New Old Dependencies? Trade with Africa

00:00:03: International Reports, around the world with the Conrad Adonale Foundation.

00:00:11: Hello and welcome to another edition of International Reports.

00:00:14: I'm Eric Olander.

00:00:16: Today we're going to continue our discussion exploring the legacy of colonialism and the impact it's having on foreign policy in different regions around the world.

00:00:24: In our last show, I had a fascinating conversation with Stefan Malarius and Florian Binder on Russian imperialism in the South Caucasus.

00:00:32: If you haven't had a chance to catch that show, I highly recommend it.

00:00:36: Our focus today, though, is going to shift to Africa.

00:00:39: It's been more than half a century since most African countries gained their independence from European colonial powers.

00:00:47: But the intervention by external powers in Africa didn't end when the French, British, German, Portuguese and Italian flags came down.

00:00:57: By that time the Cold War was well underway and Africa was a frontline battleground between the Soviets and the Americans.

00:01:04: But Africa was by no means alone.

00:01:06: It was a similar situation in both Asia and Latin America.

00:01:10: Yet in the intervening years since independence and the end of the Cold War, many economies in those other regions, especially in Asia, have flourished.

00:01:19: while most African countries remain stubbornly at the bottom of the development index.

00:01:23: And the question we want to explore today is to what extent is the legacy of colonialism to blame?

00:01:30: There's a fascinating article by Anya Bereta who heads the Conrad Adenauer Foundation's regional economy program in Africa in the print edition of International Reports that explores this complex issue, trade with Africa, new, old dependencies.

00:01:45: Anya joins me today from our office in Nairobi, and we're also joined by Gunter Rick Munkayo, the Economic and Trade Policy Advisor at the Conrad Adenauer Foundation, who has spent quite a bit of time working in Africa as well.

00:01:58: Anya and Gunter, welcome to the International Reports podcast.

00:02:03: Hello, good morning.

00:02:04: Good morning also for me.

00:02:05: Before we get started, I just want to make a very small disclaimer.

00:02:10: This is an extremely sensitive topic and one that we cannot do justice in just a short half-hour discussion.

00:02:18: So I hope that you'll see what we're going to do here today as a starting point to a much larger conversation about the role that colonialism played and continues to play in African economic development.

00:02:30: Okay, Anya, with that said, let's dive in.

00:02:34: Your report highlights two major schools of thought on this issue.

00:02:40: Those who support neocolonial theories and put today's challenges squarely at the feet of that history that I discussed in the introduction.

00:02:47: And then there are others who argue that Africa's economic problems today have a lot more to do with poor governance and inadequate planning than with meddling from outside powers and dependencies on the West.

00:02:59: Help us understand the landscape of this debate that you outlined in your article.

00:03:04: Yeah, and as you rightly said, since independence, a lot has happened on the African continent in Sub-Saharan Africa, but nevertheless, a lot of the African countries can still be found continuously on the bottom of economic development indexes.

00:03:17: And so rightly, a lot of people are asking themselves, how is that even possible, right?

00:03:21: And while some entirely focus on internal factors, such as, you know, lack of strong institutions, lack of political will, lack of good governance, Others blame external factors and one of them obviously is the question in how far have these countries ever become truly independent?

00:03:42: or are they still in one way?

00:03:44: or are they dependent on the former colonial powers or if you want to say the global north or the west?

00:03:51: and are they not exploited today?

00:03:54: Still obviously they're independent on the paper but in how far are they really independent?

00:03:59: or are external?

00:04:01: powers continuing to exploit them, and that's what I would call basically the theory of neocolonialism.

00:04:08: There are also a lot of definitions.

00:04:11: I'm not going to say one is right, the other is wrong, but I use the term of neocolonialism in my paper in the sense that countries are formally independent on paper, but there's still some form of dependency on other countries, which obviously is not favorable for African countries.

00:04:27: Guntur, what's your take on this debate and these two different perspectives that Anya laid out in the article?

00:04:33: Well, of course, institutions do matter, right?

00:04:35: But it's not as simple as saying, well, just build them up from scratch and do it right.

00:04:41: Because every institution that we have, be it a proper organization, or be it a more informal set of rules, is always built up like geological layers, right?

00:04:53: So they come with a history.

00:04:56: So it's not so easy to separate those two schools of thinking.

00:05:01: They always mix up.

00:05:03: And then you come to interesting results.

00:05:05: Take, for example, the France CFR, so the currency in a lot of Western and Central African countries.

00:05:13: There you have a very strange institution.

00:05:17: You have this currency that is a result of the colonial past.

00:05:23: That comes with some benefits for the countries.

00:05:25: So you have a fixed exchange ratio to the euro, which gives investors some security in terms of planning.

00:05:33: Then you have the limited influence that the countries can play in monetary policy, which is also good because it makes the currency more, you have less.

00:05:47: influence from shifting political views on the currency.

00:05:51: But at the same time, it's a highly emotional topic.

00:05:54: I can understand that for a lot of people, this is a symbol of the past, the past that is not associated with good memories and that they want to build something new.

00:06:05: But again, in this case, you would build a new layer, a new geological layer on top of the older one.

00:06:12: And that's why it's so difficult and that's why the discussions are so heated up.

00:06:15: And

00:06:16: just to bid it on on this, Gunther very rightly say, and I don't say in my article that it's only the external or the internal factors.

00:06:22: It is, of course, the truth is somewhere in the middle.

00:06:25: But from my point of view, if you people that argue on this neocolonialism theory, they really, really focus only on external factors.

00:06:33: And I think that's not correct.

00:06:35: Yeah, that's an important distinction to make.

00:06:38: It's also important to note that, and you point this out in your article as well, that Africa is by no means a monolith.

00:06:43: This is a diverse tapestry of countries, languages, cultures, and there's a lot of, you know, variety in terms of how different countries are pursuing economic advancement.

00:06:54: Anya, according to your research, what accounts for why, in your view, some countries seem to be progressing and other countries, not so much.

00:07:04: Yeah, and I also need to make a disclaimer.

00:07:07: So my article is really mainly focusing on economic development.

00:07:11: We're not looking on democracy institutions.

00:07:14: I mean, they do play a role, a super, super essential role, as Gunther mentioned, but I'm really focusing on economic development.

00:07:21: So what I argue in my article is that after independence, African countries took very different paths to develop their economies.

00:07:33: Completely opened their economies.

00:07:35: after independence they have introduced rules of free market economy have liberalized their markets were very keen and interested to bring in foreign investments and.

00:07:45: As a consequence I have created this let's say enabling environment for foreign investors specifically.

00:07:52: others had other ideas how to achieve economic growth and they have nationalized former private industries very much from the socialist idea.

00:08:02: have tried to close their markets and especially now in the seventies and eighties.

00:08:07: And as we know today, that was probably not a very good idea because if you compare those countries, for example, I compare in my article Tanzania and Kenya, which after independence had very, very similar economic indexes, Tanzania was slightly richer than Kenya.

00:08:21: Kenya has chosen this free market approach and Tanzania you know, has nationalized most of the economy and that today, you know, results in Kenya being much richer and much better off in economic development than Tanzania.

00:08:34: So this is one factor.

00:08:36: And if you look at, you know, the trade patterns of African countries, they very much focused in the past and some of them are still focusing today on the export of raw materials.

00:08:48: So you have something, you have natural resources.

00:08:50: We know that African countries are very rich in natural resources.

00:08:52: But then the question is, how do you build value?

00:08:54: from that.

00:08:56: And there are two possibilities.

00:08:57: You can reinvest what you have gained as a state from the extraction of the values and try to diversify your economy.

00:09:05: Or you can continue this pattern where you basically just export raw materials and don't build up industries.

00:09:11: And that, again, is one of the factors why some countries are much better off today than others.

00:09:16: Because, for example, Mauritius, they had a strong sugar industry, but then they have very soon after independence, tried to reinvest the revenues from the sugar cane industry into other industries such as textile, where other countries like the DRC, which is also very rich in natural resources, they have not tried to diversify their economies, which today, of course, makes them very vulnerable to external factors such as world prices.

00:09:44: Gunther, this diversification question is a big one.

00:09:47: And moving up the value chain, of course, is not only a problem for African countries, but a lot of developing regions.

00:09:54: Yeah, of course, Eric, these two issues that you mentioned diversification and climbing up the value chain error are key factors.

00:10:00: And if you look at the trade patterns in Africa, Anja already mentioned that these are very relevant, then you can see an interesting factor that Anja also mentioned in her article.

00:10:13: If you compare the trade that happens within Africa to the trade that leaves the continent, they are very different.

00:10:21: So the trade within Africa is much more diversified and has much more value addition than the trade that leaves the continent.

00:10:29: So I think and I hope that we will get back to this point in this podcast.

00:10:35: I think a key lies within fostering intra-African trade.

00:10:40: Well, let's talk about those trade patterns on you.

00:10:43: Inter-African trade is one of the solutions that you talk about for the future.

00:10:48: But you also talk about the role that Europe plays in all of this.

00:10:51: And a lot of these conversations about neocolonial exploitation naturally migrate to European intervention.

00:10:58: But you point out today that Africa's trade relationships are much more diverse than just selling to Europe.

00:11:03: In fact, China, India, Asia, the Gulf are now all major players in the African trade portfolio.

00:11:10: us a little bit about the diversity of trade actors and that intra-African trade that Gunter was talking about.

00:11:16: Right, Jan, I think this is a very important point, Eric, that is often overlooked.

00:11:20: So in the nineteen nineties, basically the end of the Cold War, Europe was the default trading partner of African countries.

00:11:26: Trade was more or less counting for fifty percent on both sides.

00:11:30: So trade to Africa.

00:11:32: but also export goods coming from Africa that were almost exclusively going to Europe.

00:11:37: And that obviously has changed significantly over the past thirty years.

00:11:40: Trade to China alone in these days is counting for up to thirty percent.

00:11:46: So, you know, I'm also asking myself if the people that argue that there is a neocolonialism power pattern, Europe is by far not the only partner anymore.

00:11:56: So we don't even can say we are controlling Africa.

00:12:00: exclusively in that sense because there are a lot of other partners that came along across time.

00:12:05: And I think it's also very important to note that the structure of the trade is very similar.

00:12:12: So Africa is exporting mainly raw materials to Europe.

00:12:17: but also to China, to India and to the Gulf states.

00:12:21: So you couldn't say that trading mainly processed goods with Europe and raw materials for China.

00:12:26: The patterns are very, very similar.

00:12:28: But I would say there is a big difference because China has heavily invested in infrastructure in Africa, which is something that African countries needed and wanted.

00:12:38: So that's a good thing.

00:12:39: But very often this came with strings attached.

00:12:42: So in return, For, let's say, investing in infrastructure, China has secured very favorable deals to raw materials, mines, that I would say have a much, much higher value than the value of the infrastructure that China provided.

00:12:59: So it is a bit questionable in which this has supported sustainable economic growth on the country, while usually Europe as a trade partner has different priorities.

00:13:10: We also focus on the labor force.

00:13:13: country because obviously it's too expensive to bring in very qualified workers from Germany exclusively.

00:13:20: So I think there are some points when it comes to sustainability, providing jobs, also environmental standards, social standards.

00:13:27: I think European countries on average are a bit more respectful of those.

00:13:32: So when it comes to sustainable development, I would argue that the trade relations with Europe have been more favorable for African countries than those with China.

00:13:41: Yeah, and Eric, if you allow me to dive in or to jump in on these investment deals that come with strings attached, as Anya pointed out, because we can observe that the transparency according to these investment deals is very, very low.

00:13:58: So in a lot of cases, we don't know a lot about them.

00:14:02: In the cases, we do not have something about them.

00:14:05: we can see that the conditions for these deals are not all very favorable for the African countries.

00:14:12: Swiss newspaper did an article some years ago about a crossroad in Uganda, because there's a crossroad where the highway from Entebbe Airport to Kampala meets a street funded by the European Union.

00:14:25: And they compared the terms, the conditions of this investment.

00:14:31: And so they compared the interest rate, they compared, for example, the fact that the Chinese money was alone, the European money was part grand, part blown, and they came to the conclusion that based on the numbers, you cannot explain why they choose the Chinese money.

00:14:49: And the authors said, well, maybe the only way to explain it is maybe that some form of corruption played a role.

00:14:57: So there you come very quickly to the fact that Also, the political elites play a major role, and it's very important to look at how the political elites deal with these issues.

00:15:12: So, Gunter, let's stay with this issue of political elites, because this is also touching on one of the major themes that Anja brought up in the article about governance.

00:15:22: and governance related to intra-African trade.

00:15:25: In fact, a lot of traders in Africa will say that it's still easier to ship the cargo container to China or to Dubai than it is to ship it from Addis Ababa to Dakar in Senegal.

00:15:37: So Anya, talk to us about the issues that you raised in terms of smoothing out intra-African trade as that is one of the keys to success.

00:15:46: looking to the future.

00:15:48: Right, so the fact that the shipment of containers is so expensive in Africa is of course an infrastructure problem and the investments that need to be taken into into African infrastructure are huge and they're enormously.

00:16:02: So I think everyone is aware of that.

00:16:04: but that is also I think an opportunity to build this infrastructure to build it sustainable to build it green and.

00:16:11: we have to also understand that it's not only African countries that will benefit from inter-African trade or the improvement of inter-African trade, but also European companies because some of the countries in Africa have so small market size that it doesn't really make sense to invest in those countries.

00:16:31: But then if you can say, oh, I'm not only investing in, let's say, the Gambia, but they're so well connected to Senegal, or I'm not only investing in Malawi and Zambia, But I'm also investing in Namibia in South Africa and the road infrastructure is so good that it makes sense for me.

00:16:46: Then you have another entirely different business case.

00:16:49: So I think this is one thing we need to keep into consideration.

00:16:52: And so for me, the Inter-African Free Trade Agreement presents a big opportunity for African countries.

00:16:59: The one thing that you need to realize it, in short, is political will.

00:17:04: I think it comes all down to political will.

00:17:06: It's not a problem of legislation.

00:17:08: It's not a problem of declarations of intentions, but really of implementation.

00:17:13: And why is that so?

00:17:15: On the paper, advocacy for free trade is very easy.

00:17:18: No one could say anything against it.

00:17:20: But then when it comes to the national level, to the integrities, it becomes a bit more difficult.

00:17:25: And you know that some African countries are not in best terms with their neighbors.

00:17:30: quite the contrary.

00:17:31: They're very close borders.

00:17:32: And while, as I said, it's easy to say, on a national level, or on a regional level, we're all in for free African trade, on a national level, one country might be very much afraid that the labor force from the neighboring country will seriously cause a problem for their own labor force.

00:17:50: So I think on a national level, there are a lot of fears.

00:17:55: There is lack of political will.

00:17:57: And of course, as we have seen in Europe also in the past, if you say we're going to have a free trade area, at some point you need to give up some of the national sovereignty.

00:18:06: And a lot of countries obviously find this very difficult, saying we're giving up some of our key policies into the African Union and we are not then in charge of that anymore, but another institution is.

00:18:20: The big opportunity I see Currently is really the geopolitical situation.

00:18:24: I think this is really a wake-up call for African countries in this entirely or a more and more fragmented world to say we need to have more reliance on the continent.

00:18:36: We can't always rely on external partners because it is to some extent very unpredictable what is happening with taxes and tariffs.

00:18:44: How is the US going to treat us in the future?

00:18:47: How is China going to act on that?

00:18:49: Where do we find ourselves in this trade war?

00:18:51: And there's of course the fear that Africa will lose out when two giants such as US and China are in a trade war.

00:18:59: And this might really be the moment in time, the window of opportunity for African countries to really say, we need to get our act together.

00:19:07: We can't always react to developments in other parts of the world.

00:19:11: We need to act and we need to find a stronger.

00:19:15: African trade zone.

00:19:17: And as Gunther rightly mentioned, it's not that within the African area you're shipping tomatoes from one country to another.

00:19:23: It's more really processed goods.

00:19:26: So this is really, really an opportunity for African countries to act and to show and demonstrate that political will that it needs from my point of view to really implement the African free trade agreement.

00:19:38: And allow me, Anja, to stress out one of the points that you mentioned that these would also benefit countries outside of the African continent.

00:19:47: Because, for example, we as Germans, we are highly dependent on trade.

00:19:52: We are an aging society with stagnating productivity.

00:19:56: So we do need the gains from trade to finance our welfare systems and to keep everything running.

00:20:02: And we benefit really, really much.

00:20:06: from trade with developed countries.

00:20:09: The richer the trading partner is, the more we benefit.

00:20:12: So we don't have any interest in keeping our trading partners poor.

00:20:16: We would definitely benefit from a boosting economic development in our trading partners in Africa.

00:20:23: So that's a very important point from my point of view.

00:20:26: and allow me just to add something to the high cost of trading within Africa because you rightly said that the trading cost is very high due to infrastructure problems.

00:20:37: but there is also.

00:20:39: another site or another factor that plays a role.

00:20:42: It's really important to stress out how big the logistic costs are on the African continent.

00:20:47: So for example, if you look at a product in the supermarket shelf here in Europe or in the United States, roughly six to seven percent of the price of the good is caused by the cost of logistics.

00:21:03: In Africa, it can be up to seventy percent.

00:21:05: So it's a huge difference.

00:21:07: The consumers pay a high price for the situation.

00:21:11: And of course, the infrastructure plays a role, as Anya pointed out, but there is more to that.

00:21:15: That's of course the bureaucracy on the border.

00:21:17: The border procedures are a nightmare in a lot of cases.

00:21:21: The number of paperwork you need to cross the border is really, really insane.

00:21:26: And also you have a very fragmented market.

00:21:28: So most of the goods are transported by trucks.

00:21:32: For example, if you look at Kenya, And you have like one hundred fifty thousand trucks on Kenya's road.

00:21:37: But the largest trampled company in the country owns just a thousand four hundred trucks.

00:21:44: The second largest only six hundred.

00:21:46: So you have to deal with a very fragmented market.

00:21:50: And you have often the situation that you have to call several partners.

00:21:54: If you want to ship something, you have to call like for say for say forty transporters, but only twenty will answer the phone.

00:22:00: So you have on the one side the need, so you don't find the trucks that you need.

00:22:06: But on the other side, we have trucks just sitting along the road empty because they don't get an order.

00:22:12: And I think that, well, I believe, and I see already some startups dealing with that.

00:22:17: And I think that the new technologies, the digital technologies, they can help a lot.

00:22:22: They can help the African countries a lot to deal with this fragmented markets and also with facilitating border procedures.

00:22:29: Yes, sorry, I just wanted to build on that.

00:22:31: I mean, what Gunther described there, I think, is a super relevant point, the so-called non-tariff barriers.

00:22:37: And this is only one example, and you have so many more.

00:22:40: And, you know, it's estimated that actually the non-tariff barriers are actually much more costly than actual taxes.

00:22:47: So this whole delays because of bureaucracy, the fact that there should be laws but then they're not implemented.

00:22:53: I can give a very concrete example.

00:22:54: A lot of countries had reduced import taxes for materials that were used to build solar panels because there was the idea we need more renewable energy.

00:23:04: But the moment you contain a lens in a country and you say I'm actually exempted from VAT or I have to pay very little VAT.

00:23:12: You know, that's on paper, but it's not implemented.

00:23:15: So you would still have to pay, you know, this taxes in some form of, I don't know, you want to call it bribery or something to get your container out, right?

00:23:23: And this of course causes a long of delays.

00:23:25: It adds some layers of unpredictability.

00:23:29: And it's a risk, of course.

00:23:30: And we all know that risk is really the one thing that kills businesses.

00:23:34: And then it comes back to political will.

00:23:35: Do you have someone who says, I'm really standing up and this needs to stop?

00:23:40: Or is it just lip service?

00:23:42: This is super, super important.

00:23:44: It is.

00:23:44: But I just want to bring you back to the end of your article.

00:23:47: And you, despite these challenges, and there are many, remain optimistic that intra-African trade and the direction that a lot of African countries are going is quite encouraging.

00:23:58: No, absolutely.

00:23:58: And I think also one argument that you have to make against neocolonious theories is they basically deprive African countries of their own agency.

00:24:08: If you say, you know, they're a hundred percent dependent on external forces, that really, you know, makes them very small and a lot of countries have shown remarkable.

00:24:17: efforts and have shown really that they want to develop their economies, that these things are very, very important to them.

00:24:25: And that really needs to be, I think, in the center of arguments.

00:24:30: And Africa, again, is not a country as a continent.

00:24:33: It has fifty-plus countries and they're very, very different in their development.

00:24:38: And so I remain optimistic because I think because of this fragmented situation that we see in the world, in the geopolitical scenario, African countries have more and more bargain power.

00:24:50: Because if they come together, fifty-plus states is something that you can't ignore, be it in, you know, multilateral forums such as the UN, Africa is the presidency of the G-twenty this year.

00:25:01: And South Africa has been very vocal about economic development and also asking other partners to participate in that.

00:25:10: So I remain optimistic because I think there are a lot of good examples from African leaders that demonstrate leadership.

00:25:16: And again, yeah, it's a huge continent, a lot of countries.

00:25:20: And the market of the future, you already have, I think in about twenty fifty, you know, the market size of Africa will exceed China and India.

00:25:31: This is really the market that everyone should be keen to tap into now because you have a raising middle class, you have more and more people that want to purchase, that want to consume.

00:25:42: Western products are very high on the agenda because they stand for quality.

00:25:46: There is really an interest to strengthen the economic relations, I think specifically with Western countries from the African side.

00:25:56: This is why I remain optimistic.

00:25:59: Well i'm glad that we could end on an optimistic note.

00:26:02: that is always very encouraging on your gunter.

00:26:04: thank you so much for your time and for your insights today.

00:26:08: the article is trade with africa new old dependencies by ania beretta head of the conrad adnauer foundations regional economy program in africa and it's available in the print edition of international reports.

00:26:21: I also want to thank Gunter Rick Moncaio, the Economic and Trade Policy Advisor at the Conrad Adenauer Foundation for joining us today and for his insights on these complex, very sensitive, but very interesting issues.

00:26:34: Anya Gunter, thank you so much for joining us today.

00:26:37: Thank you.

00:26:37: Yeah, thank you for having me.

00:26:39: And that'll do it for this edition of International Reports.

00:26:42: I'm Eric Olander on behalf of everyone at the Conrad Adenauer Foundation around the world.

00:26:47: Thank you for joining us today and we look forward to having you join us again for another edition of International Reports.