Tuesday, July 7, 2009

Financial crisis hits African trade, aid as WTO gears up for summit

The World Trade Organization is preparing to review its Aid for Trade initiative at an international conference in Geneva. The trade situation of developing countries in the economic crisis will be top of the agenda.

Give developing countries the tools to improve their position as trade partners and both their own development and the international trade situation will also improve. That's the idea behind "Aid for Trade," which the WTO launched in Hong Kong four years ago, WTO Director General Pascal Lamy tells Deutsche Welle.

"Developing countries very often face trade barriers, which either stem from their own infrastructure - for example roadways, transport or energy - or they face technical trade barriers, for example if someone wants to export flowers to the US or to Europe he will have to meet the maximum pesticide residue standard," he says.

Africa, more so than any other continent, faces these kinds of problems as it tries to increase its trade capacity. And to make matter worse, Lamy says, Africa has seen a decrease in participation in international trade over the last 10 years.

"In absolute value African trade has grown, but in relative value, as compared to the whole world trade, it has decreased," he explains. "The fundamental point for Africa is, one, trying to diversify exports to meet international demand, and, two, making sure that inter-African trade grows. At the moment the trade between African countries is incredibly low."

Lamy underlines that international trade accounts for around 15 percent of economic activity in Europe and the US, but three to four times as much in Africa.

"Hence the enormous importance of keeping trade open during the crisis, which means fighting protectionism, because that would hit developing countries most. And then, keeping investment in the future so they can trade their way out of the crisis."

Downward spiral

The ongoing international economic crisis has hit Africa in particular, Dr. Mohammed Ibn Chambas tells Deutsche Welle. Chambas is executive secretary of ECOWAS, the Economic Community of West African States.

He explains the downward spiral: the shrinking global economy leads to lower demand for commodities from West Africa and Africa as a whole. Lower demand also means lower prices. But there is more:

"The strong global growth led to 5 percent growth in Africa in the year preceding the crisis," he says. "The slowdown has of course led to a reduced African growth rate. We will end 2009 at less than 3 percent. That is not good because it's very close to the population growth rate.

"Secondly the transfer of funds from African diasporas is also invested in many activities for expanding trade, export trade in particular. And all of this has obviously now been reduced."

Chambas says he is also worried that donor countries may reduce their support for the Aid for Trade program because of the crisis.

"Of course Aid for Trade funding is dependant on support of the economies of the developed countries. And now that these economies are under stress and in recession, naturally there is likely to be a shuffle in the promised resources. These are legitimate concerns that we have on the African side, that not all the pledges that have been made will be provided."

European responsibility

Chambas says Europe has a special duty to increase its aid to Africa.

"The bulk of African trade is with Europe. We believe that the partnership between Europe and Africa should translate into concrete support for Africa to reduce the impact of the global crisis," he says.

"It's a historic relationship that we cannot wish away and I believe that in the context of this new partnership we should see how we can work together, Europe and Africa, to overcome the current economic slowdown."

John Clancy, spokesman for European Commissioner for Development and Humanitarian Aid Louis Michel, says Europe's history with Africa is unique, and that the focus should be on measures to improve that relationship.

"I think what is important is not to look backward to the past, but to the present day and the future. Aid for Trade is about partnership. It is a complimentary aspect to assisting developing countries, those in Africa in particular. It should soften, to some extent, the changes that have to take place at a socio-economic level in these countries, so that they can profit from the global marketplace more than before."

Author: Patrick Vanhulle