Wednesday, March 18, 2009

African exports to drop by half?

Date: 2009-03-02 | Source: Swazi Observer (Swaziland)

African exports are set to drop by half as Europe and America roll out rescue packages to their bankrupt corporations with inward-looking trade policies, analysts said.

The drawdown is expected to come from America's insistence on using its rescue package money to buy local and ongoing labour market restrictions in Europe.

African exporters are likely to be hit hardest by the buy American clause in US President Barack Obama's stimulus package, which requires firms benefiting from the rescue money to source their raw materials from the domestic market.

Swaziland is a major textile exporter to the US markets and is also heavily benefiting from that country's Africa Growth Opportunity Act (AGOA). The country also exports a significant proportion of goods to the European Union.

Chileshe Mulenga, an analyst with the Institute of Economic and Social Research at the University of Zambia, says these clauses will hit African exporters of primary goods to Europe and America hardest because they amount to new non-tariff barriers to trade.
Interviewed by journalists attending a workshop on business and economics reporting facilitated by the Commonwealth Secretariat in Zambia recently, Mulenga said, "should America go ahead to implement this policy, African exports to the US market will drop by half and gains that the continent has recently made under the African Growth Opportunity Act (AGOA) reversed".

Economists see pressure for American firms receiving their bailout funds to buy local employment as a major reversal in the drive for an open global trading regime that has been the main driver of economic growth in the developing world over the past decade.
In the same workshop for journalists, where Swaziland was also represented, Zambia's Trade Minister Felix Mutati said the country's copper exports had dipped by 40 percent since the onset of economic meltdown and is expected to deepen as countries look inwards for raw materials to run their industries.
America and Europe account for more than 60 percent of Africa's total exports, making cutbacks in the two markets economically significant.
Even more significant for African economies is the impact that the bailouts are expected to have on the flow of development aid to the continent.

With the US and western European countries having forked out more than a trillion dollars in bailout since November last year, economists reckoned that donor funds may drop by up to 40 percent.

Some economists also believe that the bailouts will deepen the flight of capital from Africa's stock markets where growth has tripled in the past eight years driven increased participation of foreign investors.


As the bailout packages are rolled out, regulation of movement of capital is expected to be more intrusive slowing down the return of investors who have recently fled African markets with the deepening bailout.

In Europe for instance, many governments have blamed the current crisis on loose regulation of the global financial system and are demanding for new framework of regulation.

Trudi Hartzenberg, an economist and executive director of the Trade Law Centre for Southern Africa (tralac) reckons that demand for a new global financial architecture poses the threat of economic nationalism with a negative impact on the developing economies.
"We should carefully interrogate demands for re-regulation whenever they are made because such demands bear the risk of reversing all the gains that have been recently made in freeing trade," she said.