How escalating trade war will shake up Africa

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By payton mathau

After a disastrous 2016, Africa woke to newer more complex ones in 2017: from drought that affected almost all of Sub-Saharan Africa ,to the economic standstill experienced in some countries that had general elections such as Kenya.

Despite this, the rate of economic growth increased slightly from 1.7 percent in 2016 to 3.0 percent in 2017, according to the UN World Economic Situation and Prospectus report.

Nonetheless, the rebound in economic fortunes has not been fast enough, which means African economies are still at risk; there is a lot of ground to cover, attributable to the fact that the continent still faces major challenges such as drought, bad policies, widespread poverty, a slow pick up in the growth of non-oil industrial sectors and the regions’ ever-rising public debt in relevance to the GDP. These challenges have seen African prospects dim significantly.

However, since the start of 2018, things have taken a turn for best for the continent as a result of rebounding domestic demand, high commodity prices and the improved agricultural output thanks to favourable weather conditions that Africa has experienced this year.

According to UN Economic Commission for Africa (ECA), the continent’s economic growth is expected to reach 3.5% this year. So far, this is good news. Economic growth for Sub-Saharan Africa has expanded from 2.8 percent in the last quarter of 2017 to 3.0 percent in the first quarter of 2018, according to the FocusEconomics Consensus Forecast for Sub-Saharan Africa Report.

But Africa still has major challenges to tackle, including the effects of the recent move by the US to initiate retaliatory trade actions against countries such as China. This started back in January when President Trump imposed new tariffs on imported Chinese solar panels and washing machines. In March, the president also imposed tariffs on steel and aluminium and went on to levy tariffs on Sh6.05 trillion imports from China, as well as limits technology transfers to Chinese companies. The President also imposed tariffs on Canada, Mexico and the European Union (EU).

Retaliation

This move saw retaliation from some of the targeted countries. For example, the E.U imposed tariffs on Sh322 billion worth of American products such as bourbon and motorcycles. In addition, China imposed tariffs on US fruit, pork, recycled aluminium and steel pipes.

The country also imposed tariffs on 106 American products and cancelled all soybeans import contracts worth Sh1.21 trillion. Canada also imposed tariffs on US steel, aluminium, inflatable boats, yogurt, whiskies, candles, and sleeping bags.

Because most of the countries involved are part of the global network of economic giants, the effects of these decisions will shake up the global economy. Africa, initially thought to be unaffected as it contributes a little less significantly to global trade, will also take a hit. The continent has already seen an impact in several countries, with some taking direct blows.

For instance, Rwanda recently raised taxes on second hand clothing imports and plans to completely ban the imports come 2019, with the aim of jacking up local manufacturers involved in the textile industry. President Trump did not take it kindly that a decision had been made that would help Rwandese at the expense of Americans . The Us government lamented the move by Rwanda was going to take away some 40,000 American jobs, according to the Secondary Materials and Recycled Textiles Association (SMART).

Trump, through the US Trade Representative, warned Rwanda that increasing the tax goes against the African Growth and Opportunity Act (AGOA) and that it was at risk of losing some of its benefits under the African Growth and Opportunity Act (AGOA). Trump promised to suspend the application of dutyfree treatment to all AGOA-eligible goods in the clothing sector for Rwanda if it didn’t remove the tariff.

The time given to the east African country has lapsed; tarrifs are imminent but how adversely they will affect Rwanda remains to be seen. When it does, Rwandese, who rely on second hand clothes as way of making a living ,will be affected, particularly if they cannot new, Rwanda-made apparel. As Christopher Kayumba, an analyst and senior lecturer at the University of Rwanda says, in the short term, banning second hand clothes will affect those who work in the industry.

Apart from Rwanda, which has been affected directly, the South African economy is also at risk after the US government put up tariffs on aluminium and steel. This affected South African steel and aluminium industry directly. In 2017, the leading African economy exported an estimated Sh95.7 billion worth of steel and Sh37.8 billion worth of aluminium to US.

With tariffs now in place on these products, the country is expected to import much less. As a result, in order to cover the difference, the 8,000 jobs created by the industries are at risk if a new market is not found.

Other than being affected directly through the steel and aluminium industry, South Africa is among some of the countries such as Nigeria, Kenya and Ethiopia that have been affected indirectly as a result of the increased trade with China.

China, reeling from the new trade tarrifs, is likely to cause a knock out effect on some African countries, to which it has become the biggest bilateral lender. Because Chinese made products are the targets of these stiff US tariffs, African countries that rely on supplying raw materials to China will be affected, which will directly dent their growth economically.

Not all gloom

However, the escalating trade war does not only bring chaos to the African economy as it presents opportunities as well. For example, in doing away with second hand clothes in Rwanda, the country will be able to grow its textile industry in the long term as more investors will look to come into the country and start companies to take up the share previously occupied by the second-hand clothes market. This will not only create job opportunities but it will also contribute towards growing the economy.

In addition, the current problem presents a chance for Africa ato become a major supplier of agriculture, minerals and other goods. The escalating trade war opens doors for Africa to be a major exporter to these countries. Africa now needs to focus on establishing the right infrastructure and leadership needed to take this opportunity as it would help the continent develop further.

For a long time Africa has remained at the bottom of the supply chain as it provided the raw materials and left the rest of the process to the other continents. The continuing trade war brings with it signs that it is time for Africa to tap into the local market more and stop overrelying on imports. Africa has the raw materials and the affordable labour needed to take the continent to the next stage. (

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