By Jomo Kwame Sundaram
ROME, Nov 11 2015 (IPS)

Slower economic growth since 2008, and especially with the commodity price collapse since the end of last year, threatens to reverse the exceptional half-decade before the financial crash when growth in the South stayed ahead of the North. From 2002, many developing countries – including some of the poorest– had been growing much faster after a quarter century of stagnation in Africa, for example.

Jomo Kwame Sundaram. Credit: FAO

But this has not been their delayed reward for sticking to policies prescribed by conventional wisdom as claimed by some latter-day apologists for the structural adjustment programmes of the last two decades of the 20th century. Instead, a more favourable international environment, including higher commodity prices, low interest rates and renewed aid flows, along with accelerated growth in China and India, have been the main reasons.

Recent trends need to be seen in a longer historical context if the right lessons are to be drawn. Economic growth in the 1980s and 1990s was generally slower than in the preceding two decades. But despite the spectacular growth of several developing countries, sub-Saharan Africa lost due to stagnation for more than two decades from the late 1970s and Latin America lost at least the 1980s.

Government policies from the 1980s – ostensibly to conform to ‘market expectations’ – often cut public spending on primarily social expenditures. As national-level inequalities grew in most countries from the 1980s, inter-national inequalities among countries continued to grow. Economic welfare in developing countries has been further squeezed by demographic pressures including rapid urbanization.

Nascent industrialization in many countries was aborted by structural adjustment and economic liberalization. Premature trade liberalization has thus exacerbated de-industrialization, unemployment and fiscal deficits without generating alternative sources of economic growth. Low income countries as well failed and failing states are generally characterized by modest industrialization which, in turn, retards structural transformation and more inclusive sustainable development.

The negative developmental implications of policies and programmes forced on developing countries, regardless of historical circumstance and economic context, are now well known. There is a world of difference between measured liberalization from a position of economic strength, as in newly industrialized East Asia from the 1980s, and their forced adoption, to meet World Trade Organization or loan obligations. Despite pious official rhetoric claiming the contrary, multilateral rules are far from supportive of sustainable development and need to be reformed accordingly.

Since the late 19th century, adverse terms of trade movements – favouring manufactures over primary commodities, temperate compared to tropical agricultural products, or manufactures from developed countries against those from developed countries – have meant that many developing countries have been producing and exporting much more, but earning relatively less from doing so.

International financial liberalization was supposed to attract private capital to fill financing gaps. But instead, it has resulted in net capital flows from the ‘capital poor’ to the ‘capital rich’, increased financial volatility and slower economic growth. Bitter experience has also shown that ‘shock therapy’ – often involving financial system ‘big bangs’ – has generally caused more harm than good.

Considering their greater vulnerability to external vicissitudes, developing countries must have greater fiscal space to ensure countercyclical capacity as well as sustained public spending for needed investments in physical and social infrastructure and human resources. Strengthening the tax base, ensuring more reliable sources of international finance and channelling aid through national budgets can be crucial.

Instead of the current fetish with eliminating fiscal deficits, a more balanced and appropriate approach to macroeconomic stabilization is needed, to minimize disruptive swings in economic activity and external balances, while fostering a virtuous cycle of greater macroeconomic stability, investment, growth and employment generation. Developing countries need to strengthen their capacities and capabilities and to ensure sufficient ‘policy space’ in order to pursue appropriate reforms favouring sustainable development.

It has often been claimed that development could only be attained through retrenchment of the state. In much of the developing world, however, this has left choice-less illiberal democracies and frustrated disenfranchised citizens. Instead, democratically accountable governments should consult widely among their citizens to promote investments for structural transformation and better employment.

The global economy now risks continuing its downward spiral into protracted stagnation. The International Monetary Fund’s improved surveillance mechanisms have not led to better international macroeconomic coordination, as touted. Instead, the path to sustainable development remains blocked by self-imposed deflationary policy constraints and a refusal to provide needed aid or to cooperate to increase taxation for all.

(End)

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By Roberto Azevêdo
GENEVA, Jul 29 2014 (IPS)

In the 1960s, there were high hopes for the development of the newly-independent sub-Saharan African countries but these hopes were quickly dashed following a series of shocks which began in the mid-70s, with the first oil price spikes, followed by a severe decline in growth and increase in poverty in the 80s and early 90s. However, by the mid-1990s, economic growth had resumed in certain African countries. Economic reform, better macroeconomic management, donor resources and a sharp rise in commodity prices were having a positive effect.

WTO Director General Roberto Azevêdo. Credit: WTO/CC BY SA-2.0

In the 2000s, many African countries witnessed high economic growth performance and during that period some of the world’s fastest growing economies were in sub-Saharan Africa. Angola, Nigeria, Chad, Mozambique and Rwanda all recorded annual growth of over 7 percent.

In 2012 Africa’s exports and imports totalled 630 billion dollars and 610 billion dollars respectively, ­ a fourfold increase since the turn of the millennium. And the long term prospects for growth are good. The Economist Intelligence Unit has forecast average growth for the regional economy of around 5 percent yearly from 2013-16.

Despite all this, the continent still plays a marginal role in the global market, accounting for barely 3 percent of world trade. One significant reason – although, of course there are others – is that African economies are still narrowly based on the production and export of unprocessed agricultural products, minerals and crude oil.“There is little doubt that the regional [African] market offers good scope for African firms to diversify their production and achieve greater value addition”

Now, due to relatively low productivity and technology, these economies have low competitiveness in global markets – apart from crude extractive products. The low productivity of traditional agriculture and the informal activities continue to absorb more than 80 percent of the labour force. And growth remains highly vulnerable to external shocks.

This story of half a century of struggle, set-backs and progress shows two things:

One, the road to meaningful and inclusive development still seems long.

Two, we are in a better position than ever to make real, sustainable progress.

Many countries are striving to do more in turning their strength in commodities into strengths in other areas,­ using commodities as a means of spurring growth across various sectors. The United Nations Economic Commission for Africa’s 2013 Economic Report echoes this ­ calling for the continent’s commodities to be used to support industrialisation, jobs, growth and economic transformation.

In line with this, I think there are a number of essential steps to take:

– diversification of economic structure, namely of production and exports;

– enhancement of export competitiveness;

– technological upgrading;

– improvement of the productivity of all resources, including labour; and

– reduction of infrastructure gaps.

Only by delivering in these and other areas can policymakers ensure that growth enhances human well-being and contributes to inclusive development. But how can we take these steps?

Of course I should say that although African countries share some common features, no unique set of policies, including those on trade and industrial policy, could ever fit for all in a uniform way. Even among the least-developed countries (LDCs), some are already exporters of manufactured products, although often they rely on a single product  while others are more dependent on commodities. Nevertheless, I think it is clear that some preconditions of success are universal.

African regional integration is of course very high on the policy agenda. There is little doubt that the regional market offers good scope for African firms to diversify their production and achieve greater value addition. Already now, manufactures constitute as much as 40 percent of intra-African exports, compared with 13 percent of Africa’s exports to the rest of the world.

The Bali Package, which World Trade Organisation members agreed in December last year, will help to resolve some problems. Inclusive, sustainable development was at the heart of the whole Bali project ­ and our African members played a crucial role in making it a success. It brought some progress on agriculture. It delivered a package to support LDCs. It provided for a Monitoring Mechanism on special and differential treatment.

And, in addition, Bali delivered the Trade Facilitation Agreement and this is a direct answer to some of the problems of fragmentation. Costly and cumbersome border procedures, inadequate infrastructure and administrative burdens often raise trade-related transaction costs within Africa to unsustainable levels, creating a further barrier to intra-African trade.

This Agreement will help to address some of these bottlenecks. It will support regional integration, and therefore complement the African Union’s efforts to create a continental free trade area. And it will begin to remove some of the barriers which prevent full integration into global value chains. As such it will create an added impetus for industrialisation and inclusive sustainable development.

And it is worth noting here that the Trade Facilitation Agreement broke new ground for developing and least-developed countries in the way it will be implemented.

Another vital issue here is the importance of agricultural development in industrialisation, and the role of industrial collaboration through regional cooperation. The contribution of the agriculture sector is of utmost importance for the establishment of a sound industrial base. It can provide a surplus to invest in industrial capacity building, and supply agricultural raw materials as inputs to the production process, especially for today’s highly specialised food processing industry.

Moreover, it can also significantly contribute to industrialisation by providing an ample supply of food products. This is because food constitutes a large share of what wage earners in African countries spend their money on. Its availability at low prices contributes to increase the purchasing power of wages, and therefore raise the competitiveness of a country in international markets. (END/IPS COLUMNIST SERVICE)

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Unloading containers in the port of Pecém, Brazil. Credit: Mario Osava/IPS

By Jill Richardson
BOSTON, Jun 3 2014 (IPS)

In the past 15 years, China has gone from being a relatively insignificant economic partner in Latin America to the number-one trading partner of some of the largest economies in the region.

In many cases, China has unseated the United States in its own backyard. As a whole, Latin American exports to China have risen massively since 2000, averaging a 23-percent annual export growth rate.

However, this relatively rosy picture obscures the fact that in recent years this rate has dropped precipitously, slowing to a growth rate of just 7.2 percent in 2012. Much of this slowdown can be attributed to falling commodity prices. Despite Latin American exports to China growing in volume, price volatility has allowed for stagnant, or even declining, export values.

[A] recent study concluded that the more a nation trades with China, the more inclined that nation will be to vote in China’s favour at the United Nations.
The Latin American reliance on commodity-based exporting to China has allowed for regional vulnerability to price fluctuations. Over 50 percent of Latin American exports are in just three sectors: copper, iron, and soy. This lack of diversification is problematic, as copper and iron prices have both experienced a double-digit percentage global decline in recent years while global soy prices have also begun stagnating.

Additionally, these three main commodity exports are concentrated in Argentina, Brazil, and Chile, further demonstrating a lack of regional diversification in exporting to China. This lack of diversity in exports as well as exporting nations leaves Latin America as a whole vulnerable to unforeseen future disruptions or trends.

Conversely, Chinese exports to Latin America are growing in both volume and valuation, owing mostly to the diversity and relatively high-skilled nature of the exported goods. The majority of Chinese exports to Latin America are in the manufacturing sector, with a heavy emphasis on electronics and vehicles. Such industries, compared to raw materials, are much less prone to price volatility, thus preserving much of the overall value of Chinese exports.

The impact of these trends is that since 2011, a growing Latin American trade deficit in goods has opened up with China. Despite the fact that the volume of exports to China is increasing, the fundamental nature of Latin American exports is undermining growth and creating an impending balance-of-payments problem. As long as commodity price values remain on a downswing, this trend will continue through 2014.

As China continues to overtake the United States as the key trading partner of the region as a whole, U.S. influence may decline in Latin America.

A heavier reliance on Chinese demand for commodity exports will likely drive many Latin American foreign policy moves in the near future. Already China has used its economic leverage in the region to diminish the political influence of Taiwan in Latin America.

Chinese nationalists view the tiny island nation as a rebellious extension of the mainland, and consequently many Chinese leaders seek to circumscribe any international support for an independent Taiwan. Should the issue ever reach the United Nations or World Court, China has already locked down support from nearly every country in the Latin American region.

Some of Latin America’s traditionally leftist countries are cozying up to China for political reasons (viewing China as an alternative to the hegemony of the United States), and perhaps more significantly, for economic reasons.

Oil-producing nations such as Venezuela, Brazil, and Ecuador are hugely dependent on and influenced by their economic ties to China and, as a result, tend to follow China’s lead on the international diplomatic stage.

Indeed, one recent study concluded that the more a nation trades with China, the more inclined that nation will be to vote in China’s favour at the United Nations. That will place limits on international scrutiny of the Chinese human rights record, and it could mean a boon for proxy powers in world conflicts supported by China as opposed to the United States.

Ultimately, as China continues its expansion of political and economic influence in Latin America, the United States may find itself less and less at home in what Washington once considered “America’s Backyard.”

(END)

Jill Richardson is the Communications Fellow for Boston University’s Global Economic Governance Initiative and a contributor to Foreign Policy In Focus. She is currently working on her Master’s Degree in International Relations and Communications. This article originally appeared on Foreign Policy in Focus.

By Pascal Lamy
GENEVA, Mar 27 2013 (IPS)

For decades, commodity trade has been understood from the point of view of “commodity dependent” exporting countries, those whose revenues are largely generated by commodities exports. The trend of decreasing agricultural commodity prices was the focus of attention. However, from the beginning of the 2000s, there was an upward trend in agricultural commodity prices culminating in the price peak of 2007-08.

Pascal Lamy. Credit: Couresy of WTO.

Following this period, food prices have started to ease but remain at relatively high levels underpinned by continuing strong demand resulting, among other factors, from the “nutritional transition” that goes hand in hand with poverty reduction, rising costs of inputs and often slow reaction of supply to price signals, stemming notably from partial “marketisation” of livelihood farming.

Nominal prices of agricultural commodities are expected to trend upwards over the next ten years, or even more, and are projected to average 10 to 30 percent above those of the previous decade.

These developments have shifted the focus from commodity trade, and more specifically food commodity trade, more towards importing developing countries and the bill they have to pay for their food commodity imports. This is the “food security” concern, which is an important one for the global community.

Does looking at the two faces of the same “commodity coin” imply some contradiction as regards the role of the World Trade Organisation (WTO) in opening trade and the disciplines applicable to international commodity trade? On the contrary, the WTO can contribute to ensuring that commodity trade can address both import and export priorities.

Export subsidies are recognised as the most egregious form of trade distorting support. In the past, export subsidies contributed to decreases in already low world prices, with negative consequences for producers and exporters from developing countries. While agricultural commodity prices are generally higher now, it remains true that eliminating export subsidies and agreeing on further disciplines on export credits, exporting state trading enterprises and food aid modalities would contribute to a less distorted and more predictable international trading system.

Export restrictions can contribute to unpredictability and price volatility. By promoting consistent and predictable trade measures through binding and transparent rules, the WTO could bring a more positive contribution.

Policies that support domestic prices, or subsidise agricultural commodity production in some other way, artificially encourage production. These policies end up discouraging imports or leading to subsidised exports having a direct impact on more efficient producers in other countries. Reducing trade distorting domestic support would therefore increase global welfare by eliminating inefficiencies introduced by government intervention and offer producers a fairer price.

Regional and bilateral agreements tend to leave domestic support out of their scope. The multilateral negotiating table remains the sole forum for ensuring a fairer trade in agriculture products, one that allows countries to better capitalise on their comparative advantages.

Consider the case of cotton. A number of poor countries are dependent on cotton exports for their economic development. However, the cotton sector remains highly subsidised, especially in some developed countries as well as in some emerging ones. These subsidies depress prices and increase the difficulties faced by countries such as Benin, Burkina Faso, Mali and Chad. Progress has been made in this area, especially on strengthening the development support aspects, or on improving market access for cotton exporters but more remains to be done, in particular to address the trade distorting subsidies that remain.

Bound tariffs on agricultural goods remain substantially higher than those on manufactures almost everywhere around the world. Furthermore, tariff escalation where tariffs increase with value addition to commodities is frequent in agriculture. Reduction in peak agricultural tariffs increases market access opportunities for countries enjoying a comparative advantage, can lower the cost of food for consumers and also allows for the diversification of production, including value-added processing, and export markets.

Trade opening has created opportunities for agrifood firms to reorganise their production and distribution systems around value chains. A particular challenge is to ensure that smaller companies in poorer countries can join in value chains. Aid for Trade has an important role to play here. This is why the WTO’s Fourth Global Review of Aid for Trade, to be held next July, will focus on connecting to value chains including in the agrifood sector.

With the help of surveys by companies on the ground, we will examine the barriers which developing countries face in entering, establishing and moving up value chains, something that is of key importance for commodity exporters too.

Recommitting to commodity sector development in all its aspects is crucial to the objectives of promoting growth and eradicating poverty.

(END/COPYRIGHT IPS)

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