Peter Mandelson: To erase poverty, Africa needs both trade and aid

To argue that free trade has failed these countries is simplistic
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The Independent Online

This week at the G8 summit in Edinburgh the European Commission will be arguing for a significant boost to spending on trade development assistance for developing countries. This money is needed for Africa, and every euro of it is crucial to building the long-term solution to Africa's poverty. If we care about ending poverty in Africa for good, we have to match debt relief and humanitarian aid to the continent with a new commitment to building Africa's capacity to benefit from free and fair trade.

Debt relief and humanitarian aid for Africa have rock star advocates and new political cachet; aid for trade has none of this high-profile glamour. Yet it goes to the heart of Africa's current crisis. Africa's share of global trade is falling. If we could only succeed in reversing that decline, the benefits for Africans would be enormous. A 1 per cent increase in Africa's share of global trade would deliver seven times more income every year than the continent currently receives in aid.

A recent report by the development NGO Christian Aid argued that twenty years of free trade had proved to be a failure for many countries in Africa. They are right in their analysis but wrong in their conclusion. Right in that the report serves as a timely reminder that the world's poorest countries need more than access to our markets to prosper. Wrong in blaming free trade in itself for these countries' continuing problems. Every country on the Christian Aid list is either struggling with a poorly diversified economy, or massive infrastructure deficiencies, or is burdened with population growth so rapid that it drives down per capita income faster than even a liberalised economy can build it up. Free trade is not a magic wand: it is only when it is combined with policies that improve poor countries' capacities to trade that the higher living standards it in principle holds out the hope of, can in practice be delivered.

From landlocked Zambia it costs more to ship a ton of maize to neighbouring Tanzania than it costs to send the same ton of maize from Tanzania to Europe or the United States. Poor roads in Uganda add the equivalent of an 80 per cent tax to every dollar's worth of clothing exported to market. In most of sub-Saharan Africa, power supplies are so bad that 30 per cent of the start-up cost of most businesses goes on generators. In most European and American ports, it takes a day to clear a container through port: in Ethiopia, it takes thirty days. To argue that free trade has failed these countries is simplistic and ignores the huge structural obstacles in the path of even the most determined modern African entrepreneurialism. It is these obstacles to trade that the G8 must address through aid for trade.

Poor countries like Uganda and Zambia already receive completely non-reciprocal tariff- and quota-free access to the European market under our Everything But Arms initiative, and the rest of the developed world badly needs to live up to its 2001 commitment to match the access Europe provides. But like many countries in Africa, they remain barely able to use it. Market access without capacity-building and without substantial aid for trade is like putting a plate of food in front of a man while tying his hands behind his back, never mind withholding the knife and fork.

As well as providing funds to help build the capacity to trade, we need to support the development of regional markets in Africa. We need to assist African countries in producing the stable banking and services sectors that are the key to attracting committed capital investment.

Through regional market building and the Doha Development Round of trade negotiations, we need to chip away at the tariff walls that still surround many individual developing countries in Africa. Sometimes these tariffs protect vulnerable industries and need to be lowered with care, and they can be an important source of government revenue. But they also encourage reciprocal barriers which are a massive disincentive to trade and thus a greater drag on fiscal revenue. The World Bank estimates that an ambitious agreement on tariff reduction as part of the Doha Round could produce an extra $269bn a year in income for Africa and the rest of the developing world alone.

The Edinburgh G8 summit will rightly be regarded as a serious failure if it does not deliver further aid for Africa and consolidate steps already taken on debt relief. But it also has to find the aid-for-trade that is the key to the trading strength needed to sustain development in Africa in anything beyond the short term. Aid will save a life in Africa today and tomorrow. Free and fair trade can lift millions in Africa out of poverty for good.

The writer is the European Union trade commissioner