SEATINI TWN Industrial Policy, Prof J Kiiza 2016 updated · – Shift from business-as-usual: From...
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The Myth of Trade led Industrial Policies in Africa Sleepwalking into a Disaster? By Professor Julius Kiiza Royal Suites Hotel, Bugolobi, Kampala 27/4/2016 [email protected]; +256 772633384
Transcript of SEATINI TWN Industrial Policy, Prof J Kiiza 2016 updated · – Shift from business-as-usual: From...
The Myth of Trade-led Industrial Policies in Africa
Sleepwalking into a Disaster?
By Professor Julius KiizaRoyal Suites Hotel, Bugolobi, Kampala 27/4/2016
[email protected]; +256 772633384
Discourse on industrialization in Africa is Xterized by 04 myths..
l Global mkt integration is the panacea to Afn devpt– Globaliztn signifies “the death” of industrial policy– Enables citizens to access “variety” eg Supermarkets
l Africa’s salvation lies in foreign capital/FDIl FTAs are tools of wealth creation/ econ transfomtn
– Thus, trade liberalization is the way– Africa can “trade its way out of poverty”
l Trade-led industrial policies are necessary, even inevitable
l Central claim: Africa must rethink received wisdom
Why Care? For several reasons1. Globalization (for all its promises) is riskyl Signifies exposure to the best and brightest rivalsl Globaliztn has two faces, not one
– Simultaneously beneficial to high-tech actors; – detrimental to agrarian economies
l None of today’s high-tech industrialized thru neo-liberal markets
l All pursued country-specific industrial policies propelled by econ nationalism
2. We failed to read Jacob Viner: access to “variety” = vote for rivals
l Jacob Viner argues – trade is not benign l Countries are locked in a zero-sum contestl Access to variety is important, but = vote for rivalsl Power and plenty are joint objectives of policyl Staatsbildung a necessary precondition
– Shift from business-as-usual: From liberalism to econ nationalism Friedrich List, 1841
– Centralize the state & strengthen coercive powers– Build meritocratic institutions; patriotic bureaucrats– Adopt ‘smart’ industrial policy
3. We are Ignorant that Trade is War
l To succeed in war, certain transferable lessons exist:l Meticulous planning, intelligent executn, coordtnl Preparation: From masculine to Feminist strategyl War can never be won unless – organically
integrated with other sectors: state, economy, soc– In trade, as in war, success is made at home; only
recorded on the battle-field
l A distinction exists between tactics and strategiesl Adoption of trade-led industrial policies signifies
– a double tragedy: Loss at level of tactics AND strategy
4. We misunderstand policies and institutions that guarantee success
l Countries succeed if they …l Establish and use developmentalist insttns eg MITIl Treat consuptn of foreign products as unpatrioticl Disallow importtn of luxurious /harmful productsl Regulate use of foreign exchangel Import capital goods, not finished productsl Adopt country-specific industrial policiesl Rely on domestic market for infant industries l Export value-added manufactures, not commodities
5. Misunderstand ‘salvific’ role of FDIl Foreign capital is, by definition, foreign
– Promotes foreign interests and must ipso facto be regulated
l FDI is not a charity house– In business to do business
l Different varieties of FDI exist– Luxurious FDI; trading K; extractive; Ricardian services
eg tourism; high-tech services; manufactgl To benefit from FDI, be selectivel Even then, regulate FDI
– Example: Abolish K account liberalization
The 2016 Panama Papers: Crisis of Under-regulation?
Or, An alliance of betrayal Between …Powerful advanced countries – advocate free-market
fundamentalismIMF/WorldBank/WTO trinity – push for freer “trade”;
Powerful companiesPredatory state elites
Powerful lawyers/accountants
The avoidance of taxes is the only intellectual pursuit that still carries any reward. JM Keynes
Policies Allow Companies to ‘Avoid’ Tax
In 2012, S/African companies hid $29bn overseas to avoid SARS tax
The $29bn is = 1300 Nkandla upgradesl Exceeds govt’s contribution to the National
Student Financial Aid Scheme (of abt R9 billion)
l Companies use lawyers & accountants to find loopholes in our tax laws and regulations
l May set up ‘offices’ eg in Bermuda which ‘charge’ their S/African office huge legal fees.
l The companies report low profits; – Pay less SAR taxes
6 Trade is of two varieties, not one
Orthodox “Trade” Policies
l Promotes trade based on god-given (comparative)advantages
l Agriculture is ‘the means’ to development
l Export of no-value added prodts is ‘okayed’
l Why: domestic industries are NOT a priority. Import, build super-markets, consume
l Luxurious imports – okayed
l Full capital account liberalizatn; forex unregulated
Strategic trade/Industrial Policies
l Calls for politically constructed competitive advs
l Agriculture is ‘the basis, not means’ to development
l Such exports regulated or even discouraged eg crude oil in UG
l Why: use raw materials for domestic industries: Smart industrial policy is possible glbt
l Prohibited
l Capital controls on FDI flows; Forex is regulated
Orthodox “Trade” Policies
l Fetishism with FDIs: Claim: economic salvation impossible without foreignaid
l Conservative economic policies are enthroned eg macro-stabilization
l Conservative budget deficitsl Inflation-targeting : IMF
model of ‘best-practices’l Resistant to massive
investment in infrastructure eg standard gauge railway
l “The economy will heat up”l Ideology: Econ liberalism
Strategic trade/Industrial Policies
l A conscious approach is used. Certain varieties of FDI (eg high-tech) attracted; others eg trade/casino – prohibited
l Calls for transformative policies premised on strategic developtal considerations
l High debt to GDP ratio is NOT a problem if borrowed funds – used for productive investmts
l Under 20% inflation is “okay”l Promotes massive infrastructure
eg Britain, USA, modern Chinal ‘A cold economy is stagnant econ’l Economic nationalism
On the Rhetoric of Leap-frogginginto high-tech services
Rwanda-style?
Youngsuk Jeon, Jean-Philbert Nsengimana & Steven Mutabazi Launch 4G LTE
l Offers fastest wireless communication/high-speed data for mobile phones, etc
l On the launch, Patrick Nyirishema, Director General of Rwanda Utilities Regulatory Authority (Rura), announced:
l “The long wait is over… Rwanda has made significant strides in ICT development and this realisation today is very important in driving Rwanda’s ambitious transformational agenda.”
4G LTE, the 4th Generation Long-Term Evolution internet network ..
Practical Realities? Korean Ambassador Hwang Soon Taik (C) poses for a selfie.
Glocal Innovation Convention officials showcase the selfie stick
5. Misunderstood Politics of FTAsl FTAs are no simple economic initiatives.
– Are inherently political – ie articulate the power of the powerful vs the powerless
l In form, FTAs are ‘voluntary’ trade pactsl In substance, 3 varieties of FTAs
– FTAs btn industrial economies (eg.US/EU Transatlantic Trade and Investment Partnership (TTIP)
– The unequal treaties btn North and South eg EPAs– The unequal treaties among Southerners eg CFTA
l Most are based on a “model” treaty from the north
6. Common denominator of FTAsl Instruments of the political interests of dominant
actor(s)l FTAs are unequal treaties esp btn global South and
global North eg EPAs– Unequal treaties among African countries viz the CFTA
l FTAs are distinctive tools of econ nationalism – that of the advanced industrial powers
l They are instrumts of ‘smart’ power (Nye2003– Incentives eg aid-for-trade – or quota-free market access are tools of smart power
7. Ex: USA’s 2012 Model FTAsl Terms of the debate in the ‘model’ text are defined
by the dominant partyl Countries negotiating FTAs typically use USA's
text as a prototype
l Key elements
l Talk internationalism viz I. public goods; execute econ nationalism
l Example: ITA…
Internatnal Trade Administration (ITA)of the US Dept of Commerce asserts:l FTAs have proved to be one of the best ways to open up
foreign markets to [our] U.S. exporters. ... The reduction of trade barriers and the creation of a more stable and transparent trading and investment environment make it easier and cheaper for U.S. companies to export their products and services to trading partner markets. In 2014, 47% of U.S. goods exports went to FTA partner countries. U.S. merchandise exports to the 20 FTA partners with agreements in force totalled $765 billion, up 4% from 2013. USA also enjoyed a trade surplus in manufactured goods with our FTA partners totalling $55 billion in 2014
Broad definition of investmentl Art 1 of the US 2012 Model Treaty states that:
‘Investment’ means every asset that an investor owns or controls, directly or indirectly, that has the Xstics of an investment, including such Xstics as the commitment of capital, the expectation of gain or profit, or risk; and may take the form of (a) an enterprise; (b) shares/equity; (c) bonds and loans; (d) futures, and other derivatives; (e) intellectual property rights; (f) licenses/permits, ; and (h) other tangible or intangible, movable or immovable property
Official vs Real Purpose of FTAs
Summary: Neoliberal trade orthodoxy l Enthroned free-market fundamentalism prematurely
– Articulated ‘salvific’ mission of foreign aid/FDI– Advocated for sovereignty of private capital vs states– Put markets in the driving seat
l Yet: Markets are g’d servants, bad masters (Obama)
l No country has ever attained industrial transfo via free-markets unfettered by state regulation
If Neoliberal CFTA is the answer, what is the question?
l Fragmented markets? CFTA aims to create an Africa-wide market over a billion people and a GDP of over USD 3trillion.
l Limited share of world trade? Africa has only 4% share of global trade
l Fast-track formation of the African Economic Community (AEC) and fulfill AU decision of 2012 (to have CFTA by 2017)– In whose interest??
l Promote trade liberalisation? Eliminate tariffs on goods and deregulation of services by 2017
Unanswered question: Sleepwalking into a Disaster?
l Whose manufactures are sold in Africa?l Whose interests does the CFTA serve?
– Principle of acquis (build on existing levels of integration, tariffs must be lowered beyond what has already been agreed thru multilateral system or EPAs)
l If pre-mature liberalisation explains Africa’s tiny share of world trade, can this be solved by deeper – Mpanda Ovyo, Hula Ovyo
l CAFTA’s focus is on trade: Trade in What?
Unanswered Qns Cont’d …l Conventional industrial policy does not feature in
CAFTA’s stated objectives and principles– Nor does smart industrial policy
l Implic: Orthodox trade policy in driving seat; strategic trade & industrial policy – neglected.
l Yet, even advanced industrial countries still value manufacturing competitiveness
US to Overtake China as Top Manufacturer in 2020
Source: Deloitte, 2016 Global Manufacturing Competitiveness Index
Sources of manufacturing competitiveness
Number of STEM Graduates 2003-2013
Problem: Contribtn of Diff’t Sectors to GDP Growth1995-2010
Uzuri wa kitu kwa nje
si Usalaama wa Ndani
Conclusionsl We are sleepwalking into a disasterl Econ liberalism is not necessarily a wrong
ideology. It is simply inappropriate for Africa
l Neither transformative growth nor durable manufacturing will gain traction in Africa
– Unless we abandon orthodox policies and adopt strategic trade and industrial policies
Conclusions Cont’d l CAFTA is a ‘smart’ strategy for integrating Africa
into the global economyl Prioritizes interests of foreign investors over host
states l Citizens’ rights:sacrificed on altar of corporate greedl CAFTA is consistent with orthodox trade policy and
WTO rulesl But inconsistent strategic trade/industrial policiesl Conclusion: CAFTA will expand GDP in Africa, not
Africans’ GDP
Alternatives to the orthodoxyl Claim ‘ there’s no alternative’ is exactly that:a claim
– Erosion of developmt policy space can be foughtl Smart industrial policy is possible, even desirablel Begin with appreciation of facts:
– Econ liberalism is ideology of de best, not econ laggards– Foreign capital is by definition foreign– Africa’s econo salvation will be a product of a struggle,
not charity: WAR– Salvation cannot come from overseas– We must put our house in order eg recruit, insttn bldg– No one will ride your back unless it’s bent – Martin
Luther King.
Shukrani! Thank You!
