Subsidy as a Safety Net for Agriculture in Africa
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By Adebayo Abubakar
As the AfCFTA takes off, the platform on which it is configured to thrive is production, using indigenous economic structure forged by a transnational consensus among African countries that are signatories to the agreement that birthed it. The production system is not as advanced as that of the western world – Europe and America; hence there is the need for a special intervention- in addition to the elimination of trading barriers such as customs duties and other migrational restrictions for people and goods within the continent. Such a special intervention must come by way of subsidy, to lower considerably the cost of production and to enable local farmers to compete with their counterparts in Europe and America. Up until now, the Brettonwoods institutions have at the core of their conditions for giving out loans to developing countries, that government must hand off the provision of certain social services that are more or less subsidy in nature. However, the countries controlling these institutions provide subsidies for their citizens in so many sectors, for reasons described as strategic to national interests.
It is an open secret that the West – Europe and America, and even, China, subsidise farming in their respective jurisdictions for strategic reasons like food security, the need to keep the rural economy alive, be globally competitive, and at the same time, securing jobs in farming, agri-food industries, and associate sectors, among others, as stated in the EU’s Common Agricultural Policy. According to an article published in the “Foundation for Economic Education” (FEE), “to get a sense of just how big a problem agricultural subsidies are, in 2016, the United States, the European Union, and China spent $33 billion, $100 billion, and $212 billion respectively, on trade-distorting agricultural subsidies.” African producers are being forced to compete on an uneven playing field, and unfortunately, they are losing. Recently, a new system to regulate subsidies to business by the British Government received Royal Assent to boost the economy and put the UK on the front foot in emerging industries, helping growth and jobs.
Credit: World Bank
From the standpoint of neoclassical economic theorists, subsidy is an anomaly. But beyond the surface, as could be seen in the instances cited above, Europe and America operate subsidy regimes for the agricultural sector to safeguard jobs in the sector and to prevent their countries from being a dumping ground. If that be the case, why can’t Africa do the same thing for similar reasons?
One must however, appreciate the fact that Africa is not well-positioned to subsidize agriculture as much as Europe and America do, but it is the way to go, if Africa must make agriculture the base of her economic superstructure and ensuring that the vision of AfCFTA is made a reality. In addition to cheaper access to credit facilities, storage facilities, inputs, training, research, and development, the cost for each of them must also be subsidized to serve as incentives for prospective investors in the agricultural sector on the continent. Do not ask me where the funding should come from? It has to be from the government, of course. It won’t be a bad idea however, if multinationals, charity organisations, friendly nations, among other development partners fund it. That should not prevent the various governments from playing a leading role in their respective jurisdiction, to secure the confidence of those partners as to how sincere the governments are about the project.
There is therefore, a need for African governments to come up with a subsidy regime that stimulates production, whether in the agricultural or manufacturing sector, with a view to boosting production at a minimum operating cost, so as for the prices of local produce not to be undercut by heavily subsidized competitors from elsewhere – Europe, America, and Asia. Rather than lamenting the imbalance in trade between Africa and Europe, occasioned by heavy subsidy by the governments of the latter, like president Muhammadu Buhari of Nigeria did recently, reported by Nairametrics, Africa must come up with at least a modest subsidy package to counter-balance the trade between nations of the two continents.
Adebayo Abubakar is a Nigerian journalist. You can reach him via, marxbayour@gmail.com