African states raising tariffs is not viable

According to the International Monetary Fund (IMF), taxes are intended to raise revenue to finance government expenditure on goods and services demanded by citizens. So, it is in the interest of a country to set up a tax system that is efficient and fair. However, this has been a great challenge to developing countries as they struggle to be integrated in the international economy.

Tax can be collected through personal and corporate income tax, value-added tax, excise and import tariffs, among others. However, I will only address tariffs, which are seen as an easier option by African countries, which import almost everything.

An import tariff is a tax levied on the value, including freight and insurance, of imported goods by governments. The main roles of tariffs are generating government revenue, protecting local goods against foreign products and restricting foreign goods from flooding the local market. In African countries, it would most probably be used for generating revenue since they lack factories to manufacture goods.

Is it right for international finance institutions to advise African countries to raise tariffs? Free trade proponents argue that import tariffs burden consumers through increased prices, trigger retaliation from partner countries and raise deadweight loss by creating inefficiencies on consumption and production sides (where local producers still operate but at higher production costs compared to imports and consumers losing the low price benefit). Therefore, tariffs suppress the exporting country’s industrial performance, prompting them to retaliate.

Globalisation and the international economy is what countries are striving to achieve. Therefore, tariffs might inform sanctions in response. An example will suffice: the Smooth-Hawley Tariff Act, despite its positive intentions, saw competition between the United States and China result in high tariffs that hugely damaged the global financial economy and led to many problems for other countries.

Also, if African countries raise tariffs, then they will create entry barriers, which could be beneficial but can result in monopolies since only the most fit companies will remain competitive. Besides, it will limit entry by small foreign firms and start-ups due to the intense competition. This will harm livelihoods and national economies, which require all investors to spur their development. Thus, raising import tariffs could lead to even higher unemployment rates while hurting the domestic economies.

African countries should consider alternatives to institutions like IMF and the World Bank. For instance, they can consider adopting the Chinese globalisation model and borrow loans from China Exim Bank as well join BRICS. Millions of tonnes of annual agricultural trade is now being conducted outside the US dollar.

This represents a tectonic shift in global finance as the dominant trading hubs of New York, Chicago and London are replaced by a multipolar system of bilateral trade using East Africa's currency and non-USD-denominated pricing and contracts.

Mr Awil, an international relations expert, is a former Federal Republic of Somalia's Ambassador to China.