[Column] Bob Koigi: Protectionism is the greatest threat to free trade in Africa
The recent decision by Nigeria not to put pen to paper on African Continental Free Trade Area, a continental trade pact that is set to revolutionize how African countries trade with each other, caught everyone by surprise.
But as one of the largest economies in Africa, Nigeria had reservations about what it perceived as possible cannibalistic trend with its local businesses not gaining any tangible value from the pact. Yet this protectionist policy isn’t confined to Nigeria and is perhaps one of the greatest factors putting the brakes on continental and regional integration.
Indeed numerous economic blocs in the continent have cited non-committal of member states to free movement of goods and services across the borders as they fear the impact this would have on their local businesses.
Governments have, as a drastic and desperate measure, gone back to the drawing board to reassess their international trade policies as they seek to navigate through tough economic times occasioned by ballooning unemployment figures, constrained business credit, and financial markets remaining extremely nervous in the face of the huge increase in public indebtedness built up as a consequence of cyclic global economic recession.
Many governments are therefore grappling with a delicate balancing act in designing exit strategies which reduce public debt without tipping their economies back into recession.
The practice has been notorious in the west where for example United States has been an avid crusader of ‘buy American’ maxim which posits that among others, only local steel and iron should be used in the country’s public projects.
India on the other hand has been stubborn with its policy of not approving import of Chinese toys until the government can ascertain that the country’s economy is stable.
Protectionism is always a flight to safety practice for nations who feel threatened by the international trade. The underlying justification behind any type of protectionist policy is that a country seeks to protect local industries against international competitors who can sell the same product for less.
This means that consumers will have to dig deeper for the cost of goods, while the producers of good will use the additional revenue to buy other domestic product, the overall effect is a stronger economy.
Protectionist measures though hailed for giving a boon to the domestic market has been widely lambasted for the long term dire effects it is having on the markets it seeks to protect and the international trade itself.
So what does this prioritization of profit by introducing protectionism measures do to small and medium sized companies especially those trying to establish a market in the protectionist countries.
Experts argue that this makes it difficult for these companies to operate because they are competing with government’s policies. Free trade is hampered and this discourages the SMEs in their operations. Big companies will gang up to push for governments to protect them from international competition and even though they stand to profiteer, it ends up hurting majority of the consumers who have no choice to make and have to make do with added cost of local products.
The punitive protectionist policies especially in the west where most of the SMEs in developing countries like Kenya have found an export market has had a toll on this SMEs which are slowly edging out and looking for alternative markets.
The reluctance of the SMEs to pursue international trade has greatly hurt the economies of many of the countries where these SMEs come from. According to a report by African Development Bank, this reluctance could have cost the 500,000 jobs in missed opportunities and positions in Africa for the last two years.
The report further reports that the number of SME businesses involved in export activities has recorded a dismal performance despite the impressive growth in globalization over that period.
Kenya’s horticultural sector which is a major foreign exchange earner for the country has probably been one of the agricultural sub sectors feeling the heat of the protectionist policies by the Western countries.
Many SMEs in this sub sector have been forced to concentrate on the highly unappreciative local market, due to tough competition from local industries in the exporting market that have received government support.
The horticultural Crop Directorate, Kenya’s body tasked with coordinating production and marketing of horticultural produce, says that over the last one and a half years, there has been about ten small exporting firms that have decided to cancel their exports as the competition gets ruder, leaving thousands unemployed while dismally affecting the performance of the once robust horticultural sub sector.
Yet, internationally active SMEs have been known to create considerably more jobs than domestically focused ones with their markets focused on the west. Protectionist measures therefore from these countries have threatened to wipe out many of these exporting companies who do not have the financial muscles to counter government’s protectionist policies.
Multiple award winning Kenyan journalist Bob Koigi is the Chief Editor of East Africa at Africa Business Communities