Opportunities out of thin air: Opening African trade

Imtiaz A. Hussain | Published: April 29, 2019 21:48:36 | Updated: May 08, 2019 21:15:22

Middle-income country membership does not come easily. Once in, two well-trodden pathways to the top will grab our attention: shifting import-substitution industrialisation (ISI) to a higher technological echelon, if that is what prompted entry in the first place, at a lower threshold, such as textiles production; or export-led growth (ELG), exploiting competitive labour-wage opportunities. The former requires easily accessible inputs at incremental individual skill-levels, the latter the capacity to thrust domestic industries to the front-line as and when free-trade agreements (FTAs) so deem, or in anticipation of such an outcome. Whereas a sliding industrial structure signals potential success in the former, FTA regimes do likewise in the latter.

Whereas the former is associated with Latin America, the latter characterises East/Southeast Asia. From the former we learn of the long-term ISI costs: enormous growth in the 1950s and 1960s, largely capitalising on virgin opportunities, followed by a 1970s crash, leaving the 1980s as an entire Latin "lost decade." A neo-liberal embrace supplied the embrace, at least until now, when another slump is again knocking on many Latin doors for the same sticky-feet reason as in the 1970s.

East and Southeast Asian countries went in the same direction (exporting to developed countries, DCs), on a different trajectory, with policies more attuned to the prevailing global political economy to not sink as deep as the Latin ISI approach had. Not just the 1950s and 1960s, but also the 1970s and 1980s were moments of Asian growth, but liberal capitalism took on a "crony" version. This recalibration of market practices, as opposed to Latin independence from it and inherent ISI inflexibility, caught up with East and Southeast Asian countries by the mid-1990s, slamming them with a massive financial crisis. Even in learning, Asian countries seem to be edging their Latin counterparts within the same neo-liberal framework two decades into the 21st century.

True other factors intervene, like US Cold War engagements practically opening US markets to all these countries without commensurate reciprocation. Likewise with China from the 1980s, dangling baits, export-markets, and investment funds with no strings. Nonetheless, the more the external engagements (as in Asia), the lower the adjustment costs and frequencies; and the higher the collective action, that is intra-regional engagements, the softer any blow.

Bangladesh might profit from reviewing these cases. It fits neither of the two models. Sandwiched in between, it plods clumsily on both fronts. Like Latin countries, its global-market entry was through primary products (jute), but unlike them, for too short an innings to actually structure the economy: by mid-19780s, the World Bank had to more than nudge us into diversifying exports against synthetic threats; and, as the General Agreement on Tariffs and Trade (GATT) adopted its Multi-fibre Agreement (MFA) in 1974, we were lucky South Korea's Daewoo came here with its offshore RMG (ready-made garment) plants. Were it not for the MFA magic, we might not have gelled. Oddly, at about that time, today's shining DC model, South Korea, had just about the same economic profile as Bangladesh. Unfortunately, since then we worship RMG income so much we have entirely missed the diversification boat that helped South Korea evolve, indicating the depth and breadth of our poverty (low-wage supply became infinitely available), while exposing our poorly developed business sense, that is, keeping us from exploring. This must change.

We are still fortunate. For almost half a century, we rode the RMG magic, a spell longer than even the failed Latin ISI wave. We might end up paying a dearer price than Latin American countries, especially if the middle-income entry does not push us into a FTA regime.

We do not have any. Fortunately again, we are negotiating with quite a few Southeast Asian countries even as this is being written. What began on a grand note under the South Asian Free Trade Agreement (SAFTA), fizzled out quickly. We might learn from other examples. As the most protectionist country of the world when the 1930s began, the United States had to shift diametrically across the board with the Reciprocal Agreements Trade Act in 1934: from one reciprocal bilateral agreement to another, it was well positioned to establish the multilateral GATT (General Agreement on Tariffs and Trade) body in 1947, a regime that still stands under a different label (World Trade Organisation or WTO), tattered and torn though it may be, yet on its own two feet. Just as the external world proved to be the pedestal to US internationalisation, so too did it elevate India. Another exceedingly protectionist country, India's epic liberalisation from 1990 under Manmohan Singh opened the doorway to neighbourly accords: apart from the SAFTA disappointment, the 1991 "Look East" approach becoming "Act East" from 2014, and BIMSTEC (Bay of Bengal Initiative of Multi-Sectoral, Technical, and Economic Cooperation), show new strides.

Our Southeast Asian start can be pushed further east towards Japan. China would be a jackpot of a FTA partner, since it has only recently picked up the global trade mantle (at the 2017 World Economic Forum Summit), like the United States did in 1947.

But another area, Africa, does not easily emerge as a "go-with-the-flow" option: we barely have any trade there, and the same for Africans here. Yet, opening doors might be our longest-term mutual advantage. It is one of the youngest of continents, thus promising a brighter and longer future than any extant trade partners or regions. It has just established the world's largest FTA compact, African Comprehensive Trade Area (AfCFTA), encompassing all countries except the biggest economically, Nigeria, as well as problem-ridden Benin and Eritrea. That still leaves enough yardage for us to get in, scope markets, and import resources, particularly if these imports (Africa is filled with industry-related inputs in its bottomless raw materials) pave the way for us to move on from our RMG addiction/malaise. Shrewd negotiations should see us come out not only as a winner, but also a leader given the many constraints other countries have also steadily faced.

Our trade with South Africa is a plausible model. Begun in the mid-1990s, it has multiplied in volumes and values, albeit still only a fraction of the total trade of each country: from barely $10-odd million then to over $50 million recently, and largely in Bangladesh's favour. This last part is important: African's commercial upswing could threaten Bangladesh's salient RMG position, with 39 Sub-Saharan countries already raking in $3.0 billion in RMG income, and some Bangladesh companies, like DBL Group, already shifting to Ethiopia or Kenya, to avail of the US Africa Growth Opportunity Act (AGOA), while others shift production (like Ha-Meem Group), to Haiti, even closer to US shores for market-access. While Bangladesh's RMG export growth-rate might be slowing because of this ongoing off-shore diversion, African countries can also enter the picture and grab our own markets from us. Diversification is an idea whose time has come.

Life is not short, but it is also meant to be experimented with. Nowhere is that cliché more appropriate than in economic policy-making, particularly trade. The market keeps changing, in fact changing more incrementally since mid-20th century than not, and if we cannot build a flexible economic policy approach, we will return to where we were in early 1970s: outside looking in. That will not be middle-income enough of us.

Dr. Imtiaz A. Hussain is Professor & Head of the Department of Global Studies & Governance at Independent University, Bangladesh.


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