EU-Africa: trading poverty away?

Political summits are known for sweeping declarations that are, more often than not, forgotten as soon as the ink is dry. The April 2014 EU-Africa summit, held in Brussels, appears to be no exception. Leaders from both sides unanimously proclaimed the need for a fundamental shift from aid to trade as agent of poverty reduction, but their actions did not stray far from the status quo, write Clara Weinhardt and Fabian Bohnenberger.

Yet the summit declaration deserves attention for bringing to the forefront some of the fundamental obstacles that block the long-proclaimed goal of poverty reduction through trade-based partnerships. Both sides mistakenly equate job creation and economic growth with the reduction of poverty. Moreover, neither side seems to have a clear understanding of what rights and obligations accompany such a shift to trade-based policies. Until both shortcomings are addressed, the tremendous potential of trade for poverty reduction cannot be realised.

The Missing Link

European and African leaders both recognise that a shift from aid to trade (and investment) would lead to job creation, economic growth and poverty reduction. While properly designed trade policies can arguably contribute to economic development, they are not an automatic mechanism for poverty reduction. Higher incomes do contribute to a reduction in the number of people living below the poverty line, but the gains made by increased trade cooperation are not distributed equally — and it is often the poor that miss out.

More than half of the population of Nigeria, Africa’s biggest economic powerhouse, continues to live below the poverty line of less than $1 per day. Shifting from aid to trade policies is unlikely to make a significant contribution to poverty reduction unless distributional policies and social investment are targeted as well. This is a major challenge for African governments who have so far refused to tackle the issue of staggering inequality.

How European trade policies fit in with poverty reduction strategies remains unclear, while some of the EU’s economic aims may even come in conflict with the poverty reduction agenda. Africa’s resource sector industries are infamous for their deleterious effects on sustainable development, and are of strategic interest for Europe.

Partnership of Equals?

Part of the intention behind the call for a shift from aid to trade is the desire for an EU-Africa relationship that is a “partnership of equals”. More than half a century after the first wave of independence, it is time to acknowledge the evolution of the EU-Africa relationship from its traditionally patronising donor-recipient arrangement towards a more egalitarian, business-like trade partnership. Yet the EU and African sides are caught up in internal contradictions regarding the roles they want to play in their relationship. The EU points out Africa’s unprecedented economic and demographic growth, at a time of European stagnation, as the key motive for a shift towards mutual obligations. At the same time, Europe insists on its right to set the agenda on economic reforms. The EU largely determined the model that Economic Partnership Agreements (EPAs) between the partners ought to follow. It also set October 2014 as a new deadline for the EPA negotiations, despite heavy criticism from the African side.

African countries seem divided on how to accept the principle of greater reciprocity as a new basis of their trade relationship. While many countries lobby hard for having an equal say at the negotiating table, there is a reluctance to accept equal obligations given existing asymmetries in economic development. In the EPA negotiations, West Africa fought hard to lower its market opening commitments from 80 percent to 70 percent vis-à-vis its European counterpart, and demanded “aid-for-trade” to be part of the agenda. It is therefore far from clear that a trade-based “partnership of equals” will lead to an increase in cooperation, or even contribute to poverty reduction.

The Way Forward

The arguments for a shift in EU-Africa relations from aid to trade are not substantive in the face of a missing causal link between economic growth and poverty reduction. An open acknowledgement of the obstacles that lie in the way of a development-oriented trade partnership is needed if the relationship is to move forward successfully. Economic policies can only contribute to poverty reduction if distributional and social policies enable so-called “pro-poor growth” — something which African countries need to prioritise if they are to take on a trade-based economic agenda. The African side’s demand for “aid-for-trade” underline that it makes little sense to treat trade as an isolated policy sector. Improving trade policies as an end in itself is pointless if you have nothing to trade, or lack the capacity to put new trade agreements into practice.

The blind spots in the recent summit declaration show that a real discussion about these fundamental preconditions is urgently needed for any trade-based partnership. A key priority for the new European Parliament elected on May 25 and the reshuffled Commission should be an increase in resources towards developing a joint strategic approach on EU-Africa trade relations.

The call for a shift from aid to trade is, however, not a lost cause. While EPAs are not exactly a success story yet, they do hint at the potential that an EU-Africa trade partnership holds for moving the development agenda forward. Not only did the prospect of greater trade openness provoke a great deal of economic and political analysis within African countries on trade policies, it has also strengthened and diversified existing trade-policy making institutions. These developments were driven forward by the African side in a proactive way rarely seen in response to past handouts of European financial aid.

Yet, for such constructive steps to be promoted systematically and successfully, European and African leaders need to clearly define the roles they are to play in a development-oriented trade partnership. Equal treatment of parties that are unequal in economic terms is likely to result in unequal outcomes at the negotiating table. The European side needs to be willing to respond to the African side’s demands — even if this means prolonging asymmetrical preferences in what cannot yet be considered a “partnership of equals” in economic terms. African leaders need to realise that they cannot have it all: balancing the desire to have equal weight at the negotiating table with demands for aid and flexibility will be a delicate, but important task for building a development-oriented trade partnership with the EU.

Clara Weinhardt is a research associate and Fabian Bohnenberger a research assistant at the Global Public Policy Institute in Berlin, and are part of its Innovation in Development team.

This article originally appeared in Le Monde Diplomatique

This post reflects the views of the authors, and may not necessarily represent those of ECDPM

Photo is courtesy of Adam Cohn