Africans produce what they do not consume and consume what they do not produce; that has become the basis of African enslavement.
(bad governance, tribal politics, widespread corruption, institutional inefficiencies and mismanagement, exploitation of small-scale farmers, etc.) and ( external factors) unfair global trading rules and practices biased in favor of both the industrialized nations (G8) and their multinational corporations, enforced by the World Trade Organization and supported by both the IMF’s Structural Adjustment Program (SAP) and the World Bank.
· The rules that regulate global trade are drawn by the industrialized (G8) countries and biased in their favor.
· The logic of the international rules regulating world trade are to source out the cheapest raw materials (neo-colonialism), produce in labor-cheap countries (neo-slavery) and re-export the finished products all over the globe at phenomenal profits, through the exploitation of both labor and resources in so-called Third World countries. (neo-imperialism). This strategy is referred to as “globalization”.
· Globalization in its current form creates and sustains poverty and inequalities in the rest of the world!
· Global exploitation of both labor and resources in so-called Third World countries is the foundation of globalization and leads to the globalization of poverty!
· Scientific progress resulting in recent technological advances in transport and communication has led to new forms of imperialism, colonialism and slavery. During European imperialism, slavery and colonialism, new territories were militarily conquered throughout the globe, and both African slaves and the local indigenous population were forcefully subjected to work on cash crop plantations and mines for the benefit of the imperialist nations. The cash crops were then exported to the industrial nations, processed, and re-exported throughout the world at phenomenal profits! (sounds familiar???)
· Thus, nothing has changed over the last 500 years! The rules and the objectives that regulate world trade have remained unchanged, only the methods and the tools have changed: The gunpowder of imperialism, the whips and chains of slavery and colonialism have been replaced by the Pentagon and other Western military institutions, the World Trade Organization (WTO), the International Monetary Fund (IMF) and the World Bank.
THE MAIN PLAYERS IN THE SO-CALLED “FREE MARKET” GLOBALIZED ECONOMY
• The World Trade Organization (WTO)
• The International Monetary Fund (IMF) and the World Bank
• Multinational corporations
THE WORLD TRADE ORGANIZATION (WTO)
• Created in 1994. Mandated to enforce the “free market” world trade rules.
• Objective and logic of WTO: Maximize profits in favor of the G8 countries and their multinational corporations!
• Results: *86% of global resources and wealth is owned by 20% of the world population in the G8 countries.(*UNDP)
• The WTO is creating and sustaining world poverty and leading to the globalization of poverty!
THE INTERNATIONAL MONETARY FUND (IMF) and THE WORLD BANK
• The IMF is mandated to manage the international monetary system. Its monetary and economic policies are biased in favor of the G8 countries and their multinational corporations.
• Through its Structural Adjustment Program (SAP) ( better referred to as the Strangle the African People program), the IMF dictates the economic policies of sovereign countries in favor of G8 countries and their multinational corporations
The IMF’s Structural Adjustment Program (SAP)
The IMF’s SAP is a neo-imperialist and a neo-colonialist tool whose aim it is to weaken a country’s economy so as to make it dependent on so-called “aid”, which is then granted under the following unfair and exploitative conditions:
• Removing trade barriers to imported manufactured products and highly-subsidized agricultural commodities from the G8 countries. Annual agricultural subsidies in G8 countries amount to $US 300 billion!( 6 times the total so-called “aid” amount granted to “Third World” nations.)
• Privatization of state-owned public enterprises and land for the benefit of foreign multinational corporations.
• Increase in exports of cash crops at rock-bottom low prices set by foreign multinationals, and supported by the IMF and the world bank
• Collapse of local industry and agriculture.
• Massive layoffs leading to increase in unemployment
• Increase in overall poverty among the local population.
• Country is drawn into a vicious circle of poverty, so-called “aid” and debt.
“ IMF conditionality imposed by its Structural Adjustment Program has resulted in deep cuts in government social spending in health care and education, and layoffs of public sector employees, depletion of state assets and devaluation of national currencies. In addition, IMF policies have led indirectly to the conversion of local lands into large export crop farming and cattle farming, as well as the razing of forests and widespread migration from depressed rural areas, as peasants are forced from the fields of their ancestors.” Brandt Report
Note:The world bank generates over a billion dollars in profits from so-called “aid” it gives to countries under IMF “supervision.
MONOPOLY POWER WITHIN MULTI-NATIONAL CORPORATIONS
• There are currently over 40,000 multinational corporations in the world.
• 40% of world trade is carried within these multinational corporations (“intra product trade”)
• The so-called “top 500” multinational corporations control over 70% of world trade and over 80% of foreign investments in the world.
• Annual sales of largest 100 multinational corporations (2000): $US 2,1 trillion = 7% of world GDP and 25% of world trade. Larger than combined GDP of South Africa and Sub-Saharan Africa (30% of world population).
• Wal-Mart, GM and Ford combined revenue is greater than Africa’s GDP!
• Mitsubishi and Toyota’s revenue is equal to GDP of Greece and Portugal.
• Wal-Mart, IBM, and Nestle’s revenue is equal to GDP of Mexico.
• Multi-national corporations account for 1/3 of exports for globalized economies such as Mexico, India and China and for more than 80% of manufactured exports of countries such as Bangladesh and Honduras.
• Research & D: 100 multinational corporations account for 2/3 of all R & D in USA (40% of global R & D) Through a monopoly on R & D and patenting, they dictate the terms of exchange of new technologies and their resulting profits. This issue is at the heart of the disputes over intellectual property rights (TRIP) at the WTO.
Example: Multinational monopoly power in the coffee sector
• 4 multinational corporations control over 70% of the coffee trade in the world.
• Through this concentration of monopoly power, they control the world supply of coffee and set prices on the world market.
• While small coffee farmers are struggling to survive by growing coffee for their subsistence, these multinational corporations are generating profits in the billions each year.
The “4” coffee multi-national corporations: Revenue 2001-2002
1) Phillip Moris/USA. : $US175billion
2) Nestle/Switzerland.: $US65billion
3) Procter & Gamble/USA: $US40 billion.
4) Sara Lee/USA: $US 30billion.
Coffee trade statistics demonstrating results of unfair world trade practices in the coffee sector in favor of foreign multinational corporations
source: International coffee organization
• Coffee market value 1992: $US 30 billion
• Producers’ share 1992: $US 12 billion.
• Coffee market value 2002: $US 50 billion
• Producers’ share 2002: $US 8 billion.
• While the market value for coffee trade in the world has increased from $US 30 billion to $US 50 billion in the last ten years, the value share to producers has decreased from 40% to 16% respectively, as a direct result of unfair world trade practices biased in favor of foreign multinational corporations.
Deteriorating terms of trade
• Furthermore, since 1970, the value of commodities produced in the South has declined in relation to the cost of manufactured goods. In 1975, 8 tons of African coffee could buy 1 tractor; by 1990, it took 40 tons of the same coffee to buy one tractor*.
*source: Crowley Sarah, Teaching about Fair Trade, May 1998.
World price of cash crops
• In more than fifty so-called “third world” countries, more than fifty percent of export earnings depend on three cash crops, among them coffee. Thus, a substantial decrease in the world price of any of these leads to severe economic crisis for both the farmers and for the countries producing these crops, and throws them into a vicious cycle of poverty, “aid” and debt.
Root causes leading to poverty in Africa
• Unfair global trading rules and practices biased in favor of industrialized nations and their multinational corporations, and enforced by the WTO.
• Declining commodity prices on the world market resulting from unfavorable terms of global trade.
• Agricultural subsidies.( agricultural subsidies granted to western farmers in the industrialized countries (G7) amount to $US 300 billion annually)
• Deteriorating terms of trade
• IMF’s Structural Adjustment Program liberalization policies.
· Debt ( Heavily Indebted Poor Countries-HIPC- still spending more on debt servicing than in health and education)
Note: List not exhaustive
• Bad governance, tribal politics, corruption, etc…
• Institutional mismanagement, exploitative practices and inefficiencies along the local supply chain.
• Failure of farmers to organize themselves ( no access to credit, no technical assistance, no logistical support (transport, processing, storage) and no direct access to export markets.
Note: List not exhaustive
Facts from the United Nations Development Program (UNDP)
• Africa currently receives $US 14 billion in so-called “aid”. If Africa was given the means ( fair price access to markets, capital, etc.) to increase its exports by a mere 1%, it would generate $US 70 billion in export revenue ( five times the “aid” amount)
• Developing nations are receiving $US 50 billion in “aid”. If these countries are given the means ( fair price, access to markets, capital, etc…) to increase their exports by a mere 1%, they could generate $US 100 billion in export revenue (twice the “aid” amount).
• A 5% increase in their exports would generate $US 350 billion in export revenue (seven times the so-called “aid” amount)
• The developing nations represent 40% of the world population but only account for 3% of world trade, while the industrialized nations which represent 14% of the global population account for 75% of global GDP.
“ Inequalities between rich and poor, both between and within countries are widening, reinforced by inequalities in global trade. For every $US 1 generated through exports, low-income countries get $US 0,03. Thus, very small steps towards distributional equity in the global trading system could generate very large benefits for the world’s poorest regions.” (Oxfam Trade Report)
Per capita exports per region
· G8 countries: $6000/per capita
· Emerging countries: $330/per capita
· Low-income countries: Less than $100/per capita
“ Increased trade does not automatically translate into poverty reduction. However, when trade is harnessed to effective economic policies and positive poverty reduction strategies, it can act as a powerful force for change” (Oxfam Trade Report)
Example: South East Asia.
· Over the last 40 years, South East Asia has had the most rapid recorded rates of poverty reduction.
· During the mid 1970’s, 60% of population lived in extreme poverty.
· Today, less than 20% of population live in extreme poverty.
· The number of people living on less than $1 a day has decreased from 720 million in mid 1970’s to 278 million.
(Source: Ahuja et Al. 1997)
“ Rapid and broad-based income growth has driven the decline in income poverty” (Oxfam Trade Report)
Africa’s share of world trade 1979-1999 (% of total)
· In the last two decades, Africa’s share in world trade has dramatically decreased from 4% to 1.3%. Currently, Africa, with 10% of the world population, only accounts for 1.3% of global trade
Year Africa’s share in world trade (% of total)
(Source: Subramanian, 2001)
Trade as a force for poverty reduction.
“ When good policies enable poor countries and poor people to participate in global trade on equitable terms, trade can act as a powerful force for change and for poverty reduction” (Oxfam, Trade Report)
Trade verses “aid”
Developing nations generate more than thirty times more revenue per capita through trade ($US 322) as they receive in aid ( $US 10) and twelve times more per capita from exports ($113) verses aid. Thus, increases in exports massively outweigh any increase in aid. Moreover, aid transfer payments have drastically decreased from $34 to $20 per capita from 1994 to 1999.
Aid amount as % of G8 GNP
Year/ Aid as % of G8 GNP
Note: G8 countries had committed to giving developing nations 0,7% of their GNP as aid payments.
Source: World Bank
Gain resulting from a one percent increase in trade
Expressed in income gain
· Increase of $30 per capita in low-income countries ( 7% increase)
· 20% increase in average income for Sub-Saharan Africa
· Increase of $53 per capita for South Asia ( 12% increase)
· 4% increase per capita from Latin America and East Asia
Expressed in population
128 million people lifted out of poverty ( 12% of world total)
60 million out of Sub-Saharan Africa
56 million out of South Asia
3 million out of Latin America
9 million out of East Asia
Source: World Bank
« In countries with high concentration of rural poverty, broad-based agricultural growth will have stronger effects on poverty reduction. Labor intensive manufactured exports that generate income and employment for the poor will have more impact on poverty reduction than capital intensive exports. The bigger the share of growth generated and captured by the poor, the bigger the impact on poverty reduction. » (Oxfam Trade Report.)
Export growth in small-holder agriculture
« Agricultural exports produced by small-holder farmers in countries with relatively low concentration of land ownership can generate important benefits for rural poverty reduction, since rural poverty accounts for two thirds of poverty worldwide.”
(source: Datt and Ravaillon, 1998)
Vietnam demonstrates what is possible when exports support broadly pro-poor agricultural domestic reforms.
1986 Economic Renovation Programme “ Doi Moi”
· Farmers encouraged to increase agricultural export sales
· Cut in agricultural taxes
· Access to cheap inputs ( fertilizers, etc.)
· Increase in fertilizers led to increase in productivity
· Agricultural output increased by 5% per annum.
· Excess production exported
· In last 15 years, Vietnam has shifted- from a net importer of rice to the second largest exporter of rice in the world!
Export growth in manufacturing
“ The quality and success of export growth is determined by the extent to which it is built on dynamic linkages within the local economy” ( vertical/horizontal integration).
Delocalization of the means of production in low-wages countries fails disastrously to meet this principle. Oxfam Trade report
Example: Auto Industry in Mexico
· Single largest supplier of engines and passenger vehicles to the USA.
· However, only low value-added assembly of components manufactured in the USA
· Linkage with domestic economy exceptionally weak
· Low value-added ( 20% of overall production)
· Extremely low level of local inputs used ( 2% of total production)
“ Thus, export economy in Mexico generates little demand from the local economy, hence little employment and investment outside the “Maquiladore” Export Processing Zone (EPZ). Although the Maquiladore zone accounts for almost half of total employment in Mexico, it generates only about 10% of the value-added in Mexico’s manufacturing sector.” (Oxfam Trade Report)
“ Evidence from many countries suggests that the expansion of trade has often resulted in either the poor getting left behind or in the intensification of exploitation and environment damaging systems of production which challenge human development aspirations. Failure to link integration into global markets with a strategy for the redistribution of assets upon which greater equity depends will leave the poor in an increasingly marginalised position, even in countries that achieve higher levels of economic growth.” (Oxfam Trade Report)
Agriculture in the global economy
Primary Commodity trade in Sub-Saharan Africa
· Over 80% of the population in Sub-Saharan Africa are small-holder farmers who earn a living through agriculture.
· Agriculture accounts for over 50% of export earnings in Sub-Saharan Africa.
· Most countries in Sub-Saharan Africa depend on 2-3 primary agricultural commodities for their exports.
· Thus, a substantial decrease in the world price of any of these leads to severe economic crisis for both the farmers and for the countries producing these crops, and throws them into a vicious cycle of poverty, “aid” and debt.
( Source: International Task Force on Commodity Risk Management, 1999)
“Trade in this area is vital for poverty reduction since more than 2/3 of the world’s poor live in rural areas” (Oxfam Trade Report)
Factors leading to poverty within small-scale farmers in Africa
• Deteriorating Terms of Trade resulting from unfair global trading rules and practices biased in favor of industrialized countries and their multinational corporations leading to:
.declining commodity prices on the world market
.continuous increases in the price of (imported) farm inputs (seeds, fertilizers, etc.), resulting from IMF’s liberalization policies (SAP)
· Agricultural subsidies granted to farmers in industrialized nations ($US 300 billion/year)
· Damaging IMF and World Bank economic policies enforced through the Structural Adjustment Program (SAP)
• Widespread corruption and mismanagement in so-called farmers’ organizations or cooperatives.
• Exploitative practices and inefficiencies along the supply chain.
• Failure of farmers to organize themselves.( no access to credit, no technical assistance, no logistical support (transport, processing, storage) and no direct access to export markets due to import restrictions in industrialized countries ( Tariff and non-tariff barriers)
• Presently, the so-called “third world” is receiving $US 50 billion in so called “aid” revenue, while the industrialized nations (G8) are spending $US300 billion annually in agricultural subsidies, financed by taxpayers and consumers, leading to over-production and environmental damage
• These highly subsidized agricultural products are then “dumped” in so-called “third world” countries in the name of “free trade.” Both the EU and the USA export their agricultural products at a price 1/3 lower than the cost of production. (see tables below)
• Local (non-subsidized) farmers (+70% of the African population) are unable to compete against these highly subsidized agricultural products “dumped” onto the local market and are forced to abandon their land, entering into a vicious cycle of unemployment and poverty. As a result, the overall agricultural sector collapses and the country is drawn into a vicious cycle of poverty, “so-called “aid” and debt. (Example: Sugar, cotton, rice, etc.)
Agricultural subsidies ( % of total output )
Countries Agricultural subsidies ( % of total output) Annual subsidies amount per capita
Japan: 60% = $US 24,000
EU: 40% = $US 16,000
USA: 25% = $US 21,000
Note: African farmers struggle on an average annual income of $US400 with no subsidies. (Source: World Bank)
Export Dumping Estimate (EDE)
· Measures the gap between the export price and the cost of production
PRODUCT / COUNTRY / EDE (%) / % OF TOTAL WORLD EXPORTS
Wheat / USA / 46% / 50%
Wheat / EU / 34% / 50%
Maize / USA / 20% / 50%
Skimmed milk /EU /50% / Largest exporter
White sugar / EU /75% / Largest exporter
· EU, USA and Japan monopoly in these heavily subsidized commodity markets results in setting “dumping” prices on world market ( ie. World prices unrelated to and well below the cost of production).
· Annual direct loss to developing nations: $US 20 billion
(source: World Bank, 2001)
The root causes of price decline of agricultural primary commodity
Agricultural subsidies leading to structural over-supply are at the root cause of declining agricultural commodity prices on the world market, with disastrous economic and social consequences for small holder farmers living off agriculture and for the countries producing and relying heavily on the export revenue from these commodities. Furthermore, declining world prices lead to further increases in production to make up for the loss in income resulting from lower prices, which in turn leads to further over-supply and further price declines. This is a vicious cycle.
“Structural over supply in the commodity market lies at the heart of global poverty and instability.” ( Brandt Report, 1980)
Example: Ghana (2nd largest producer of cocoa in the world)
In response to declining prices of cocoa on the world market, Ghana increased its production from 320,000 MT to 450,000 MT between 1996 and 2000. This led to an excess supply of cocoa on the world market, with a resulting further 40% decline in the price of cocoa during the same period.
Managing structural over supply
“ Proper economic prices should be fixed not at their lowest possible level, but at the level sufficient to provide producers with proper nutritional and other standards in the conditions in which they live… and it is in the interest of all producers alike that the price of a commodity should not be depressed below this level, and consumers are not entitled to expect that it should.” (John Maynard Keynes, Economist 1946)
Keynes called for an institutional response to the problems posed by falling and unstable commodity prices in 1944. Unstable commodity prices during the 1920’s was seen as one of the major factors leading to the Great Depression of the 1930’s.
Today, many developing nations and millions of small-scale farmers remain highly dependent on the export of primary commodities.
“ Trading patterns established after the discovery of the New World and developed through slavery and colonialism remain intact. Commodity market instability and ruinously low prices are consigning whole swathes of the developing world to mass poverty. There is a growing danger that countries dependent on primary commodities will become increasingly desperate enclaves of despair.” Oxfam Trade Report
In the last three years, coffee prices on world markets have drastically fallen by over 70%, threatening the lives of millions of small-scale coffee farmers (+50% of world production) around Africa, Asia and South America who rely on coffee exports for their livelihood.
The Brandt Report called for measures aimed at the “stabilization of commodity prices at remunerative levels” Unfortunately, this coincided with the start of the systematic assault on international commodity agreements which were seen as generating inflation in rich countries. However, the creation of a global supply management commodity institutions is an urgent necessity to stabilize the highly unpredictable and volatile commodity market, since all existing trade rules and institutions have failed to do so.
Low-cost technified large scale production
· Investment in low-cost “technified” production methods ( ie. heavy use of chemical fertilizers, bio-technology, industrial machinery, etc.) on large commercial farms during the last two decades has significantly increased production of primary commodities on the world market and led to over supply and severe environmental damages.
( policy favored and supported by both the IMF and the World Bank)
Cocoa production in Indonesia (3rd largest exporter)
· Cocoa production in Indonesia has increased by 20% since the mid 1970’s.
Coffee production in Vietnam ( 2nd largest exporter)
· Coffee production doubled between 1997 and 2002.
· Market share increased from 7% to 11% ( at the expense of small-holder coffee farmers which account for over 50% of world production)
Source: World Bank
Furthermore, substitute products and advances in bio-technology has further reduced demand for primary agricultural commodities on world markets.
· In may 2002, the EU has introduced a law that allows for the replacement of cocoa butter in the manufacture of chocolate by a range of new vegetable fats. This will inevitably have a negative impact on the estimated two and a half million small-holder farmers who rely on cocoa farming for their livelihood in West Africa.
Monopoly power in the commodity market
Three multinational corporations control 1/3 of the global market share for coffee trade
Five multinationals control over 70% of coffee processing and retailing
· Phillip Morris (Kraft)
· Sara Lee
· Procter & Gamble
Source: Ponte, 2001
Seven of the largest processing multinational corporations control over 70% of global cocoa processing worldwide
· Barry Calebault
(Source: ICO, 1998)
The economic and social cost of dependence on primary agricultural commodities.
· Over the last thirty years, both the share and the price of non-fuel primary agricultural commodities has been steadily declining.
· Global trade in primary agricultural commodities has been growing at less than one-third of the rate of manufactured goods and the gap is widening.
· In more than fifty developing nations, over fifty percent of export earnings depend on 3 or fewer agricultural primary commodities. Thus, a decrease in the price of any of these leads to severe income losses for both producers and countries and translates into economic collapse and poverty.
· This dependency is most pronounced in Sub-Saharan Africa, for which non-oil exports account for 75% of exports in 17 countries.
· In many cases, a larger share a larger share of export earnings is dependent on 1-2 primary agricultural commodities.
-Coffee exports account for 60%-80% of export earnings for both Ethiopia and Burundi
-Cotton accounts for an estimated 50% of Burkina Faso’s export earnings
-Cocoa accounts for 25% of Ghana’s export earnings.
(Source: UNCTAD and World Bank data 1999-2000)
Direct link between heavy dependence on primary commodities and level of debt
· The combined debt of developing nations has increased from $US 700 billion to $us 3 trillion from 1980 to 2000 respectively.
· 37 countries categorized by the IMF and the World Bank as Heavily Indebted Poor Countries (HIPC) rely on primary commodity for over fifty percent of their export earnings
· 15 of these derive 90% of their export earnings from primary commodity exports.
· Over 50% of the world’s cocoa production and over 25% of the coffee production is produced in HIPC countries.
Declining primary commodity prices
Between 1980 and 2000, prices were 25% lower for 18 primary commodities and 50% lower for 8 primary commodities. Prices for coffee, tea and cocoa have decreased by over 70% between 1997 and 2001.
Ex: Coffee exports in Uganda
It is estimated that 25% of the population in Uganda earns a living through coffee exports
Year/ Value of coffee exported
1994-1995: $US 433 million
2000-2001: $US 110 million Same qt exported as in 1994-1995
· Net Loss: $US 323 million
· Aid transfers 2000: $US 100 million
Coffee exports in Ethiopia
Year Value of coffee exports
1999-2000: $US 257 million
2000-2001: $US 110 million Same quantity exported as in 1999-2000
· Net loss: $US 147 million
· “Aid” transfers 2002: $US 58 million
Deteriorating terms of trade
· Sub-Saharan Africa has suffered the most from the effects of deteriorating terms of trade.
· Since 1970, for every $1 received in “aid” in the region, $0,50 has been lost as a direct result of deteriorating terms of trade.
· Aid transfers to Sub-Saharan Africa amount to $20 per capita
· Losses per capita resulting from deteriorating terms of trade amount to $155 per capita
· Deteriorating terms of trade cost $US 100 billion (seven times what Africa receives in “aid”- $ 14 billion )
· Declining primary commodity prices and deteriorating terms of trade is a recipe for further poverty and marginalisation for Sub-Saharan Africa.
· Since 1970, the value of commodities produced in the South has declined in relation to the cost of manufactured goods. In 1975, 8 tons of African coffee could buy 1 tractor; by 1990, it took 40 tons of the same coffee to buy one tractor*.
IMF’s and World Bank trade liberalization policies and its effect on poverty
“Through their influence over the design and implementation of IMF and World Bank policies, industrialized countries have been able to maintain a highly unbalanced process of trade liberalization. Developing countries have been liberalizing rapidly, incurring large adjustment economic and social costs which have been compounded by the unwillingness of rich countries to open their markets. At the same time, the IMF and the World Bank have frequently undermined the ability of poor countries and poor people to integrate successfully into the global economy. Loan conditions that place a premium on rapid liberalization, without proper consideration of the consequences for short-term poverty and long-term development, are among the factors that prevent global trade from working in favor of the poor. Moreover, import liberalization can affect the ability of governments to finance and provide services that are vital to pro-poor growth.”
Oxfam Trade Report
“He who pays the piper calls the tunes…” African governments must stop dancing to the tunes of the IMF and the World Bank. Independence means self-reliance!
“ In countries with high concentration of rural poverty, the combination of rapid import liberalization in food staples and the promotion of capital-intensive export production can have profoundly anti-poor outcomes” Oxfam Trade Report
Automobile industry in the maquiladores zone of the North (capital intensive low value- added ghetto assembly export industry ) and the “poverty belt” in the south which has been victim of cheap-heavily subsidized - American corn “dumped” in Mexico as a result of import liberalization policies enforced by both the IMF and the World Bank
“ Drastic and sudden trade liberalization will not produce optimal outcomes in terms of either sustainable growth or poverty reduction. The starting point for the design of any trade reform program must be in its integration into broader national strategy for poverty reduction. In itself, trade liberalization is not a poverty reduction strategy”
Oxfam Trade Report
Unfortunately, neither the IMF nor the World Bank has applied this principle to trade policy despite the development of the Poverty Reduction Strategy Papers (PRSP), whose aim and purpose is to set out in detail how IMF and World Bank policies fit into national poverty reduction strategies.
Import liberalization policies were implemented in Cambodia as part of the IMF’s Structural Adjustment Program with the support of the World Bank. As a result, massive imports of cheap rice produced in Thailand and Vietnam flooded the local market, driving millions of less competitive local small-holder rice farmers out of the market.
However, the impact of such policy on local small-holder rice farmers was not only not taken into account but was not even mentioned in the governments’ proposed Poverty Reduction Strategy Paper, but nevertheless approved by both the IMF and the World Bank.
· Tariff and non-tariff barriers facing developing nations in industrialized countries are on average four times higher than those facing rich countries in poor countries.
· Trade barriers in industrialized countries weigh most heavily on the poorest countries, as they target primary agricultural commodities and labor-intensive manufactured products.
.The 48 Least Developed Countries (LDC) face tariffs on average 20% and 30% higher than the rest of the world on their agricultural exports and on their manufactured exports respectively to industrialized countries.
. The LDC’s are losing an estimated $US 2.5 billion annually in potential export earnings as a direct result of high tariffs in the Canada, EU, USA and Japan.
. Furthermore, this policy directly affects both the poor and women who account for 62% and 70% of employment in agriculture and in labor-intensive manufacturing in Export Processing Zones (EPZ) respectively.
· Import tariffs cost poor countries $US 43 billion annually.
· The total cost of all import restrictions ( tariffs, non-tariff barriers, quotas, anti-dumping measures, product standards, etc.) cost poor countries over $US 100 billion annually (twice the annual “aid” amount). (source: Anderson et Al, 2001)
· The annual loss associated with import restrictions within the labor-intensive textile sector to poor countries is estimated at $US 30 billion. Both the EU and the USA have only eliminated 25% of textile import quota restrictions that they have committed to remove under the WTO Agreement on Textile and Clothing (ATC).
( source: Check et Al, 1999)
“ However, reducing trade barriers in rich countries will not automatically increase the world market share of developing countries. Many producers- especially in low-income countries – lack the infrastructure, skills and capacity to take advantage of market opportunities. However, when market opening is combined with measures to develop supply capacity, major benefits are possible.” (Oxfam Trade Report)
“ Improvements to market access in these labor-intensive sectors (textile) have the potential to increase the equity and the welfare of women (1/3 of workforce) as well as reduce overall poverty as these sectors are a source of employment for millions in the developing world” ( Oxfam Trade Report)
Cost of trade restrictions verses benefits of “aid”
“Losses to LDC’s export earnings resulting from import restrictions in industrialized countries offset the benefit of aid flows to these countries. For every $4 received in “aid”, $1 is lost as a result of import restrictions through loss in export earning.” (Oxfam Trade Report)
q Example: Canada
- Aid to LDC’s from Canada in 2001: $300 million
- Loss to LDC’s from import restrictions in Canada: $1,6 billion
(source: Oxfam International, 2001)
Heavy dependence of exports to industrialized countries
REGION/ % share of exports Exported to:
Africa/ +70% EU, North America, Japan
Latin America/ +75% Idem
Asia /+50% Idem
Furthermore, extremely high import restrictions between developing nations restricts the development of South-South trade.
Note: Only New Zealand has fully opened its market to all products exported by LDC’s.
· Tariffs that rise with the level of processing undergone.
· Acts as a deterrent to investment aimed at adding value locally- a condition needed to create local employment.
· Leaves developing countries locked into volatile and unpredictable primary commodity markets characterized by low, unstable and declining world prices. (almost guaranteed route to marginalization)
· Average tariffs on processed agricultural products exported to Japan, the EU and Canada are three times higher than those facing unprocessed agricultural products.
-Japan and the EU: 20%
- Canada: 10%
Example: Processed food sector
· Subject to tariffs twice as high in Japan and EU than non-processed foods.
· In Canada, tariffs thirteen times higher!
· In USA, the food industry tariffs accounts for 1/6 of all peak tariffs ( tariffs in excess of 10%)
Example: Orange juice: 30%, peanut butter: 132%
· EU: Food industry tariffs account for 30% of all peak tariffs (range between 12% to 100%)
· Japan: 40% of all peak tariffs protect the processed food industry.
Example: Cocoa powder, chocolate, canned meat, fruit juices, etc.
· Advanced processed food products account for only 5% and 17% of agricultural exports of LDC’s and of all developing nations respectively, verses 32.5% of the combined agricultural exports of industrialized countries.
(Source: UNCTAD, 2000)
“ Considered collectively, each of the trade restrictions help explain why developing nations have been unable to increase their share of world trade and why the links between global trade and poverty reduction are so weak. Removal of escalating tariffs would enable developing countries to capture locally a larger share of the final value of export earnings, in turn generating local employment and investment opportunities.” (Oxfam Trade Report)
Regional Trade Agreements (RTA)
Regional Trade Agreements (RTA) are systems of trade preferences in which members share with each other advantages that they withhold from others, except on negotiated basis.
· EU: Two-thirds of trade conducted within Regional Trade Agreements.
· North America: North American Free Trade Agreement (NAFTA): Free trade agreement between USA, Canada and Mexico.Over 50% trade carried within NAFTA.
RTA’s within AFrica
“EVERYTHING BUT ARMS” (EBA)
· EU’s initiative to allow duty and quota free market access to all products from the LDC’s. However, powerful corporate anti-lobby from European producers and Caribbean exporters to the EU delayed free market access to the LDC’s for 8 years on rice, bananas, and sugar. Under the EBA initiative, some LDC’s have gained limited export opportunities.
· Under the EBA initiative, Mozambique has gained quota-limited access to the EU market for exports of sugar up to a transitional period to 2009. This will create 8000 jobs in the sugar mills and in the plantations.
AFRICA GROWTH AND OPPORTUNITY ACT (AGOA)
· Provides duty and quota “free” market access to the USA for selected products from 39 African LDC’s. However, only “non-sensitive” products qualify and they face strict conditions.
Example: The use of US fabrics and yarns must be used in African textiles and garment exports. Furthermore, African countries seeking to export under the AGOA face extensive conditions, such as opening their markets to US trade and investment and implementing market-based economic reforms.
EU/ACP AGREEMENT (COTONOU AGREEMENT)
· Preferential trade agreement between the EU and 71 nations in Africa, the Caribbean and the Pacific. Allows duty free and quota free access to the EU market.
“ RTA’s can become vehicles for protectionism and trade rules that are inherently bad for poor countries and can bias the benefits of trade in favor of rich countries. In their current forms, RTA’s are helping to increase rather than reduce inequalities in world trade”. (Oxfam Trade Report)
· Increase in South-South trade over the past two decades
· 26% of exports within carried within developing nations in 1980.
· Increased to 40% in 1999, but growth constrained by import restrictions within developing countries.
. Average tariff on manufactured exports is three times higher than the average tariff imposed by industrialized countries. Tariffs on agricultural exports also very high.
Crucial trade issues discussed at the WTO
The WTO’s mission is to provide an institutional framework for the conduct of trade relations between its 144 members.
1. Agreement on Trade-related Aspects of Intellectual Property (TRIP)
The aim of TRIP is to create a set of trade rules designed to protect- through patenting- and raise prices for technologies and products developed by multinational corporations. The result of such a policy would limit and increase the cost of technology transfers to low income countries, further widening the technology gap and the resulting income inequalities in the process. Furthermore, TRIP also threatens to increase the cost of basic medicines with devastating consequences on the lives of people living in poor countries. All developing nations member of the WTO must provide patent protection for all new pharmaceutical products by 2005. LDC’s have until 2016 to comply. TRIP also causes serious threats to food security in poor countries as it challenges the right of farmers to save, exchange or sell seeds, using new bio-technologies to patent biological resources throughout the world (bio-piracy).
International Convention for the Protection of New Varieties of Plant (UPOV 1991)
· requires members to grant a 20 year exclusive right to plants and other biological resources.
· Will extend corporate control over the supply of seeds to farmers.
· There are already over 900 patents on the five staple food crops that account for 75% of the world’s food supply. 50% of these patented by 4 multinationals!
“Roundup Ready” crops: Soya, corn, cotton, sugar. Genetically modified to be resistant to the herbicide “Roundup” developed by Monsanto. Monsanto and Dupont control 75% of the corn market in Brazil. This is a classic example of the extension of corporate power over seeds and agricultural inputs through bio-technology and patenting.
(source: Wilkinson & Castelli, 2000)
2. GENERAL AGREEMENT ON TRADE IN SERVICES (GATS)
WTO agreement on liberalization of services. Biased in favor of industrialized countries in sectors such as banking and insurance at the expense of developing nations. Aims to liberalize key services such as water and transport.
“ GATTS could have devastating effects on the ability of governments to meet the needs of their poorest and most vulnerable citizens.” ( World Development Movement, 2001)
3. AGREEMENT ON TRADE RELATED INVESTMENT MEASURES (TRIM)
Rules presently negotiated at the WTO among member states to govern investments. The investment rules under TRIM prevent governments at establishing dynamic linkages between local industry and foreign investors and from locally capturing a greater share of export added value.
“ Applied in their current fashion, the investment rules under TRIM are limiting the ability of developing countries to raise the quality of productive investment and enter new, higher value-added areas of trade. Furthermore, they threaten to marginalise developing countries and the world’s poorest people within an already unequal global trading system. Overall, the WTO multilateral trading system is now little more than a smokescreen for the pursuit of private corporate interests and the subordination of developing countries to the dictates of rich countries. These rules threaten to widen inequalities associated with trade and weaken the link between trade and poverty reduction.” (Oxfam Trade Report)
Other issues and challenges facing Africa
Increases in world population
Year Population ( in billions)
-1900: 2 billion
-1980: 4 billion
-2000: 6 billion
-2020: 8 billion (projected)
Population growth in Africa
The population of Africa has increased from 300 million in 1980 to 700 million in 2000. At this rate, it is estimated that the population in Africa will double every twenty years and reach over one and a half billion people by 2020. This will obviously have tremendous negative social and economic consequences for the continent as a whole, unless political, economic, and social conditions quite different from those now prevailing are brought about.
The annual spending on armament has doubled from $US 450 billion to $US 1 trillion in the last twenty years- despite the end of the Cold War- and over 98% of all wars since WWII have been fought in developing nations. It is well worth noting that, according to the UNDP, an annual budget of $US 80 billion ( equivalent to 8% of total annual armament expenditure ) would be sufficient to eradicate poverty worldwide!
“ If only a fraction of the money, manpower and research presently devoted to military uses were diverted to development, the future prospects of the so-called Third World would look entirely different.” Brandt Report
Making trade under globalisation work for the poor
“ Policies which aim to strengthen the links between trade and human development must accord priority to the rural poor. Seventy five percent of those living in extreme poverty worldwide live in rural areas. The rural poor have unequal access to the physical and financial assets needed to take advantage of trade opportunities. Weak marketing infrastructure is another barrier to participate on global markets. Furthermore, distance to markets and poor roads lead to high transport cost. In Kenya, for instance, the marketing cost for food grains are 40% higher than in Indonesia- a fact that demonstrates the huge impact of infrastructure on competitiveness in both local and international markets. Remoteness from markets and inadequate access to roads raise the cost of marketing output, reduce farm-gate prices and increase the cost of inputs such as fertilizers. Moreover, when markets are liberalized, it is often impossible for poor farmers to compete with the price of imports ( subsidized and non-subsidized)
Finally, without access to the proper infrastructure, extension services and financial resources, the poor farmers are equally ill-equipped to respond to export market opportunities.
Rural poverty strategies need to place far more emphasis on investment in infrastructure used by the poor in areas characterized by high concentration of rural poverty. Extension services and research priorities need to be geared to crops produced by small-holder farmers in marginal areas. Access to rural savings and credit institutions is very undeveloped in many poor countries and so access to capital is constrained.”
Source: Oxfam Trade Report
· African governments MUST unite to speak as one voice within the WTO and should promote and defend trade policies that will benefit the African continent as a whole, rather than look after their own individual and particular economic interests.
· An immediate end must be put to the agricultural subsidies granted to western farmers by the G8 countries.
· Current trade negotiations within the WTO in multilateral trade related investments (TRIM, GATS), and new technologies (TRIP) MUST take into account the long-term impact of such policies on less favored developing nations and should not result in further marginalisation and increased world poverty.
· Removing import restrictions and damaging trade policies such as “escalating tariffs” imposed on developing nations’ exports of processed agricultural commodities to developed nations.
· The decision-making process for the design and implementation of multilateral trade
· rules should be made more democratic.
· Multilateral trade agreements should be designed to be mutually beneficial to all member countries.
“Aid” and financial dependence on the IMF and the World Bank.
“ He who pays the piper calls the tunes…” African governments MUST stop dancing to the tunes of the IMF and the World Bank! Independence means self-reliance. Africa must stop relying on so-called “aid” from both the IMF and the World Bank and other foreign governments and institutions. They MUST organize themselves – by setting up their own financial institutions - to fund their own development in the interest of the whole continent.
“ Essentially what has been called “aid” is money lent at interest rates that is often repaid to developed nations at two or three times the initial investment in a negative cash flow from poor to wealthy nations. In effect, aid is an inducement by developing nations to generate cheap exports from developing nations, which are obliged to acquire more and more foreign exchange to pay off their loans. This arrangement is simply winked as good business, a double standard that passes for charity. International aid is a classic example of a perpetrator-victim relationship: the one manipulates but claims to act in good faith, the other pays twice for his own oppression. To add insult to injury, the austerity conditions required by the IMF for development loans – known as the Structural Adjustment Programs (SAP) – have led to social breakdowns in scores of poor nations.”
(Source: Brandt Report)
· Given the tremendous and ever-growing economic, financial and monopolistic power of the multinational corporations throughout the globe, a global anti-trust and anti-monopoly institution must be set up and laws must be enacted and enforced to protect the national interest of both countries and their citizens where multinational corporations operate.
“ International corporations continue to locate in nations where wages, taxes, trade, financial and environmental restrictions are lowest. There is virtually no regulation of corporate practices, which are often at odds with the development objectives and national interests of poor countries.” Brandt Report
Setting up of an International Commodity Institution
· Given the highly unpredictable and volatile agricultural primary commodity world market and the severe economic and social cost associated with a decline of their prices on world markets by countries highly dependent on primary commodities for their export earnings, a global International Primary Commodity Institution must be set up to manage the structural over supply of primary commodities, which is at the root cause of price instability and decline, for the mutual benefit of producers and consumers alike.
Cancellation of the debt
· A bankruptcy law protecting countries who are no longer able to meet their financial obligations vis-à-vis creditors should be passed to allow them immunity and legal protection from their creditors. A mechanism similar to the one operating under commercial bankruptcy law should be put in place to compensate the creditors.
· Meanwhile, developing nations who are spending a large proportion of their annual revenue in servicing the debt should unite to lobby for the reduction or cancellation of the “public” debt, and should take necessary concrete actions to build strong financial institutions and implement sound economic policies to break free from the vicious cycle of poverty, “aid” and debt.
“ Forgiveness of sovereign debt would trigger both an enormous boost and a historic turning point in international development. Poor nations could could break the vicious cycle of borrowing, producing for exports, …and repaying their debt. By reversing the net outflow of capital to developed economies through the stimulus of debt forgiveness, poor countries would enjoy the possibility of real development and growth, many for the first time.” Brandt Report
REFORMS WITHIN AFRICA
Accountability of African governments
· African governments MUST provide the proper economic, political, social, institutional and legislative framework needed to ensure, protect and promote peace, stability and the economic welfare of the countries which they have been mandated to manage.
· African governments MUST be held accountable vis-à-vis their citizens for economic policies implemented within their respective countries, just as corporations are held accountable to their shareholders. Furthermore, they MUST publish and make available to the public detailed accounting and financial reports concerning the affairs of the country on a quarterly basis.
· African governments MUST inform the public on issues relating to the welfare of the country and MUST obtain unanimous majority approval from the people before implementing them.
· Last but not least, government leaders ( Presidents, Ministers and other high officials within the government) should be hired based on competence and merit. This would not only save considerable financial resources drained in the electoral process, but would also considerably improve the quality of leadership. Furthermore, all government officials should be hired on a contractual basis with rights and responsibilities clearly defined and sanctions for breach of contract enforced.
African Union: Africans must speak with a common voice
· Africans MUST unite together and work for the common welfare of the African continent as a whole. They must speak with one strong, united voice on the global scene to promote and defend Africa’ political, economic, social, cultural interests.
Free Trade Zone
· African countries MUST unite to create a free trade zone on the continent that allows the free flow of goods, services, capital, technology and people. Artificial borders and trade barriers inherited from colonialism only serve to act as barriers to development and must be put down. Trade among and between African countries MUST be increased and encouraged. Furthermore, consumers need to be educated and encouraged to purchase African made goods as a way to contribute to the economic development of Africa.
African common currency
· Africa MUST create and use a common currency. This measure will not only facilitate trade among African countries, but will also strengthen the value of the currency and make it less vulnerable to fluctuations on the international currency markets.
Setting up an “African Bank”
· Africa MUST set up its own “African Bank” to break free from the financial dependence and the dictates of foreign governments and institutions such as the IMF and the World Bank. The objective and mission of such an institution would be to finance development projects in Africa for the common and mutual benefit of the continent as a whole.
“Not Uhuru Yet…”
· Africa has fought and gained its political independence during the course of the last century. The struggle for Africa in the twenty first century is the struggle for economic independence. There is urgency, as everyday millions of people in Africa are being crushed under the oppressive wheel of economic and social injustice. Africa’s future and very survival is at stake…
Global integration and global economic reforms
A global economy needs a global institution and global tools to manage it. A framework for integrated global economic decision making must be set up to achieve an equitable international economic system mutually beneficial to all countries.
As it is, decision about global integration are left entirely to the private sector and to the G8 governments, which are distrustful of multilateral forums and strategically opposed to representative negotiations for international development.
The reality of the ever-growing and inevitable interdependence of nations under globalization puts the issue of global integration and global economic reforms high on the twenty first century agenda.
“The achievement of economic growth in one country depends increasingly on the performance of others. The South cannot develop adequately without the North. The North cannot prosper or improve its economic welfare unless there is greater progress in the South.” (Brandt Report , North-South)
“Interdependence seems self-evident, but today there is still no international consensus or collective action on vital economic matters and other global interconnected issues. It is a contradiction in terms to have a global market without a standard unit of account, an orderly system of exchange rates, or a global regulating trade body. Future generations will look back in astonishment at the ultimate irony of the post-modern era. In a global economy, there is no global board of managers, nor decision-making power vested in the majority of the global partners.” (Brandt New Equation. A blue print for the 21st century)