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Saturday, 6 September 2008

The case for "smart" protectionism?

Pascal Zachary argues in his latest piece for Project Syndicate that African countries should consider using selective protectionism to help local producers and achieve economic self-reliance. Its the "old infant industry" argument again, only this time with evidence of its apparent effectiveness in Uganda's rice strategy:

Uganda’s Smart Protectionism.,G. Pascal Zachary, Project Syndicate, Commentary:

On a balmy afternoon, I met Dr. Gilbert Bukenya at his home on the shores of Lake Victoria, where we talked about the future of farming in Uganda. “By farming smarter,” he said, “Ugandans not only can grow more, they can earn more money.”

Working smarter is no empty slogan; it is the key to modernizing African agriculture. An advocate of food self-sufficiency for Uganda, Bukenya wants Ugandans to eat more homegrown rice, thereby boosting local farmers and rice millers while freeing hard cash for higher uses. Bukenya has long promoted a new strain of African rice that grows in uplands (as opposed to wetland paddies) and requires less water.

Embracing the new rice is part of the working-smarter formula. Once rice output began to expand, Bukenya and other Ugandan politicians played another smart card: they lobbied successfully for a 75% duty on foreign rice, which stimulated rice production further. Rice output has risen by two and a half times since 2004, according to the Ministry of Trade, to 180,000 metric tons, while consumption of imported rice fell by half from 2004 to 2005 alone.

Uganda’s importers, seeing the shift, have invested in new mills in the country, expanding employment and creating competition for farmers’ output, improving prices. New mills, meanwhile, lowered the cost of bringing domestic rice to market, so that consumers now still pay about the same for rice as they always have.

And Uganda is poised to start exporting rice within East Africa and beyond. “It’s a very important crop for raising income and commercializing agriculture,” says Nelson Gagawala Wambuzi, Minister of State for Trade.

Uganda’s success in expanding rice production is especially interesting given that the people of sub-Saharan Africa spend nearly $2 billion a year on rice grown outside of Africa. The amount of spending on rice alone by Africans equals the combined national budgets of Ghana and Senegal.

As more Africans move to cities, they acquire a taste for rice, which is easy to store and can be cooked quickly. But such spending on imported rice is a scandal, because, with the help of wise policies, African farmers could grow much more rice, perhaps enough to eliminate virtually all imports. Much of the rice grown in Pakistan, Vietnam, and especially America is stimulated by subsidies, and then dumped into African markets at low prices – sometimes below the cost of production. These rice exporters, including the US, also maintain stiff import duties, thereby protecting domestic farmers from global competition.

African governments sharply reduced or eliminated duties on imported rice in the 1990’s, urged on by the World Bank, the International Monetary Fund, and influential free-market economists. The assumption was that rich countries would reciprocate by curtailing subsidies to their farmers. But they haven’t. In response, a few African countries have raised duties on rice, violating a key tenet of neo-liberal trade philosophy.

But rice duties are working in Uganda – and in Nigeria, where rice output is also soaring and the value of imported rice is declining – and policymakers rightly believe that they must be maintained. The big exporters, such as the US and Vietnam, continue to supply massive subsidies to their rice farmers. Without protection, African farmers would once again be harmed by imports.

Indeed, African governments might wish to look selectively at other crops. They need to rely on a mix of economic tools, including farm protectionism, aimed at helping indigenous producers.

Virtually every successful Asian economy was built on selective trade barriers – and in China and India, the world’s two fastest growing economies, such barriers remain in place. Even Korea and Japan maintain massive duties on imported rice simply to protect the livelihoods of their own rice farmers.

Uganda and other African countries need to be careful that protectionism doesn’t become a cover for inefficiency or corruption. And selective protectionism is of course no panacea for Africa, even when such policies effectively aid local producers. But economic self-reliance is a worthy goal for most African countries, and Uganda’s experience suggests the potential of an approach long denigrated by the international community.

For too long, African governments have listened to the siren song of free trade – and have suffered from too much openness, not too little. With the US and the European Union unwilling to slash their farm subsidies, Uganda’s rice experiment deserves wider attention, if only because it shows that Africans aren’t merely passive victims of international economic forces. They are fighting back and, at least in the rice fields of Uganda, they are winning.

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