African businesses could be hit hard by Trump's trade war, says International Trade Centre chief
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Small and medium-sized businesses on the African continent could be most vulnerable to further escalation of the trade war initiated by US President Donald Trump, according to Arancha González, head of the International Trade Centre. González spoke to RFI at the World Export Development Forum (WEFD) this week about the effect of Trump’s tariffs on global trade and increasing concerns over rising debt on the African continent.
“The impact of these tariffs, as we’re starting to see, is bad for Americans, is bad for Chinese, but is bad news for the rest of the world also because it creates turbulence,” said González. The rounds of tit-for-tat tariffs by the US and China creates friction for international trade, removing a sense of stability and predictability, she said.
Africa will be particularly affected, said González on the sidelines of the WEFD event in Lusaka, describing the collateral damage from a disruption of supply chains due to tariffs, “because there is more prevalence of small businesses”.
Trump previously said the US was working “to expand trade and commercial ties with African nations” during a press conference with Nigerian President Muhammadu Buhari in April. However, the US administration in July suspended Rwanda from the African Growth and Opportunities Act (AGOA) and there remains questions over South Africa’s access to US trade benefits.
“AGOA is a very useful instrument in that it provides duty-free, quota-free access to African countries to the American market,” said González, claiming increased employment created by companies who have benefitted from AGOA.
Q&A: Arancha González
AGOA legislation was initially approved by the US Congress in 2000 and was extended by then-US President Barack Obama in 2015 for a further 10 years. The act aims to improve access to US markets for countries in sub-Saharan Africa, although there are a number of conditions and criteria for eligibility.
“I think it is important that this market access whether through AGOA or through any other means be maintained,” added González, pointing out that she favours bilateral trade agreements over unilateral deals. In particular, because unilateral deals such as AGOA can be withdrawn at any time.
“Longer term, probably the best thing would be to transform at some point these unilateral trade arrangements into a US-continental African trade agreement,” said González. “Now Africa has a very clear view that they want to become one market,” she added.
Business leaders and economic experts gathered in the Zambian capital for the two-day WEDF event to talk about trade and discuss initiatives such as the African Continental Free Trade Area agreement.
The event saw the launch of the SheTrades initiative in Zambia and presentation of a 57-page guide on Africa’s new free trade deal. The continent’s free trade agreement is currently going through the ratification process and there remains a number of issues under negotiation.
African sovereign debt
The event in Zambia also comes at a time when there are increasing concerns about the sustainability of debt on the African continent. The Chinese government pledged 60 billion US dollars to African countries at a recent high-level summit in Beijing.
“Every time a country gets a loan, every time it borrows, it has to have in mind - what’s the objective for which its borrowing and the sustainability,” said González, asked about a potential debt trap for African countries.
Zambia’s government debt stands at some 15 billion US dollars, according to the Reuters news agency who cites the country’s finance ministry. Debt accounts for around 50 per cent of Gross Domestic Product (GDP) and discussions with the International Monetary Fund are currently on hold over worries about the high level of borrowing.
“Some countries are very indebted so the sustainability of borrowing even more is questionable, irrespective of who is the lender,” said the head of the International Trade Centre, a joint agency of the UN and World Trade Organisation.
“We’re indebted, we’ve got debt and we’re not failing to pay that debt,” Zambian Trade Minister Christopher Yaluma, said during a press conference at the WEDF event. “So there’s nothing where we can say that we’re in arrears - no, we’re very much capable to pay the debt,” the minister added.
“I think many African countries have basically faced very harsh financial conditions because of commodity prices and the commodity super cycle ending and probably Zambia is a good example of that,” said González.
The super cycle was characterised by a sustained rise in commodity prices and encouraged country’s like Zambia to borrow heavily, counting on their reserves of commodities to help service that debt.
“Zambia is very reliant on exports of copper and prices for copper exports collapsed, which meant less income, which created an imbalance in the financial position of the country,” said González.
Government borrowing for countries such as Zambia needs to be measured, balanced, involve proper planning and discussion, according to the trade expert. She said this should be weighed up against the importance of any particular investment, whether it be in education, healthcare, infrastructure, energy, water or sanitation.
“If the borrowing is for superfluous, let’s say, plans or objectives, then I think it is more questionable,” said González. “Too much debt is unsustainable irrespective of who is the lender.”
Reporting assignment supported by the International Trade Centre