Increase in Global Subsidies and Trade in Africa: Challenges and Opportunities

Abstract

The utilization of subsidies has increased recently due to several factors such as the COVID-19 pandemic and the war in Ukraine. Despite the economic and social justification of the provision of subsidies, there have been increasing debates. This paper analyses the trade implications of the increase in global subsidies on African trade. To better understand the nature and scale of these implications, we provide a review of the international disciplines on subsidies as well as the economics of subsidies. Relying on stylized facts, we demonstrate that the increase in subsidies by developed and emerging countries has depressed the world cotton price and trade performance in Africa. We recognize the important role played by well-designed subsidies. However, harmful subsidies like cotton subsidies should be substantially downscaled or removed. To that end, reforming agricultural subsidies becomes a necessity as it holds the potential to reduce income inequality. Further, governments should work closely with the World Trade Organization (WTO) to clarify and strengthen international disciplines on subsidies. Moreover, we suggest that the WTO should adopt stricter supervision of developed and emerging countries’ subsidies process and a more transparent notification process.