Trade and Industry Monitor Volume 39

In this edition of the Monitor, we focused on four thematic areas:

  • trade policy;
  • industrial policy;
  • environmental policy; and
  • food policy.
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Monitor Vol 39 08_Final_Nov08.pdf2.4 MB

Trade Policy

  • Olivier Cadot;Jaime de Melo
    With preferential trade agreements (PTAs) on the rise worldwide, rules of origin – which are necessary to prevent trade deflection – are attracting increasing attention. At the same time, preference erosion for Generalized System of Preferences (GSP) recipients is increasing resistance to further multilateral negotiations. Drawing on different approaches, this article shows that the current system of rules of origin that is used by the EU and the US in preferential trade agreements (including the GSP) and that is similar to systems used by other Organisation for Economic Co-operation and Development (OECD) countries should be drastically simplified if developed economies really want to help developing economies integrate into the world trading system. In addition to diverting resources for administrative tasks, current rules of origin carry significant compliance costs. More fundamentally, it is becoming increasingly clear that they are often designed to force developing economies to buy inefficient intermediate products from developed economies to ‘pay for’ preferential access for the final product. The evidence also suggests that a significant share of the rents associated with market access (net of rules of origin compliance costs) is captured by developed economies. Finally, the restrictiveness of rules of origin is found to be beyond the levels that would be justified to prevent trade deflection, suggesting a capture by special interest groups. The article outlines some alternative paths to reforms.
  • Hakim Ben Hammouda;Patrick N. Osakwe
    Computable general equilibrium (CGE) models are widely used for trade policy analyses and recommendations. There is, however, increasing discomfort with the use of these models, especially in Africa. This article demonstrates that the results of several such studies of the impact of trade reforms in Africa differ drastically in terms of both magnitude and direction, failing to take account of key features of African economies. It also outlines potential consequences of the misuse of CGE models for policy evaluation and suggests pitfalls to be avoided.

Industrial Policy

  • David Kaplan
    This paper examines industrial policy in Africa’s most developed and industrialized economy – South Africa. In the current discussions and deliberations as to how South Africa could significantly raise its rate of growth, industrial policy has moved to center stage. The Accelerated and Shared Growth Initiative for South Africa (ASGISA) outlines a number of key targeted sectors that will receive government support and the National Industrial Strategy (NIS) proposes a new approach and a considerable expansion of industrial policy supports. While focused on South Africa, this paper raises number of issues concerning the role of industrial policy generally and it questions a number of issues that were central to Sanjaya Lall’s views on industrial policy. It also addresses a number of additional issues that were not dealt with by Sanjaya, especially the significant institutional capacity constraints facing even the most developed African country, in effecting industrial policy. The paper argues that the institutional requirements for designing and implementing an effective industrial policy are very demanding. The paper then briefly propose a way forward for industrial policy that takes account of and works within these constraints and institutional limitations.

Environmental Policy

  • Leo Peskett;Rachel Slater;Chris Stevens;Annie Dufey
    The development of biofuels has generated vigorous debate on economic and environmental grounds. Our attention here is on its potential impacts on poverty reduction. The potential is large, whether through employment, wider growth multipliers and energy price effects. But it is also fragile: it will be reduced where feedstock production tends to be large scale, or causes pressure on land access, and its success can be undermined by many of the same policy, regulatory or investment shortcomings as impede agriculture. Whilst some of the factors facilitating, and impacts of, biofuels can be tracked at global level, its distributional impacts are complex, and point to the need for country-by-country analysis of potential poverty impacts.
  • Bamikole Amigun;Rovani Sigamoney;Harro von Blottnitz
    Diversification of energy sources, agricultural activities and a higher percentage of locally produced energy are goals that can be satisfied by biofuels. Biofuels such as biogas, biodiesel, and bioethanol may be easier to commercialise than other alternative fuels, considering performance, infrastructure and other factors. Lack of a good understanding and application of key concepts of cost estimation—a key to successful project which impacts both the project profitability and influences the technical solutions—is a foremost barrier to its commercialisation in Africa, despite the availability of biomass resources. A plethora of other generic technological and non-technological constrictions has been identified to also hinder biofuels adoption and development. Understanding the economics of the biofuel industry is, therefore, crucial in realising eventual commercialisation. This article provides knowledge-based review for expansion (commercialisation) of biomass-derived fuel (biofuel) through improved understanding of its economics in Africa. In addition, recommendations to overcome the technological and non-technological hurdles to market penetration of biofuels are discussed.
  • M. Sengul;A.E. Pillay;C.G. Francis;M. Elkadi
    Since 1990 carbon dioxide emissions in Africa have increased by about 50%. The total carbon dioxide emissions of the entire African continent are not, however, anywhere near those of countries such as India or China. Yet certain African countries have per capita emissions comparable to some European countries. What is the outlook for Africa? How should African countries respond as it becomes increasingly likely that climate change is occurring? Increased industrial growth and more foreign investment in Africa, especially in countries that are politically and economically stable, have led to huge commercial developments such as the In Salah gas project in Algeria, which releases more than a million tons of carbon dioxide annually; and synthetic fuel plants and power stations in South Africa that generate more than 350 million tons per year. In this perspective should some African countries be required to limit greenhouse gas emissions or should they be immune to ‘environmental taxation’? This paper critically reviews the carbon dioxide problem in some parts of Africa and its role in climate change.

Food Policy

  • Steve Wiggins;Stephanie Levy
    Food prices have been rising since 2000, spiked in early 2008, and may remain high for another ten year. Prompt action is needed to protect the poorest and support low-income countries faced by surging import bills In the medium term, economic and agricultural growth can offset the damage, but this will require more determined efforts to boost food production.
  • Joachim von Braun
    The world food situation is currently being rapidly redefined by new driving forces. Income growth, climate change, high energy prices, globalization, and urbanization are transforming food consumption, production, and markets. The influence of the private sector in the world food system, especially the leverage of food retailers, is also rapidly increasing. Changes in food availability, rising commodity prices, and new producer-consumer linkages have crucial implications for the livelihoods of poor and foodinsecure people. Analyzing and interpreting recent trends and emerging challenges in the world food situation is essential to provide policymakers with the necessary information to mobilize adequate responses at the local, national, regional, and international levels. A mix of policy actions that avoids damage and fosters positive responses is required, including the following actions that should be undertaken immediately: Developed countries should facilitate flexible responses to drastic price changes by eliminating trade barriers and programs that set aside agriculture resources, except in welldefined conservation areas. A world confronted with more scarcity of food needs to trade more – not less – to spread opportunities fairly. Developing countries should rapidly increase investment in rural infrastructure and market institutions in order to reduce agricultural-input access constraints, since these are hindering a stronger production response.