The growing trend of cross-border trading on commodities and services, no doubt, posits significant benefits to individual economies in the world. It has improved the level of direct investment, the flow of international capital, and technological advancement. Also, it has increased competition and spread wealth more uniformly. However, experts have argued that economic globalization is more beneficial to developed countries than it is to the developing or precisely put, Third World countries. Over 80% of the world’s capital is flowing among the United States, Western Europe, and the Eastern Asian Countries.
To erase any form of confusion, economic globalization is also beneficial to develop countries, especially those that are tactful in their participation. However, these countries are perpetually caught in a dilemma. If they refuse to be involved in global economic processes, they would be left behind on the ride to modern development; on the other hand, if they participate too actively in the process, they may suffer excess dominance from developed countries. The reasons are quite simple.
First, the deficit in technology and knowledge-based investment are major reasons for which developing countries are losing out in the globalization process. Developed countries, in recent years, are entering the era of the knowledge economy and have started to shift their labor-intensive companies of weak international competition to developing countries.
To capture the topic well, we should focus our discourse on the dark continent of Africa. It is indeed ‘dark’ in various measures of development but we should see how effective investment in global and regional economies can help this continent step to the light of economic prosperity.
The African Continental Free Trade Area (AfCFTA) agreement which was initiated in 2018, is expected to favor small and medium-sized businesses, popularly called the SMEs, which are responsible for more than 80% of Africa’s employment and 50% of its GDP. It would facilitate imports and exports among member countries – with lower or no tariffs. This would eliminate trade barriers and help SMEs grow.
With a market size of about $3 trillion, the AfCFTA will allow African-owned companies to make new and innovative investments, leading to new products. This market-oriented initiative is an institutional driving force for a continent with very low manufacturing strength.
With all of these incentives, the level of compliance from African countries should be a huge concern. Nigeria, the biggest market in Africa was reluctant to sign the agreement, and even after she assented eventually, her borders remain closed to her African neighbors, with the Benin Republic suffering the most. As it is in the global economic space, so it is at the regional level – the weak economies suffer or record inconsequential gains.
The reduced enthusiasm for economic partnership among these countries is understandable. Countries like Somalia or Mozambique rely on farming for employment and their small-scale family farms cannot compete with large agri-businesses in high-income African countries such as South Africa, Kenya, Nigeria, and Egypt. The former would suffer huge losses from any open trade agreement with these big brothers.
Even the big brothers would not risk choking their local SMEs because that is what free trade brings. Foreign suppliers can afford to lower the cost of their products by leveraging the reduced tariffs imposed on imported goods. This may lead to local producers losing huge sales to foreign suppliers.
To buttress this, a report by BUSINESS DAY on Monday, January 13, 2019, claimed that Government revenue in Nigeria may decline when the African Continental Free Trade Area (AfCFTA) comes into effect. This was reportedly revealed in a study commissioned by the Nigerian Economic Summit Group (NESG).
The evidence-based study was carried out by Centre for Petroleum Energy Economics and Law (CPEEL) at the University of Ibadan, Ibadan in conjunction with Equilibria Consult to determine the potential impact of the AfCFTA on key macroeconomic variables such as aggregate output, aggregate export, aggregate import, government revenue, investment, and composite prices.
The report reads, “considering the study’s findings that Nigeria’s GDP will be negatively impacted when the AfCFTA agreement comes into force, and given the need to make the economy more competitive; it was recognized that relying on the inflow of foreign saving to grow the economy may not readily pay-off.”
“It was recommended that Nigeria embarks on massive infrastructure upgrades and institutional reforms to improve her business environment. The infrastructure upgrade could be realized through the concession of major infrastructural projects (electricity, roads, bridges, airports, seaports, etc.) to the private sector.”
Economic globalization has come to stay; it is an irreversible trend for the economic development of the world. However, developing countries can only enjoy the full dividends of this process, if they equip themselves with the necessary tools, mostly in technology and manufacturing. Then, they can join the powerful to swim in the risky waters of macroeconomic businesses.
Oluwatobi Odeyinka is a content writer at The Young Leaders Council