Wednesday, April 15, 2009

All About Trade

Voice of America
All Africa
AFdB Website

Analyst predict that global trade will shrink by 9% in 2009, and although many originally thought that Africa was safe from the global credit because their banking system invested little in the exotic credit instruments that wrecked havoc in the West, this drop in trade is surely hurting Africa. Global demand, particularly in Europe and the United States, for Africa’s export commodities has dropped dramatically and established lines of credit for many African exported have dried up. Africa is left faced with a situation where many of the benefits global trade has brought Africa, such as poverty reduction, are in risk of being erased.

The world’s economic leaders were aware of this problem when they met at in London for the G-20 meeting in early April. Among other agreements, the G-20 agreed to increase the IMF’s ability to invest in global trade by $250 billion. This money will go towards a lot of initiatives, but especially towards securing lines of credit for the world’s emerging and frontier markets. And although this will go a long ways towards addressing shirking global trade, many experts say that even after the financial crisis has run its course Western demand for African exports may not return to pre-crisis levels.

To address this, experts say that Africa must continue to develop its trade with the BRIC countries (Brazil, Russia, India and China). These countries currently account for about 30% of Africa’s exports, but many see these countries as key engines for growth in Africa’s export industries. For instance, with over a billion citizens and only 7% arable land China is a potential huge source for African agricultural exports.

In addition to expanding trade with the BRIC countries, experts feel that it is important to increase trade within Africa itself. By trading amongst themselves, African countries can help mitigate future global downturns. This, however, may not be as easy as it sounds given the poor quality of infrastructure within Africa. To address the infrastructure issue, African leaders, including the AFdB, met in Lusaka, Zambia on April 6 and 7. The meeting focused particularly on improving roads, rail lines, and energy productions along the North-South trade corridor, which runs from Tanzania to South Africa. The meeting secured over a billion dollars to help finance infrastructure projects along the corridor.

This blog mentions the huge demand for agricultural products in China. How realistic is it that Africa will be able to provide China with food given the current food shortage problems Africa faces? Also, does Africa need to be wary of deals such as the (recently aborted) agreement between Madagascar and South Korea that would have given South Korea huge swaths of land for free?

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