access to forex, persistent congestion, corruption and inefficiency at the Nigerian ports are also trade-restrictive and increase the cost of doing business. The Financial Times released a report last month stating that the cost of trucking a container from Lagos ports to the mainland – a distance of about 20 kilometres – now costs about $4,000. The cost is almost the equivalent of shipping one container from China to Nigeria.
The unintended consequences for the country include consistently double-digit inflation rate, weak purchasing power of Nigerian consumers, diminished access to capital, and low trade performance. Trade accounts for just 12 per cent of Nigeria's GDP, compared with 27 per cent for South Africa – the continent’s second largest economy and largest exporter.
Foreign trade partners in Europe and North America are also responsible for skewing the trade playing field against Africa. Experts have argued that the incorporation of human rights, rule of law and democratic principles in bilateral agreements with Africa and other developing regions provides the developed countries with the latitude to unilaterally suspend trade commitments when there is an alleged breach of the so-called non-execution clauses. While these conditionalities are important in fostering non-trade objectives such as good governance and respect for human rights; questions have been raised about inconsistencies in their implementation and enforcement.
For example, in a 2019 ScienceOpen article, Anne-Carlijn Prickartz and Isabel Staudinger said sanctions were imposed by the EU on Central African Republic, Guinea-Bissau, Madagascar and Zimbabwe in response to coups d’état and in Zimbabwe for human rights violations. Meanwhile, the EU was a trading partner with the apartheid regime in South Africa and was duly criticised for it.
As the UK seeks to optimise its trading relationships with other countries after exiting the EU's trading rules, would Brexiteers become champions of fair trade around the world, especially in Africa? The total value of the UK's trade in 2019 was $1.88 trillion, compared to the $460 billion recorded by 55 African countries in the same year. There is potential for the UK and African policymakers to negotiate better trade agreements that benefit each other and achieve much more impactful trade and development outcomes.
Such agreements should necessarily seek preferential market access for goods and services, protect African interests and ensure fair competition for African businesses. With the African Continental Free Trade Area (AfCFTA) that becomes operational this month, the continent should maximise the potential benefits of the single market. But this would require removing non-tariff barriers in African countries.
The opportunity for negotiating better trade deals should encourage African countries to fast-track economic diversification and add value to African goods to maximise the benefits of trade. Managing Editor of Financial Nigeria, Jide Akintunde, said "the prosperity from trade has to be inclusive." The dice should not be loaded in favour of rich countries and large corporations. The sense of trade injustice and inequality can be minimised if the greatest beneficiaries from trade support initiatives that enhance market access for others.
Martins Hile is the Executive Editor of Financial Nigeria publications.