Summary
- The International Monetary Fund requests the removal of trade barriers in African countries to increase trade and investment and help eradicate poverty among 50 million African people.
- They assume this will promote Trade Integration in Africa that will help in unleashing Africa’s potential to contribute to global changes.
- By removing trade barriers, Africa can increase their median goods trade and the level of trade they conduct with other developing countries.
- IMF assumes that the move will be able to increase Africa’s countries’ GDP by almost 15 percent
- IMF finds this is a good measure to help eradicate poverty by allowing foreign entities to establish firms in Africa to increase employment opportunities and investment options.
Background
The International Monetary Fund has three major obligations to its member states; encouraging economic growth through advocating for trade expansion, expounding international monetary cooperation among member states, and scrutinizing policies that may discourage and harm economic prosperity within their member states. Thus, in this case, member states can collaborate and ensure policies align to work freely and openly with other international bodies. Africa as a continent has been experiencing financial constraints resulting in most countries seeking financial aid from other countries and also the IMF itself; in some cases, this has been advantageous, but in recent times, the debt ceiling has been rising, resulting in the need for African countries to adopt a different strategy to help in the growth and development of their economy (Nhlapo, 2020). Thus, to help maintain stability and prevent economic crises in IMF systems, IMF helps in coming up with favorable regular policies that are met through dialogue with various government membership in case; they are allowed to assess economic conditions that are crippling Africa and come up with policies that are tailored towards ensuring sustainable growth; on the other hand, the organization also goes an extra mile and helps in monitoring global economic and financial conditions to help in recommending policies and economic actions to help in maintaining the economic stability of the member states. With rising poverty levels in African countries, the International Monetary Fund must ensure that more resources and economic activities have been implemented in Africa. In this case, IMF suggests that African counties should remove trade barriers to help and pave the way for multinational entities and developed countries to invest and set bases in their countries. In addition, This will positively impact the African economy since it will allow for the development of infrastructure that helps boost economic growth and serves as a great way to solve unemployment.
Additionally, the International Monetary Fund is the food of thought that removing trade barriers among African nations will assist with lifting 50 million individuals out of poverty and solve the unemployment burden that is growing quickly. The IMF expressed this in its new report named Trade Integration in Africa: Unleashing the Continent’s Potential in a changing world (Nhlapo, 2020). In this case, it finds that eliminating these trade barriers and obstructions would build the middle merchandise exchange between African nations by 53% and the rest of the world by 15%. Furthermore, this will raise the middle African country’s real per capita Gross domestic product by 10%; and assist with transforming the lives of an expected 30-50 million individuals living out of outrageous poverty and poor conditions. The Washington, DC-based body said the fruitful execution of the African Continental Free Trade Agreement could open significant advantages in the continent at large with regard to job creation and income generation.
Analysis
Analysis A
This section will focus on the parties mainly affected by IMF’s proposal to remove trade barriers in Africa.
- Homegrown companies
Notwithstanding, the monetary business sectors see the opposite side of the coin. Removing trade barriers allows for Free trade; this is a chance to open one more area of the global market to homegrown producers giving their products more extensive access to international markets. Additionally, Free trade is an indispensable piece of the monetary framework and effective money management in the world’s market. For instance, with regards to American Investors presently approach most unfamiliar monetary business sectors and to a more extensive scope of protections, monetary standards, and other monetary items. One of the most advantageous things to Homegrown businesses with regard to the removal of trade barriers is the capacity to offer and avail their products to foreign customers. Trade Barriers frequently incorporate the provision that expects organizations to establish an actual presence in the nations they sell in. In this case, it acts as a restrictive measure for small and local businesses that aim to tap into the international market.
Moreover, This is seen as cost-prohibitive limiting their operations in one area (Liu, Li, Lin, & Liu, 2019, p 461). Thus, with free trade, businesses can create local products for clients in different nations at similar costs as their bigger rivals. An extended market allows organizations to grow their product offerings and foster new advances to fulfill expanded consumer needs and satisfaction. In this case, this has allowed them to help support homegrown producers in the countries they invest in, making the local benefit through increased capital and the opportunity of a larger market. On the other hand, Free Trade has permitted numerous nations to achieve fast financial development. Such producers have enjoyed a strong comparative advantage by zeroing in on products and readily available materials used in exports.
Nonetheless, removing trade barriers causes more harm than good; in this case, the most crucial thing to note is the threat to intellectual property. African countries have products and services that have originated from their own people; in some cases, they might need improvement to improve. In this case, with access to such markets, major rivals may be able to copy such products, improve them and sell them as knock-offs without consideration of legal repercussions. In other words, trade barriers offer more stability as they provide intellectual property laws that help in protecting countries from the export and import of goods already within the local market (Abrego, Amado, Gursoy, Nicholls, & Perez-Saiz, 2019). On the other hand, this promotes outsourcing of jobs making working conditions go to an all-time poor state, substandard and unhealthy since developed countries tend to take advantage of the lack of labor protection laws resulting in low productivity amongst the local business leading to their closure.
- The government
Removing trade barriers helps attract foreign investment, which helps in providing relatively high-paying Jobs and more employment opportunities for locals. Thus, this might be a myth; removing trade barriers in Africa urges businesses to send their jobs overseas. It would likewise be wrong to say that the expansion in rivalry would set out more excellent work opportunities. In other words, this reduces the chances accessible in inefficient businesses and sectors in most African countries. The places that remain will see a lift in their general wages and an improvement to the way of life, yet it still needs to deliver the undesirable positions abroad. In other words, this kills the strategy of saving a job at any expense, regardless of whether potential open doors are contracting in that industry. Removal of trade barriers is answerable for 20% of the unemployment cases in African economies. When these arrangements are made with profoundly skilled nations or those with intermediate goods to offer, zero employment creation estimates may foster after some time. Thus, in this case, the government finds it difficult since there is growth within the country, but taxes are being levied on countries where parent companies are situated. On the other hand, African governments will find it difficult to stabilize their currency and financial market since there will be prone to manipulations. There are more dangers for monetary and financial control since bigger rivals can manipulate Africa’s currency to have low production costs and make exponential profits in the long run. For instance, when China supposedly tried to devalue its currency in light of U.S. tariff demands, the securities exchange market had its most awful day in 2019 (Newfarmer, Page, & Tarp, 2019). Then, at that point, the truth set in for financial institutions and market investors. Lowering the Yuan’s value made Chinese manufactured goods cheaper for American consumers. Thus, removing barriers to trade counters the course of duty by making lower costs through a money-related strategy. That implies that African countries consumer base buying products and services that are imported will have to pay more, keeping in mind that African currency will be devalued. At the point when this hindrance is thought of, then, at that point, investors coming into the African market seem to be the winners while African countries consistently lose. Removal of trade barriers attempts to manage this cycle, yet the arrangements cannot represent unexpected control that happens beyond the framework. On the same note, the government is also challenged with protecting the environment; in this case, removing barriers seldom safeguards the environment. Organizations that can trade in African countries aim to take advantage of the normal resources in different areas where limitations or guidelines may be more flexible. Then, at that point, the quickest, least expensive techniques for making goods or performing their services turn into the place of accentuation. Strip mining, obvious logging, and other dangerous ways of behaving can increase global emissions and global warming, even though the exercises will not depend on their homegrown scoreboard. In this case, it should be noted that developing economies frequently offer terms with short-term gains at the expense of causing long-term damage to African Economies. By so doing, IMF will lead African nations into global dependency on multinational corporations and other developing countries to the extent of damaging the environment of their own countries to ensure they exploit resources for short-term gain (Geda & Yimer, 2019). Cash from the natural resources exchange can subsidize government activities or promote corruption, permitting the rich to benefit while the functioning and working poor battle to get by.
Analysis B
This section will analyze possible ways the government could intervene through the policies at its disposal.
- Protectionism
Following major political occasions of the most recent couple of years, libertarian and protectionist measures are progressively influencing the worldwide economy, which is feeling the strain. Flooding further up the business plan, Protectionism has shown maintained and constant development, fashioning further into worldwide strategy thus, the good and adverse consequences of which are being felt now like never before. The forces to be reckoned with China and the U.S. keep vying for economic supremacy, utilizing prohibitive import and product measures and inciting a significant shift away from worldwide Free trade. On the other hand, England’s Brexit from the E.U. in January 2020 has uplifted weakness in European economic policies, the results of which make certain to be felt in the U.K. and universally. To this effect, African governments should shun away from IMF’s proposal to remove trade barriers. With the world still held by the Coronavirus pandemic, the Covid danger could affect how nations cooperate across guest and public limits, including the expected easing back of worldwide exchange amid enhanced fears of downturns in a few high-level economies (Gilbert, Lang, Mavropoulos, & McAdoo, 2023). Over the past year, new boondocks have additionally arisen. Organizations and markets should explore; expanding populism, the development in the significance of regionalization, the restricted admittance to capital, and the problematic effect of innovation. A protectionist trade policy might pave the way for African governments to promote and advance homegrown businesses and trade, creating products and services, forcing duties, endowments, and quotas or generally foreign goods and services within their market. Over the long haul, nonetheless, avoiding IMF’s directive to remove trade barriers or conveying protectionist measures might harm African nations’ trade limits in that it may result in slow economic growth and development as well as increasing inflation rates. Nonetheless, locally, protectionist estimates limiting imports could effectively drive exchange achievement and creation for organizations getting to less competition from outside market, which might try to reinforce the national financial flow. Comparably the expenses for global Investors sent out in the exportation of products, services, or technological advancement are driven up directly following such protectionism measures. For developing organizations and impending business sector contestants, Protectionism may promote homegrown development in enterprises overwhelmed by global forces within their niche (Benöhr, 2020, p. 118). Similarly, Protectionism may effectively debilitate public economies; however, profoundly prohibitive measures in this case. Through a better understanding of the IMF, African countries should develop policies that help protect businesses to the extent of helping them grow to address the poverty crisis. For organizations, such limitations could be horrendous in the impediments forced external and unregulated economy and in smothering development. The result of such measures may effectively drive less aggressive markets, especially for organizations trying to get to business sectors where homegrown protectionist strategies are restricting, and contenders are offered benefits through imbalanced limitations. To safeguard their respective economy, African nations should keep enforcing duties on products they accept and feel are being dumped in their economic market because these products can possibly undermine local organizations and the economy at large. Removal of trade barriers, as proposed by the IMF, is highly brutal to the growth and development of local businesses. As a rule, the duties enforced on these product surpasses the worth of the goods and services available in the market. Thus, African Countries should embrace Protectionism through Anti-dumping duties when foreign entities sell products or services significantly way below the cost at which it is being delivered or produced in the local market (Obeng‐Odoom, 2020, p. 183). Nonetheless, while Anti-dumping duties aim to save homegrown businesses and jobs, these levies can likewise prompt more exorbitant costs for local consumers. Also, in the long haul, Anti-dumping duties can decrease the international competition of homegrown businesses delivering comparable products and services. in this case, IMF should work with The World Trade Organization (WTO) to come up with favorable measures and policies with regard to eradicating poverty in Africa. In the process, they should also help protect the local economy from falling due to free trade (Sibanda Sr, 2020, p. 228). The WTO does not mediate in that frame of mind of organizations that take part in dumping, but rather, it centers around how the state can — or cannot — respond to the act of dumping. In this case, to help preserve and maintain the stability of the local economy, the government should incorporate WTO measures with respect to guidance from the IMF. By and large, the WTO, in this case, allows states to act against dumping “on the off chance that it causes or undermines material injury to a laid out industry in the region of a contracting party or tangibly impedes the foundation of a domestic industry. In this case, this intervention should be legitimate to maintain the WTO’s obligation to moderate free trade principles and apply IMF policies to help develop Africa’s economy (Bohanes, 2021). Anti-dumping policies can misshape the market. With the removal of trade barriers, African governments will find it difficult to determine a fair market cost for any product or service.
Recommendation
With rising poverty levels in African countries, the International Monetary Fund needs to ensure that more resources and economic activities have been implemented in Africa. In this case, IMF suggests that African counties should remove trade barriers to help and pave the way for multinational entities and developed countries to invest and set bases in their countries. After considering the potential damage that may come from IMF’s proposed policy to remove trade barriers in African nations to help eradicate poverty in Africa, it is reasonable to conclude that this will have short-term benefits but long-term damages to African nations. In this case, there is a need for African nations, IMF, and the World Trade Organization to come up with a proper bilateral trade agreement that suits and protects Africa’s local economy and businesses. With super contenders battling out for economic supremacy, there is a need for African nations to protect their markets at all costs.
References
Abrego, M. L., Amado, M. A., Gursoy, T., Nicholls, G. P., & Perez-Saiz, H. (2019). The African Continental Free Trade Agreement: Welfare gains estimates from a general equilibrium model. International Monetary Fund. Retrieved from The African Continental Free Trade Agreement: Welfare gains estimates from a general equilibrium model
Benöhr, I. (2020). The United Nations guidelines for consumer protection: Legal implications and new frontiers. Journal of consumer policy, 43(1), 105–124. Retrieved from https://link.springer.com/article/10.1007/s10603-019-09443-y
Bohanes, J. (2021). Developing WTO Members as Users and Targets of Anti-dumping Policy. Global Trade and Customs Journal, 16(10). Retrieved from https://kluwerlawonline.com/journalarticle/Global+Trade+and+Customs+Journal/16.10/GTCJ2021063
Geda, A., & Yimer, A. (2019). The Trade Effects of the African Continental Free Trade Area (AfCFTA): An Empirical Analysis. Addis Ababa University, Department of Economics. Retrieved from the Trade Effects of the African Continental Free Trade Area (AfCFTA)
Gilbert, M., Lang, N., Mavropoulos, G., & McAdoo, M. (2023). Protectionism, pandemic, war, and the future of trade. Retrieved from https://baltictransportjournal.com/assets/files/Highlights/btj-2-23-protectionism-pandemic-war-and-the-future-of-trade.pdf
Liu, C., Li, Y., Lin, D., & Liu, J. (2019). Quantifying the effects of non-tariff measures on African agri-food exporters. Agrekon, 58(4), 451-471. Retrieved from https://journals.co.za/doi/abs/10.1080/03031853.2019.1581624
Newfarmer, R., Page, J., & Tarp, F. (2019). Industries without smokestacks: Industrialization in Africa reconsidered (p. 480). oxford university Press. Retrieved from https://library.oapen.org/handle/20.500.12657/25128
Nhlapo, N. (2020). The role of international financial institutions in Africa’s development: How the World Bank and the International Monetary Fund’s failures led to the African Development Bank (Doctoral dissertation). Retrieved from https://ukzn-dspace.ukzn.ac.za/handle/10413/18720
Obeng‐Odoom, F. (2020). The African continental free trade area. American Journal of Economics and Sociology, 79(1), 167–197. Retrieved from https://onlinelibrary.wiley.com/doi/abs/10.1111/ajes.12317
Sibanda Sr, O. S. (2020). Procedural Requirements of the South African Anti-Dumping Law and Practice Prior to Imposition of Anti-Dumping Duties: Are They WTO-inconsistent? Foreign Trade Review, 55(2), 216-238. Retrieved from https://journals.sagepub.com/doi/abs/10.1177/0015732519894150?journalCode=ftra
write