Pascal Lamy is a European in a French way. His rich experience in politics and business has acquainted him with a rare capability to talk about global issues easily. As the director general of the World Trade Organisation (WTO), a 155-member global trade supervising body, he unrelentlessly works to create smooth global trade. With Ethiopia approaching the critical step of its accession to the WTO, disclosing its service sector offers, he claims that he sees progress, though not swift.
In this exclusive interview with Getachew T. Alemu, OP-ED EDITOR, at the World Economic Forum (WEF) on Africa, held in Addis Abeba, last week, he shared his views on issues ranging from market integration to his attitude towards the administration of Prime Minister Meles Zenawi. Excerpts:
Fortune: There was talk of market integration in most of the sessions of the World Economic Forum (WEF) on Africa. Ethiopia has actually been passive in pursuing the regional integration agenda. What do you think are the prominent challenges of market integration in Africa and, specifically, for Ethiopia?
Pascal Lamy: Ethiopia has, so far, chosen a model of development, which is growing domestically and exporting mostly outside Africa, to European, American, Indian, and Chinese markets, and, so far, it has worked. If you look at it analytically, partly, it emerges from the geographical location of Ethiopia, with limited access to the sea and neighbouring countries that are still politically extremely unstable.
I have no doubt that, in the medium or long term, Ethiopia will join this movement of African integration. This is what is happening within the East Africa community, which is a good example of a number of, so far, successful economic and trade integrations.
According to plans, which are both AU level and regional level, Africa has, as a project, to defragment and succeed in moving its trade pattern from a classical, colonial pattern, where 60pc of the exports of Africa are fuels and minerals, only 20pc manufactures, and 10pc to 15pc food, to something that is more diversified. But, the fact that Ethiopia is still, for instance, negotiating its accession to World Trade Organisation (WTO) is also a sign that, for the moment, the priority has been to grow domestically.
I think. It is understandable, given the size of the market. It is a big country by African standards. But, I think, the strategy, and I discussed this with Prime Minister Meles Zenawi, is to move towards more opening, more modernisation, and reaching out to both the global and regional markets, of course, provided there is stability. Clearly, it is not still the case either in Sudan or in the rest of the Horn of Africa.
Q: In your speech at Addis Abeba University (AAU), you praised the administration of Prime Minister Meles Zenawi for its leadership in facilitating the accession of Ethiopia to the WTO. However, we have heard the Prime Minister saying in the different sessions of the WEF on Africa, that his administration is not yet ready to liberalise the finance and telecom sectors. Do you see a contradiction between your commendation and his statement?
It is a question of phasing in, I think. My own view on this is that Ethiopia will benefit from more vibrant, more developed, and more open telecom and financial sectors, which are, in today's world, infrastructures as important as power, roads, rails, or airports. In modern economies, what we used to call infrastructures, when we learnt economics 30 years ago, is as much about the telecom sector. Countries who have opened their telecoms system get a lot of foreign direct investment (FDI) and have been doing extremely well because information technology is part of a system.
If you go to the commodity exchange in Addis Abeba, it is all technology. You know, when the farmer sells his products through his cell phone and it gets him money in the bank the next morning it is all made possible because of technology. This example shows that in order for this commodity exchange market - which is a great achievement - to percolate into poverty reduction, it has to be structured together with the banking system, which makes the settlement possible.
This is an example of how it can work.
Where there may be a sort of difference of view is on what is the speed of this opening. After all, Ethiopia remains, for the moment, a least developed country (LDC). There are capacity problems, which may justify why we say this is what we want to do in the medium, long, and short-term. Things can be done step-by-step.
There is no contradiction in this. Many LDC countries have acceded to the WTO by making commitments to open the market and reduce trade protections, in a phased-in way.
Other members accept this the moment there is some sort of certainty that things will happen in the future. It is a question of what is the right regime of change, and after all, the ones who determine this are the people who are responsible for the people of this country.
Q: One major challenge resulting in the lower competitiveness of Ethiopian exports on the global market has been high logistic costs. I have heard you, on many occasions, say that it is better for African countries to approach this thing on a quick-fix basis rather than waiting to have all of the resources combined to solve the bigger hurdle. What are your concrete quick-fix recommendations for the Ethiopian government to reduce logistics costs?
One thing is to accept that these countries need time to build the capacity to trade so that they will reach out to the global market. There are many things that can be done that do not shock your economy and that open trade, starting with border administration, which, in many ways, remains very cumbersome, bureaucratic, and red-tape based. There are many areas in infrastructure, where investing in infrastructure is investing in the future economy, and that is a sort of negative competitive shock.
So, there is whole stream of things that can be done to facilitate the business environment to improve the sort of transparency of the market. These are not something that will hurt a part of your economy, except if you believe that I better remain hidden in a business where I have rent and where I would like others to compute. There are behaviours of this kind, but, overall, it is a combination of capacity building: knowhow, innovation, education, infrastructure, and short-term measures that formidably facilitate business development.
Q: As it appears, currently, in most African countries, financial deepening is at its lows. What are your expectations, in the short-term, for trading capital in Africa?
I think it is mostly a question of adopting, at the right scale, proper financial regulations. What needs to be done is to set rules for a large enough perimeter, which means, regionally, a sort of size of 200 million people.
Within this regulatory frame, investors will come and develop their businesses. But, it will not work if a country has this regulation and, next door, there is another regulation. It is a question of harmonising the regulatory framework on a scale sufficient to mobilise investment and people who want to reach out to consumers.
Q: In one of the speeches that you made at the WEF on Africa, I heard you saying that one of the reasons for slow trade reform in some African countries is a lack of consolidated business interest. What is your assessment of the Ethiopian business climate on those terms?
I think, there are, if I look, for instance, at the Ethiopian accession project, a strong connection between business organisations and the government. It is on the topic of "What is the right quantum of trade opening?" that differences lay.
The point I made is, compared to other continents, such as Europe, Asia, North America, and Latin America, there still is not, in Africa, a strong business lobby to facilitate trade. That is why, when the solution was taken, last year, to create PADTRACK, a pan-African trade lobby, we supported it.
It is a force and an energy that will help governments move in the right direction. This is still in the making. Understandably, the vast size of entrepreneurship happening in Africa is still recent. It is only after a businessperson grows domestically that she would be worrying about how she can influence government to better her business.
Q: Mentioning of the Ethiopian accession to the WTO, what peculiarity have you observed in your assessment until now?
It is moving, I think. There are various streams of modernisation, like domestic legislation, that has something to do with the part of the legislative regime that is connected to doing trade.
That is the beginning. Step-by-step, of course, it needs parliamentary approval. Then, there is some sort of trade negotiation with WTO members, who are insisting that Ethiopia should open this or that because that is what they see as a potential market for them in the future.
First, you need to do it with goods, which we have an offer on this year. Then, you need to do it on services, which, obviously, is the complex matter because opening the market on services involves a large menu of options and they need time to understand all these options to make up their minds.
It is progressing, but it is large country. If you look at accession negotiations, some have taken five years and some have taken 18 years. So, there is a wide range of possibilities.
My sense is that it is moving, not extremely rapidly, but, again, the ones that decide how fast the negotiations move are two-thirds Ethiopian and one-third the rest of the WTO members.
Q: Cheap and easy finance from Asia, particularly China, is hampering trade reform in African countries, some say. What is your take on that?
I do not think so. Where China is investing is mostly in commodities, minerals, and energy. They are also investing in big infrastructure projects. They are targeting the basic infrastructure. I do not think this is becoming an obstacle for any country.
Interview conducted by Addis Fortune.