Ngozi Okonjo-Iweala, WTO and Africa

Opening Business

Tomorrow, February 15, 2020, Nigeria’s former Finance Minister Dr. Ngozi Okonjo-Iweala, will be formally appointed as the director-general of the World Trade Organisation, WTO. This is coming after the United States dropped its opposition to her selection. Nosa James-Igbinadolor looks at what Africa’s relationship with the WTO would be like under Okonjo-Iweala’s leadership

Nigeria’s former Finance Minister, Dr. Ngozi Okonjo-Iweala, will be coronated as the next director-general of the World Trade Organisation (WTO), tomorrow

The former World Bank managing director’s long and treacherous road to the leadership of the global trade group was smoothened with the election of President Biden, who signposted support for her last week, assuring her of victory in the consensus-centric race when members meet to vote in Geneva tomorrow.

During the presidential campaign, Mr. Biden had promised to reject his predecessor’s antagonism toward multilateral institutions, therefore encouraging the other 163 WTO members to delay for months a final decision on the next director general until the new administration came into power.

Dropping the United States’ opposition to Dr. Okonjo-Iweala’s selection was the new U.S President’s way of signalling a change in trade policy direction from his predecessor’ cantankerous and ultra-masculine strategy that ultimately inhibited global cooperation. Mr. Trump’s policies ultimately rendered the WTO ineffectual in the last five years.

Dr. Okonjo-Iweala, therefore, has a laborious and uneasy task of reviving the efficacy and capacity of the WTO as the major driver of international trade and global competitiveness.

As noted by the Washington Post, “even supporters of the WTO agree that it needs substantial changes in deciding and enforcing the rules of global trade. Trump’s refusal to permit the appointment of new judges kneecapped its appellate system and ability to settle disputes. Rules that require all-member approval thwart any agility.”

It was perhaps this understanding that compelled the Harvard-educated development economist to warn in July last year that what the WTO needed was a shake-up. “They need something different. It cannot be business as usual for the WTO. They need someone willing to do the reforms and lead.”

For Okonjo-Iweala, gaining the backing of the United States is the start of what will obviously be a long and tedious assignment. The COVID-19 pandemic and the resultant ascendancy of economic nationalism will be a test for the new incoming WTO Chief.

Okonjo-Iweala has made it clear that her first priority would be to ease the flow of goods, particularly protective gear, drugs and vaccines, at a time when countries are hoarding supplies.

She had warned last year, “that the outcry in virtually every country about the lack of equipment and supplies to test for and protect against COVID-19 will lead countries to re-examine their supply chains for critical health and livelihood related products. This will lead to a surge of nationalism with respect to the need to produce pharmaceuticals, medical supplies, and equipment domestically. Even countries that traditionally had no capability in these areas will seek to develop the same.”

She had hoped, “The realisation that the economic costs of a pandemic can be huge, far surpassing investments in research and prevention, will lead to billions more dollars of investment in research, vaccines, therapeutics, and non-medical methods of prevention. This will mean that trillions of dollars in economic losses, loss of life, and loss of livelihoods for millions of poor people all over the world will be averted”.

What’s in it for Africa?

Africa accounts for approximately 27 per cent of total WTO membership and 35 per cent of WTO developing countries’ membership.

Trade is vital for Africa’s development and to generate enough good jobs to absorb the 17 million young people who enter the labour market every year. But, for too long, global trade regulations have left the continent holding the short end of the stick.

Although there have been improvements in African trade and economic performance since the domestic reforms of the late 1980s and 1990s, its performance has continued to lag behind that of other developing country regions in Asia and Latin America. Africa’s share of global trade has remained very low. As noted in an article by the International Development Policy Group of the Graduate Institute Geneva, “although a few African countries, mainly oil exporting ones, have performed relatively well, the majority have seen the share of their world trade decline. A complex set of internal and external factors account for this decline and low African share in world trade. Competitiveness rankings are low, as reflected in Global Competitiveness indices. African countries have not sufficiently diversified. There is still large dependence on one or two primary commodity exports. As a consequence, they have been affected by swings in commodity prices. Domestic markets are plagued by internal barriers to trade, such as low level and poor-quality infrastructure, corruption, blunting of price signals. African markets remain small with regional markets insufficiently integrated. They have also been affected by protectionism in developed country markets, through both tariff and non-tariff barriers.”

One of Dr. Okonjo-Iweala’s greatest achievements was leading a team, which negotiated a whopping $18bn debt write-off in 2005 for Nigeria, helping the country obtain its first ever sovereign debt rating.

The country’s debts date back to the early 1980s, and had ballooned to more than $35billion due to penalties and late fees during the 1990s.

She told the BBC, last year, that it was the ordinary African that she was most concerned with. She said that she wanted to “figure out how to get women and youth, who are behind these engines of growth in Africa, to benefit more from world trade.”

She was also keen to make sure that the continent moves away from exporting raw materials and instead “adds value to the goods or products we produce for the global market.

“For instance, we import 94per cent of pharmaceuticals on the continent while we can produce these locally in Africa.”

While trade talks may seem cryptic and take place behind closed doors, their consequences can affect everyone’s live. From the petty trader, who criss-crosses a border several times a month, to the consumer buying an imported item in a market, to someone with a job in a manufacturing industry, they are all affected by the rules of trade.

In Africa, trade is viewed as a driver of growth, a way towards sustainable development and as a tool for poverty eradication.

Ms. Vera Songwe, a non-resident Senior Fellow at the Brookings Institution, noted in 2019 that, “The debate on the benefits of trade has dominated this decade, and Africa has cast its vote for more and better trade with itself. In March 2018, African countries signed a landmark trade agreement, the African Continental Free Trade Area Agreement (AfCFTA), which commits countries to remove tariffs on 90 per cent of goods, progressively liberalise trade in services, and address a host of other non-tariff barrier.”

“Creating a single, continent-wide market for goods and services, business and investment would reshape African economies. The implementation of AfCFTA would be a huge step forward for Africa, demonstrating to the world that it is emerging as a leader on the global trade agenda,” Caroline Freund, Global Director of Trade, Investment and Competitiveness, posited.

According to the World Bank, the African Continental Free Trade Area (AfCFTA) agreement will create the largest free trade area in the world measured by the number of countries participating. “The pact connects 1.3 billion people across 55 countries with a combined gross domestic product (GDP) valued at US$3.4 trillion. It has the potential to lift 30 million people out of extreme poverty, but achieving its full potential will depend on putting in place significant policy reforms and trade facilitation measures.

“The scope of AfCFTA is large. The agreement will reduce tariffs among member countries and cover policy areas such as trade facilitation and services, as well as regu­latory measures such as sanitary standards and technical barriers to trade. Full implementation of AfCFTA would reshape markets and economies across the region and boost output in the services, manufacturing and natural resources sectors.

“As the global economy is in turmoil due to the COVID-19 pandemic, creation of the vast AfCFTA regional mar­ket is a major opportunity to help African countries diversify their exports, accelerate growth, and attract foreign direct investment.”

The rubrics, goals and objectives of the AfCTA aren’t incompatible in anyway with those of the WTO, and Dr. Okonjo-Iweala could help pilot it towards more support for the continent. That could be in offering technical help, trade analysis and policy expertise, turning the dream of free trade across Africa into reality. In addition, she will possess the moral capacity to pressure African political leaders to design and implement sensible trade policies that support growth.

As posited by Prof. Pat Utomi of the Lagos Business School, “The whole thing about international trade is that the comparative advantage that parts of the world bring to the table makes for everybody’s greater prosperity. It is in the mutual interests of all that trade be more equitable.”

Africa should demand a level-playing field from the WTO. A level-playing field that rejects import barriers in developed economies, including tariff escalations and stringent standards for final goods that have limited Africa’s ability to move up value chains.

In addition, shifting rules, which the University of Cambridge economist Ha-Joon Chang described as the phenomenon of rich countries “kicking away the ladder” with which they had climbed to the top, remains an obstacle to Africa’s effective integration into the global economy. Advanced economies do not allow developing countries to adopt the industrial policies that they themselves used to transform their production structures and diversify their exports. It is the expectation that the WTO would recognise this dissonance and help support Africa in this regard in the continent’s trade with developed economies.

As argued by Africa Business in a September 2020 report, perhaps the most serious indictment against the WTO system is the agricultural subsidies developed countries’ governments provide, at the expense of millions of Africa’s poorest farmers. These subsidies not only depress world food prices, making it difficult for African producers to compete, but also lead to excess production being dumped in African markets, which wipes out local industries and thus threatens food security.

There is, thus, an expectation that a WTO led by Okonjo-Iweala would critically look at this as a means of supporting Africa, while at the same time ensuring that Africa is not locked out of critical discussions and policies that affect global trade.