Africa’s uncompetitive trade deals William Gumede is Associate Professor, School of Governance, University of the Witwatersrand, Johannesburg and Chairperson of the Democracy Works Foundation; and author of South Africa in BRICS: Salvation or Ruination, Tafelberg Many trade agreements African countries enter into whether with former colonial powers and industrialised countries, and new emerging powers such as China, are in many cases undermining their development, rather than boosting it. The European Union’s Economic Partnership Agreements (EPAs) with former African, Caribbean and Pacific colonies which replaces trade arrangements between the ACP states which operated for three decades prior, is a case in point. Last year, Günter Nooke, German Chancellor Angela Merkel’s Africa Commissioner, rightly warned the EPA is doing the opposite of Europe’s stated development policy for Africa. Speaking to German public broadcaster ARD on 4 November 2014, Nooke said the EPAs with Africa are in danger of cancelling development efforts by European countries. “Economic negotiations should not destroy what has been built up on the other side in the Development Ministry”, Nooke told ARD. The EU’s economic partnership agreements (EPAs) threaten African economies for a number of key reasons. It threatens African farmers and infant industries, as EPAs promote EU products and services entering African markets without any quotas or duties. The EU’s EPAs demand products from the EU to Africa to get the same level of government support in African recipient countries as locally produced products. The EU’s EPAs expect African countries to abolish the requirement for local content in locally manufactured and processed goods. Yet it is crucial for African countries to build up local industries. EPAs undermine African attempts to build local manufacturing capacities – as often heavily subsidized European products flood African economies. The EPAs undermine individual African countries’ ability to develop their own independent policies. One of the key reasons for the development failure in many African countries since they became independent has been their lack of freedom to come up with economic policies appropriate to their own circumstances - a handicap not restricting richer nations. Yet, only if African countries have the space to decide what policies to pursue can they, “turn their economic gains into real productive capacity” as stated by Supachai Panitchpakdi, UN’s Conference on Trade and Development (UNCTAD) Secretary-General. The EPA’s also undermine Africa’s attempts to pool their individual country markets, trading more with each other and to create a continent-wide free trade area from Cape to Cairo. This approach is integral to Africa’s future prosperity. EPAs undermine Africa’s capacity to piggy-back off the rise of new emerging powers such as Brazil, India, China and Turkey who have rapidly become new investors and new markets for African products. As part of the EPAs African countries must declare the EU as ‘most favoured nation’ whose products should not be subjected to higher levies than those of developing countries. In addition, African countries must extend all the benefits of any future trade agreements that an African country may enter into with other countries. This is not surprisingly seen by African countries as a way to prevent African countries from striking more competitive deals with new emerging economies such as India, Brazil and China. In implementing EPAs, the EU has divided Africa into its own regions, completely undermining current African efforts at integration. But the EU also punishes all countries in a region, if one defaults on any part of the EPAs. For example, in the case of Southern Africa, the EU’s EPA proposals to the Southern African Development Community (SADC), is that if an individual countries default on any part of the EPA in this region, the EU has the power to act against all SADC countries. Yet SADC is expected to reach a consensus if there is a trade dispute with the EU. Those African countries which refused to sign up to EPAs terms and conditions were threatened to have their access to EU markets totally withdrawn. Namibia initially refused to sign-up, but was forced to back down as the EU threatened to bar market access to Namibian beef, grapes and fresh fish annually worth €30 million. Swaziland was forced to sign up because the EU threatened to close its markets to the mountain kingdom’s sugar and citrus – the country had nowhere else to go. Kenya was holding out for some time, but the EU punished the country by imposing import tariffs on some of the country’s key exports effective 1 October 2014. Following the widespread job losses and factory closures, Kenya buckled and signed the EPA agreement. African countries have little recourse for trade, economic and political disputes with the EU, specifically regarding disputes over EPAs. As former United Nations Secretary General Koffi Annan’s Africa Progress Panel have noted: African countries are marginalized in the WTO’s Dispute Settlement Mechanism. The United States African Growth Opportunities Act (AGOA) sets political and economic conditions for select African countries to export their products to the US. Under AGOA, the US signs trade arrangements with individual African countries, with often onerous conditions, rather than with regional blocs, which undermines African regional integration and the formation of regional supply chains. Former US Secretary of State Hillary Clinton has acknowledged that ‘regional integration has gotten too little attention within the AGOA framework’. In 2010, the value of African products traded under AGOA reached $44 billion. Close to 91 percent of the goods traded under AGOA was oil. Only 5 percent of African products exported to the US under AGOA were non-oil or non-apparel. Yet, Africans desperately need to move their products from raw materials to higher process and manufacturing ones, which create jobs and earn more income. Import tariffs for raw materials from Africa such as oil are typically low in industrial countries like the US and the EU, but they increase dramatically with each state of processing. US and industrial countries’ subsidies to their farmers often outweigh the supposedly beneficial access given to African countries that sign trade agreements with them - this is the case in both the US’s AGOA and in the EU’s EPAs. Remaining colonial-era trade agreements are also restrictive. France still has punishing trade agreements with the bulk of its former African colonies dating from colonial times. These include that France has first right of refusal or acceptance on minerals discovered after independence in some of its former African colonies; and French companies had to be considered first when African governments award large contracts. Such obligations heavily undermine the long-term development of former French colonies. Mamadou Koulibaly, the Speaker of the Ivory Coast Parliament, in his book, The Servitude of the Colonial Pact, heavily criticised this post-independence arrangement which effectively keeps former French African colonies in bondage to the former colonial power. At African independence, France insisted its former colonies remain in a currency union with it, by using the CFA franc (Communauté Financière de l’Afrique zone), which was created in 1945. However, to use the CFA franc, 14 former French African colonies had to agree to use the French Treasury to manage the system, with former colonies having to deposit 65% of their foreign currency reserves with the French Treasury, to ‘stabilise’ the monetary zone. This has now dropped to 50% of their reserves. Former French colonies include Senegal, Cameroon, Ivory Coast, Mali and Chad. France determines the exchange rate. According to the 2012 annual report of the Bank of France, reserves sat at US$20 billion at the time. Members of the CFA zone ‘borrow’ from France at commercial rates if they wanted to access their foreign currency reserves. In practice, this meant that former French African countries, although supposedly independent, have restricted control over setting their domestic monetary policy – and therefore broader economic and development policy. Alarmingly, African countries have also more recently struck very unfavourable deals with many new emerging powers such as China, India and Brazil. Most of the Chinese infrastructure investments in Africa usually are ‘tied’ to bringing Chinese labour, machinery and firms and foreign aid is linked to securing Chinese investment opportunities for Chinese companies, or political support from African governments for China global diplomacy positions. Zimbabwean leader Robert Mugabe in August 2014 went to Beijing to ask for US$10 billion financial bailout for the country’s ailing economy. China gave Zimbabwe US$2 billion loan, to build a power station, coal mine and dam, using future Zimbabwean mining tax revenue as security. For these Zimbabwe had to sign a commitment to use revenue from Zimbabwean state-owned companies to get loans from China’s state-owned banks. In 2013, the Gabon government took the Chinese investor, Addax Petroleum, owned by state-owned Sinopec, to the International Chamber of Commerce’s arbitration court, after the Gabon government disputed small print in the original contract between the Gabon government and Addax Petroleum, which blocked the Gabon government from selling an oilfield licence to a third party. In 2014, South Africa signed a deal with Russia worth US$50 billion, whereby Russia’s Rosatom State Atomic Energy Corporation would provide up to eight nuclear reactors to South Africa by 2023. The reactors will be based on Russian technology. In the deal, Russia is likely to finance the deal, through a model of playing both the role as nuclear vendor and financier. In such an arrangement the Russian government provides a loan to SA – to build the reactors, which is repaid from the electricity tariff over 15 to 20 years. Although African countries sign individual trade deals with many emerging markets, their products often still face restrictive tariffs. In fact, high tariffs barriers – whether regulations, health standards and licensing systems which are discriminately applied to African products, remain stubborn obstacles for African countries when they export to emerging markets such as China, India and Brazil. Often, these emerging markets specifically put up barriers to high value added African products so crucial in Africa’s industrialization. Business Unity South Africa (Busa) President Futhi Mtoba has pointed out how high trade tariffs barriers set up by India undermines South African business there. These include lack of transparency in India’s trade tariff schedule, and stringent licensing regulations and packaging rules. New emerging powers such as China and India send labour intensive manufacture, and high-value added products, which creates jobs in their own countries - to Africa. This means they undermine Africa’s ability to establish a manufacturing base – so crucial for jobs and economic growth. Already, many local African manufacturing companies, for example in Ghana, Kenya and Ethiopia, have to close down because of cheap Chinese and Indian competition. African countries need to review all their existing trade agreements and cancel or change the terms of restrictive ones. Unless African countries come up more competitive trade agreements with both industrial and new emerging-market partners, the continent is unlikely to break out of the cycle of underdevelopment.
Unless African countries come up with more competitive trade agreements with both industrial and new emerging-market partners, the continent is unlikely to break out of the cycle of underdevelopment