Africa needs free trade, not reparations
8 November 2024
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Trade, Development, and Immigration
8 November 2024
Last month’s Commonwealth summit in Samoa was not supposed to be about the past. But despite Downing Street’s pledge that the issue would be off the biennial summit’s agenda, the topic of reparations inevitably stole the headlines.
All 56 of the bloc’s heads of government, including Keir Starmer, signed a document acknowledging calls for ‘discussions on reparatory justice’ and a ‘meaningful, truthful and respectful conversation’ around them.
It’s important not to blow this out of proportion. These phrases were inserted in only a few paragraphs of a 20-page document addressing a myriad of other issues. Chancellor Rachel Reeves firmly ruled out the payment of any reparations ahead of the summit. Afterwards, Downing Street told the BBC that: ‘We’ve been clear on our position and it’s not changing’.
Nonetheless, the fact that reparations continue to dominate the news cycle when it comes to Britain’s relationship with the developing world is profoundly disheartening. Setting aside the powerful moral argument against forcing innocent people to pay for the crimes of their national ancestors, more cash transfers are simply not the way to help poorer countries thrive. The only sustainable path towards bringing individuals out of poverty is economic freedom. This means robust property rights, the rule of law and free trade.
Research released this week by the Initiative for African Trade & Prosperity adds to the overwhelming evidence that free trade is one of the most powerful tools in our armoury to fight poverty and expand liberty. The IATP research highlights that the African Continental Free Trade Area (AfCFTA) could lift over 100 million people out of poverty by the middle of the next decade. Unlike calls for reparations and extensive foreign development aid projects, the AfCFTA is a squarely Africa-focused initiative which is already oven-ready for implementation. Some 55 out of 56 countries on the continent have already signed the agreement, with 48 having fully ratified it.
The agreement aims to abolish 90% of the tariffs which have done so much damage to Africa’s economy since decolonisation. To highlight the extent of the problem, intra-continental trade accounts for 69% of exports in Europe, and 59% in Asia. By contrast, the figure in Africa is 15%. Implementation of the AfCFTA could see intra-African trade increase by more than half in the next two decades.
To put this in terms of tangible outcomes, Africa’s development has been hamstrung by trade barriers which tangibly reduce the supply of essential goods like food and clothing, while raising prices of crucial inputs for infrastructure projects. Demolishing those barriers means less hunger, lower prices and significantly expanded opportunities for individuals to create value and wealth.
Besides the immediate positive consequences of freer trade, there are also a range of downstream effects which could radically change Africa’s economy for the better. Free trade allows each country to specialise its economy, putting workers and resources to their best possible uses.
To put this into perspective, we can look at the economy of Burundi, one of the poorest nations in the world. Despite agriculture making up more than 50% of the country’s economy, Burundi remains a net food importer while its people consume among the lowest number of calories of any country each day. Reducing barriers to imports would increase Burundi’s food supply and lower prices. It would also reduce the need for workers to be employed in subsistence farming, allowing for the growth of new industries and allow agricultural land to be used for higher value export crops, like Burundi’s in-demand coffee. This second-order effect is the reason why the World Bank estimates that the AfCFTA could boost average African wages by around 10%.
Despite broad-based support for the AfCFTA, there are still some key challenges to overcome. Free trade and free markets can only deliver their full potential under a stable political system based on the rule of law. Cultivating this is no easy task and has been a persistent problem across the continent. Likewise non-tariff barriers to trade – including import/export licence requirements, currency exchange controls, and burdensome border checks – need to be removed alongside tariffs to exploit the AfCFTA’s full potential.
Solving these challenges must be at the forefront of any strategy to lift developing countries out of poverty. Well-intentioned attempts to develop troubled nations with foreign cash injections have done little to bring people out of poverty but have too often strengthened the institutions that keep people poor in the first place.
With Donald Trump’s election victory, tariffs are back in the news, but we mustn’t forget the poverty-busting power of free markets and free people. The AfCFTA can be the next, monumental step in showing just how much good free trade can do.
This article was first published on CapX.
All 56 of the bloc’s heads of government, including Keir Starmer, signed a document acknowledging calls for ‘discussions on reparatory justice’ and a ‘meaningful, truthful and respectful conversation’ around them.
It’s important not to blow this out of proportion. These phrases were inserted in only a few paragraphs of a 20-page document addressing a myriad of other issues. Chancellor Rachel Reeves firmly ruled out the payment of any reparations ahead of the summit. Afterwards, Downing Street told the BBC that: ‘We’ve been clear on our position and it’s not changing’.
Nonetheless, the fact that reparations continue to dominate the news cycle when it comes to Britain’s relationship with the developing world is profoundly disheartening. Setting aside the powerful moral argument against forcing innocent people to pay for the crimes of their national ancestors, more cash transfers are simply not the way to help poorer countries thrive. The only sustainable path towards bringing individuals out of poverty is economic freedom. This means robust property rights, the rule of law and free trade.
Research released this week by the Initiative for African Trade & Prosperity adds to the overwhelming evidence that free trade is one of the most powerful tools in our armoury to fight poverty and expand liberty. The IATP research highlights that the African Continental Free Trade Area (AfCFTA) could lift over 100 million people out of poverty by the middle of the next decade. Unlike calls for reparations and extensive foreign development aid projects, the AfCFTA is a squarely Africa-focused initiative which is already oven-ready for implementation. Some 55 out of 56 countries on the continent have already signed the agreement, with 48 having fully ratified it.
The agreement aims to abolish 90% of the tariffs which have done so much damage to Africa’s economy since decolonisation. To highlight the extent of the problem, intra-continental trade accounts for 69% of exports in Europe, and 59% in Asia. By contrast, the figure in Africa is 15%. Implementation of the AfCFTA could see intra-African trade increase by more than half in the next two decades.
To put this in terms of tangible outcomes, Africa’s development has been hamstrung by trade barriers which tangibly reduce the supply of essential goods like food and clothing, while raising prices of crucial inputs for infrastructure projects. Demolishing those barriers means less hunger, lower prices and significantly expanded opportunities for individuals to create value and wealth.
Besides the immediate positive consequences of freer trade, there are also a range of downstream effects which could radically change Africa’s economy for the better. Free trade allows each country to specialise its economy, putting workers and resources to their best possible uses.
To put this into perspective, we can look at the economy of Burundi, one of the poorest nations in the world. Despite agriculture making up more than 50% of the country’s economy, Burundi remains a net food importer while its people consume among the lowest number of calories of any country each day. Reducing barriers to imports would increase Burundi’s food supply and lower prices. It would also reduce the need for workers to be employed in subsistence farming, allowing for the growth of new industries and allow agricultural land to be used for higher value export crops, like Burundi’s in-demand coffee. This second-order effect is the reason why the World Bank estimates that the AfCFTA could boost average African wages by around 10%.
Despite broad-based support for the AfCFTA, there are still some key challenges to overcome. Free trade and free markets can only deliver their full potential under a stable political system based on the rule of law. Cultivating this is no easy task and has been a persistent problem across the continent. Likewise non-tariff barriers to trade – including import/export licence requirements, currency exchange controls, and burdensome border checks – need to be removed alongside tariffs to exploit the AfCFTA’s full potential.
Solving these challenges must be at the forefront of any strategy to lift developing countries out of poverty. Well-intentioned attempts to develop troubled nations with foreign cash injections have done little to bring people out of poverty but have too often strengthened the institutions that keep people poor in the first place.
With Donald Trump’s election victory, tariffs are back in the news, but we mustn’t forget the poverty-busting power of free markets and free people. The AfCFTA can be the next, monumental step in showing just how much good free trade can do.
This article was first published on CapX.
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