President Emmerson Mnangagwa has sailed through the impact of Covid-19 and Russia’s invasion of Ukraine. With several months away from Zimbabwe’s ... general election where he will be seeking another term, Mnangagwa is facing a bigger challenge that could further cripple the Zimbabwean ailing economy: a power crisis.
We are sitting in an illuminated room at the Cercle de l’Union Interallié, next to the British and US embassies in Paris, a stone’s throw from the Elysée Palace. It was founded in 1917, by the officers and political leaders of an embryonic ‘West’. It is a grand old institution. In places the gilt work is peeling.
Today, pandemics, recession and strategic competition are in the air as, with characteristic ebullience, World Trade Organisation (WTO) director-general Ngozi Okonjo-Iweala guides us through the geopolitical fault lines she traces every day.
“I hope the tensions won’t lead to World War III!”, she says of the events unfolding in Ukraine that will undoubtedly have global repercussions.
Established in 1994, but based on a set of rules written down almost 50 years before, the WTO has lost its shine. We are far from the ‘Davos decade’ of the mid-1990s to mid-2000s – the heyday of the globalist elite, before the financial crash, austerity and the full-throated return of strategic competition.
Those who predicted an ‘end of history’, and the inevitable rise of open democratic and open economic systems everywhere, have revised their opinions. The international system set up after the Second World War is being tested, and not only by Russia. It is going to need more than a lick of paint.
As we talk, on 28 January, the European Union has filed a suit against China for a blockade against Lithuanian goods after the latter allowed Taiwan to open a diplomatic office. “We are trying to remind the big powers that you can have strategic competition and strategic cooperation, and that these things can happen at the same time,” says Okonjo-Iweala.
This is easier said than done.
Yesterday, the biggest cheerleader for the WTO was the United States. Today, the WTO is snagged in US-China rivalry as we move into a multipolar world. Trumpism battered the global institution, with the former US president saying he would have to “do something about the WTO because they’ve let China get away with murder”.
The WTO was even abandoned by stalwart centrists like Hillary Clinton during her election campaign.
Brexit-blustering British politicians, populists across Europe, fervent nationalists from Washington DC to Brasília to New Delhi… all have targeted the WTO as the source of their woes. ‘Free trade’ has become a dirty word for many politicians.
The US is weakening the Appellate Body, a key institution of the WTO, by routinely vetoing appointments of new judges – a practice that accelerated under President Donald Trump but started under his predecessor, Barack Obama. What use is a WTO that cannot arbitrate?
When Okonjo-Iweala accepted the job last year – finally appointed a few months after the Trump administration had tried to block her candidacy – it may have felt like what rugby players call a ‘hospital pass’. But then there is the calibre of the candidate: as a ‘super minister’ of the economy in Nigeria, Okonjo-Iweala faced down vested interests.
After eight years of President Muhammadu Buhari, many Nigerians would like eight years of an Okonjo-Iweala presidency – a possibility she bats away as nonsensical and “cheeky”.
A successful stint as a reforming number two in the World Bank gave her another skill set and augmented her network, as did her time heading the vaccine alliance GAVI. The word ‘redoubtable’ recurs in descriptions of her.
At the WTO, Okonjo-Iweala’s political nous was considered essential to unlocking progress. The organisation has been deadlocked for more than a decade. The 1986-1993 Uruguay Round of trade negotiations was completed when the WTO was born in 1994; the subsequent Doha Round launched in 2001, foundered in 2008 and remains a dead letter.
Her method has been to push for quick wins, while vigorously challenging the status quo. Okonjo-Iweala debunked rumours reported in Bloomberg that she had threatened to quit because of the institutional inertia of the WTO. But any such threat would certainly have got the attention of the WTO bureaucracy.
A matter of trust
She points to the fisheries subsidies agreement that the United Nations has asked the WTO to fix. There have been 20 years of talks without a breakthrough. “I came almost a year ago, and we’ve been pushing… with some luck, in a few months we might be able to close on this. For the first time we have momentum.” There are $35bn in fishery subsidies worldwide, “of which $22bn are bad subsidies,” she says.
She wants quick wins to overcome the biggest obstacle to a functioning international system: “There is so much mistrust between the members,” says Okonjo-Iweala. Her work on vaccines may produce results faster. The debate pits developing countries wanting access to intellectual property (IP) rights to make vaccines against richer countries backing pharmaceutical conglomerates, who argue that protecting IP is key to the financial incentives that have powered vaccine research.
“Of course, as director-general, I don’t take sides,” says Okonjo-Iweala. “But my job is to make sure we have a reasonable compromise.” She reminds us that “developing countries are not going to back off. Why? Because they lived through the HIV/AIDS period, when access to [antiretroviral] drugs took a long time.”
Instead, Okonjo-Iweala is bringing together a small ministerial conclave of countries from both sides, “to see if we can get a framework that then can be shared with the others,” she says. “That is the European Union, the US, India and South Africa. These are very confidential talks to try to make a breakthrough.”
Okonjo-Iweala’s arrival as the first African and the first woman to head the WTO sparked hope. Africa rejected global trade pessimism in 2018 by creating the African Continental Free Trade Area (AfCFTA). The AfCFTA is trying to negotiate the rapids of the multipolar 21st century by boosting intra-African trade and enabling the continent to act as a trading bloc in its own right.
Might Africa rekindle optimism in a world grown suspicious of the WTO model of open markets and no state support for industry?
Okonjo-Iweala certainly acknowledges the trade sceptics. “I don’t want to be Pollyannaish”, she says. “People have been left behind, marginalised.” But the facts are clear for her, informing her “passion” for trade: “Over a billion people, mostly in East Asia – China in particular – have been lifted out of poverty because of trade, because of globalisation.”
She continues: “In 1980, 40% of the global population was living in poverty, under $1.90 per day – now the line for absolute poverty. By 2019, before the start of the pandemic, we had gone down to below 10%.” She sees opportunities for developing countries as supply chains come under pressure, causing prices to rise globally.
“We have seen CEOs looking to manage risk, not by reshoring [bringing manufacturing back home], but by near-shoring – looking for other venues where they can put in another factory,” says the WTO director-general. “Ethiopia has seen some light manufacturing. Why can’t we diversify manufacturing to countries who have not been part of the wave, and bring them into global value and supply chains?”
Another story of globalisation
The WTO often chalks up the rise of Asia as a success for free trade but says much less about the role of state support for industry.
But while the WTO often chalks up the rise of Asia as a success for free trade, there is another story to be told about the rise of a billion people in East Asia. And, indeed, about Ethiopia’s own industrial growth. And it also involves state support for industry.
The story begins with a lone giant US economy using its funds and the emergent American consumer to help stabilise Cold War allies in Japan and South Korea. Those allies who themselves developed in ways antithetical to the open trade ideology the WTO espouses today. Japan and South Korea were liberal only in their use of industrial policy to support their emergent industries.
Back then, this state-driven prowess kicked off protectionist moves in the US congress as ‘Jap-Crap’ cars evolved to become cost-killing Toyota market conquerors… sparking fears that are strikingly similar to today.
So similar, in fact, that the man Trump chose to be US trade envoy in 2017, Robert Lighthizer, actually played the same job in 1983 for Ronald Reagan. Ironically, China in 2018 turned to Japan for advice for how to deal with Lighthizer’s tough ‘America First’ stance.
The story comes to its conclusion with a rising China that took the same ‘economic nationalist’ route, just as the West was demographically flagging, and just as the rich world had bound themselves into a much more rigid trading system unable to adjust to political concerns – a system called the World Trade Organisation.
If you listen to the trade skeptics, the real difference between the 1970s and the 2000s? WTO rules making it more difficult to shield sunset industries.
Should African countries care? What lessons should they take from the rise of Asia’s billions? Which story is correct? Take Asia’s economic nationalist route? Or hope that the open market state-lite approach will see them through?
It matters, given most of Africa’s states have signed up to the AfCFTA. Whether this is said explicitly or not, by its actions Africa is proposing to be the first continent to industrialise in a free trade area. No other continent has ever done so in history. It would be a strangely ideological ‘free markets or bust’ position to take, let alone the one-size-fits-all approach being questioned by countries like Zambia.
There are huge stakes for a continent adding 30 million young people to its workforce every year. Africa’s manufacturing success stories – Ethiopia, Morocco and Rwanda – have all used state backing to launch local industries. Most African states have signed up to the AfCFTA, so will Africa be the first continent to industrialise in a free trade area, and what lessons can be taken from Asia?
“Industrial policy used to be a dirty word and there was so much resentment against the use of state instruments,” notes Okonjo-Iweala. She adds that Western governments are now putting money into companies manufacturing computer chips. China’s rise was not all due to state subsidies, but also cheaper labour and higher productivity, she argues: “Hard work creating special economic zones to try to boost quality – but, yes, the state was more interventionist than elsewhere.”
For Africa, she insists that she is not ideological on the question: “If there is help that the state can give, you can find ways of doing it. […] We’ve subsidised state-owned companies, but were they efficient? During my time as minister of finance of Nigeria I had to privatise some companies because they were taking a big chunk of the budget.”
Before considering adopting East Asia’s economic nationalism, she urges countries to fix the macroeconomics so that companies can borrow at a reasonable cost, and to clear out bureaucratic and infrastructure barriers: “Trade on our continent is the equivalent of a 300% tariff,” she says. “There’s a lot a state can do before putting in direct money.”
What about using tariffs to protect vulnerable sectors? Nigeria ripped up the rule books of the WTO and the Economic Community of West African States when it closed its border with Benin, saying this was necessary to counter smuggling that was harming its rice production.
“There was a time, maybe, when we supported our sugar and cement industries, but no longer. We are competitive,” says Okonjo-Iweala. “Dangote [Cement] is in 14 African countries [and there is] BUA Group. The problem may be that they have too large a share of the domestic market.”
But the era of direct subsidies has ended: “We just can’t afford it!” Okonjo-Iweala says. She sympathises with Buhari’s efforts to crack down on smugglers. As finance minister she tried to protect Nigeria’s textile producers, making spot checks on suspect factories in Benin.
“It’s not nationalism out of thin air. Our textile industry was being devastated by imports from China,” she says. “And I took these copies to the Chinese establishment to say: ‘Look, we’re being undercut.’ But we need to find a better instrument than border closures.”
Nigeria is not the only free trade skeptic.
Zambia’s commerce minister recently illustrated the dilemma many African countries are facing when it comes to the African Continental Free Trade Area (AfCFTA). Chipoka Mulenga recently said that Zambia had asked for more time before committing to the AfCFTA. Despite having the most business-friendly president in many years in Hakainde Hichilema, Zambia has come to realise that its economic sovereignty is at risk from adherence to the AfCFTA.
“Countries such as Côte d’Ivoire, Ethiopia and Kenya are best positioned to benefit the most” from AfCFTA in its current form, says Irmgard Erasmus, senior financial economist at Oxford Economics Africa in Cape Town. Her argument is that countries with developed manufacturing or value-adding sectors will do well from the AfCFTA as it is currently structured, but those that rely on commodities to drive their economies will suffer.
“Zambia – with its dependence on copper for export receipts – is currently not well-positioned to benefit substantially from the AfCFTA unless the country makes rapid strides towards export-base diversification,” she says.
Add value to the continent
Convincing the skeptics will require a level playing field internationally. Okonjo-Iweala is very critical, for example, of rich countries’ agricultural subsidies. “You have anywhere from $500bn-$700bn in agricultural subsidies,” she says. “That is causing quite a bit of unfair competition, especially for poor countries – there is Burkina Faso, Mali, Niger, suffering [political] crises; they can’t make it on world markets because of US [cotton] subsidies, for instance.”
Her solution for these Sahel countries points to the contradictions of backing both industrial policy and the neo-liberal orthodoxy of keeping state and industry separate. Is the answer to rich countries subsidising their cotton producers that developing countries should make textiles?
“Burkina Faso and Mali came to the WTO, and do you know what we were talking about with them? Why don’t we just add value to that continent and sell the cloth? Why are we always trying to export [raw materials] to the outside?” says Okonjo-Iweala.
She says that the AfCFTA should be used to promote this across many sectors. “We can build a pharmaceutical industry. Now that the pandemic has thrown open the issue, the EU is willing to invest a few billion. Why don’t we take it and start doing that?”
In essence, the head of the global institution that promotes free trade appears to accept the ‘realistic’ position that the US will never stop subsidising its politically powerful cotton-farming lobby. Neither is she averse to industrial policy in agribusiness and pharmaceutical industries in Africa.
Time to shape the system
On pharmaceutical production, the AfCFTA could be both a protective bloc and a free-market accelerator: “With this huge market of 1.3 billion people, we could have bits of the supply chain being grown or developed in different [African] countries, and then an entire product being finished and sold,” says Okonjo-Iweala. “So we talk to the heads of state so that they’ll hasten their approach to this issue.”
As she faces double standards on vaccine equity and state subsidies, Okonjo-Iweala has focused on other areas where the international system isn’t delivering – climate change, most of all.
In December 2021, Russia and China voted down a United Nations Security Council resolution supported by African states including Gabon and Kenya and co-authored by Niger, which explicitly linked climate change to security breakdowns.
This is a particular problem in the Sahel, where Lake Chad has been shrinking, affecting water supplies and hurting livelihoods.
Okonjo-Iweala says: “No one can convince me that part of the problem we have in these countries with coups isn’t people migrating from the rural areas. Young men and women without jobs, who have been driven out by insecurity and insurgencies engendered by climate change: herders increasingly coming into villages where there are farmers, and fighting one another. […] That is where African countries may lose faith [in the international system] and be dismayed, [seeing that] this link is not being made.”
Of course, the job of the WTO is not to solve the climate crisis alone, or indeed the vaccine supply crisis. But it should help build new forms of international cooperation.
Africa should be more able to engage and shape this system, suggests Okonjo-Iweala, pointing to the lack of African diplomats in trade discussions: “Only Nigeria and South Africa have a dedicated ambassador to the WTO.” Those of other African countries have a double or triple responsibility as envoys to the other UN bodies in Geneva and to Switzerland itself.
The message from the WTO director-general is that now, more than ever, Africa must be at the centre of the global system. Look at the numbers. The challenges of the next 100 years are global – climate change, security, and finding sustainable jobs for 650 million young Africans amid demographic stasis on other continents, especially Europe.
Having the first African and the first woman at the head of the WTO should take us closer towards more representative global governance. But that won’t make the gargantuan tasks ahead of her any easier: finding consensus on vital issues of national commercial interests in an era of spiralling strategic competition.
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