July 2010 SACU Summit

SACU continues to enjoy its centenary and uniquely, this year we have seen 2 SACU Summits with a third anticipated by the end of October 2010. The first Summit was held in April 2010, whereby the Heads of State and Government adopted a new mission and vision for SACU.  They also agreed on the institutionalization of the meetings of the SACU Heads of State and Government.

The second summit was held on July 16th 2010, and the Meeting issued a Communique which mandates Ministers to address challenges that SACU needs to resolve. The Summit further reiterated that SACU should be converted into a vehicle for regional integration and also recognized the role that SACU can play in Southern Africa as a building block for deeper regional integration. 

Some of the challenges mentioned in the communique are mandated in the 2002 SACU Treaty (e.g. revenue sharing, common policies, institutions etc). Some were also highlighted in the 2009 WTO Trade Policy Review of SACU. Other challenges highlighted by the Summit include: financing options for cross border projects, increasing intra-SACU trade, new generation issues, reviewing the 2002 SACU Agreement and development of a roadmap for an Economic Community and Monetary Union. 

One observation is that a unified SADC EPA position is not expressly mentioned.

The Communique can be accessed here.

TBT Issues in Bilateral and Regional Trade Agreements: An African Perspective

Study from the OECD on  TBT issues in Africa.

TBT measures in African RTAs are apparently (with few exceptions) only vaguely addressed.  Interestingly, this paper also observes that there is an import-export bias in the sense that generally Africa seems to favour low technical requirements in respect of their imports (i.e. by virtue of their TBT border protection levels) whereas they face high TBT requirements for their exports to more developed regions. Products are often re-tested in export markets, leading to large cost penalties for exporters, whereas products of sub-standard quality often find their way into the markets of the region, because the TBT infrastructure is underdeveloped.

This June 2010 paper  also examines whether and how eight major regional integration agreements within the African region address TBT issues and implement the  WTO  TBT Agreement whose objective is to ensure that technical regulations and other TBT measures do not unnecessarily constitute barriers to trade. However the agreement also recognizes countries’ rights to adopt the standards they consider appropriate and it is acknowledged that domestic regulations and region-wide standards, are essential for protecting economies and common markets, from business practices that may bring harm to humans, plant, animal life, the environment, industry, and to national security.  

While only one of the 8 agreements surveyed by the authors refer explicitly to the WTO TBT Agreement, most of the RTAs refer to the elimination of TBT-related barriers or harmonisation of legitimate measures, but they use broad and non mandatory language. Few of the eight RTAs require or encourage parties to accept as equivalent the other parties’ regulations and conformance procedures. Mutual recognition is envisaged by some, but mostly as a goal and only in broad terms. None of the agreements reviewed require that parties explain the reasons for non-recognition.

Finally, there are no clauses prescribing transparency and no procedures for dealing with disputes over TBT matters.  Existing provisions for eliminating TBT-related barriers or harmonising legitimate technical regulations are formulated mostly in broad and nonprescriptive terms.

The paper provides concrete steps that parties to these RTAs have taken in order to reduce technical barriers. However, while TBT policy reform could be advanced through WTO negotiations, the authors recommend the following measures in order to facilitate TBT policy alignment among countries of the region:

• African RTAs should be revisited, reviewed and amended to include more stringent TBT provisions.
• A targeted review of TBTs should be undertaken in light of the development needs in meeting the basic requirements of standards systems and implementation of current obligations to support expanded trade opportunities with developed economies.
• It should be investigated whether African countries benefit from Mutual Recognition Agreements for national product testing and certification.
• Performance of enquiry points should be assessed throughout the region on an ongoing basis.
• A programme of assistance in infrastructure modernisation should be considered, comprising inter alia a long-term plan for infrastructure modernisation and enhanced access of African countries to the development of voluntary standards activities. 
• More attention should be paid to trade with India and China, with which the RECs in Africa and specifically the tripartite SADC/EAC/COMESA alliance have no trade agreement or TBT arrangements.Because of the sheer size of these economies, trade in unregulated low-priced products may be harmful to consumers and economies of the sub-Saharan region. (a controversial point might I add given the reports of dumping from the west as well).

The publication is useful but I should also mention a few additional facts. African enterprises need to link with global supply chains to market their products internationally however such linkages (beyond the supplies of raw materials) are few and far between. In addition, African exporters are largely small scale- even SMEs, when compared to their  international counterparts. SMEs have inherent difficulties with access to capital, productive capacity, technology and servicing because of resource limitations. Therefore my additional recommendations would be for increased investment in capacity building, testing and technology at the the enterprise level.

This publication can be accessed here.

Programme for Infrastructure Development in Africa (PIDA)

The Programme for Infrastructure Development in Africa (PIDA) was launched on 24 July 2010 in Kampala, Uganda, along the sidelines of the 15th African Union Heads of State and Government Summit.  PIDA is a continent-wide program to develop vision, policies, strategies and programs for the development of priority regional and continental infrastructure projects in transport, energy, trans-boundary water and the ICT sectors.

PIDA is a joint initiative of the African Union Commission (AUC), the New Partnership for Africa’s Development (NEPAD) Secretariat and the African Development Bank (AfDB) Group. PIDA's program scope is quite broad in coverage. It covers transport (air, sea, river and lake, lagoon, rail and road), energy (electricity, gas, petroleum products and renewable energy), ICT, and transboundary water resources (primarily irrigation, hydropower, and lake and rivers transport), and deals with the regional and continental aspects of these sectors. 

The motivation for this initiative is rooted in Africa's infrastructure deficiencies which continue to hamper the continents growth and economic development. Infrastructure deficiencies also lead to increased production and transaction costs which result in decreased competitiveness for businesses and thereby also hinder the implementation of social and economic development policies.  The 3 institutions further recognize that in Africa:

• There is access to electricity for only 30% of the population compared to rates ranging from 70 to 90% for other major geographical zones of the developing world (Asia, Central America and the Caribbean, Middle-East and Latin America)
• Transboundary water resources constitute approximately 80% of Africa’s freshwater resources. However, current levels of water withdrawal are low with 3.8% of water resources developed for water supply, irrigation and hydropower use, and with only about 18% of the irrigation potential being exploited.
• A telecommunications penetration rate of about 6% compared to an average of 40% for the other geographical zones, and a very low penetration rate for broadband services and fixed lines.
• A road access rate of 34% compared to 50% for the other geographical zones.
• The global competitiveness indices calculated by the World Economic Forum indicate that for Africa these indices are lower than those of other regions of the developing world and infrastructure appears to be the underlying factor that contributes most significantly to Africa's relatively low competitiveness.  In fact the 2009 Africa Competitiveness Report concluded that Infrastructure remains one of the top constraints to businesses in Africa.

Other issues to be addressed by PIDA will include: the need to fill information gaps on infrastructure deficits, causal analysis, development of prioritized strategic frameworks, establishment of infrastructure investment programs around RECs strategic priorities and improved implementation strategies for these programs.  All national aspects (including, without exception, physical infrastructure, national policies, institutional and regulatory frameworks, technical standards and benchmarks) will only be considered if they have an impact on, or could be affected by, the regional and continental aspects.

The PIDA initiative requires a total amount of USD 11,391,527, which includes the cost of an independent advisory panel of experts (supported by DFID), regional and sector consultative workshops (supported by NTCF and EU) and implementation of an infrastructure database (supported by the EU). The Sector Studies component alone requires a total amount of USD 7,552,343, with the ADF providing 25.6%; the African Water Facility (AWF) with 24.6%, the Islamic Development Bank (IsDB) with 23.3%, and the NEPAD-IPPF USD 2.0 million grant representing 26.5% of the cost.  

Sources can be accessed here.

The African Trade Insurance Agency

African Trade Insurance Agency, is a trade and political risk insurer with operations in 16 African countries. The political cover ATI provides is proving popular due to the high risk perception that Africa attracts. The products are becoming especially popular among foreign investors who are positioning themselves to take advantage of the growing business opportunities in the continent.

ATI is a multilateral financial institution that provides export credit insurance, political risk insurance, investment insurance and other financial products to help reduce the business risks and costs of doing business in Africa. The Agency also facilitates foreign direct investment into Africa and trade flows within the continent.  

ATI was launched in 2001 and in less than a decade, they have supported over $1.2 billion worth of trade and investments across the continent, and secured an investment grade rating of ‘A’ from Standard & Poor’s.  They have also expanded membership to more than a dozen African countries with plans to attract non-African member states by 2011.  They also have thriving and plans to expand operations into Ghana, Benin, Gabon, Cote d’Ivoire and Cameroon, which is expected to open up the West African market by providing a trade linkage between east and west Africa.

ATI was created to fill a market gap in trade and investment risk mitigation in Africa. In the late 90's, risk mitigation tools for credit and political insurance were not available for many African countries, and where the cover existed, it was very costly. In addition, the relatively small volumes of trade and investments into these countries did not justify the establishment of national export credit agencies. The only viable solution was to form a multilateral agency that would provide more cost-effective use of underwriting capital, reduced over-head costs and the ability to encourage private sector insurers to assume risk in Africa. The investments covered cut across various sectors such as agribusiness, energy, housing and manufacturing.

The ATI Member States include: Burundi, Democratic Republic of Congo, Djibouti*, Eritrea*, Ghana* Kenya, Liberia*, Madagascar, Malawi, Rwanda, Sudan*, Tanzania, Uganda and Zambia. *Pending signature and/or ratification.

Some ATI insurance products include coverage against:

Expropriation

Coverage against confiscation, expropriation, nationalisation and other illegitimate actions of foreign governments which may deprive you of your rights of ownership or control of your assets without appropriate compensation in a freely convertible currency.

Transfer Restriction

Coverage against the inability to both convert local currency into convertible currency and to transfer convertible currency out of the country. Currency inconvertibility and transfer risk policies apply to losses resulting from financial crises, convertible currency shortages or arbitrary political decisions by a government. 

War, Civil Disturbance or Civil Commotion 

Coverage against destruction, disappearance or physical damage to tangible assets caused by politically motivated acts of war or civil disturbance including revolution, insurrection and coups d'etat.

Embargo

Covers against financial loss due to trade embargoes or any other sanction imposed by the Security Council of the United Nations, or by any country or group of countries against the host country.

Proposed West Africa Solar Power Commission

ECOWAS. Tapping into solar energy.  This is useful.

In a previous post we discussed the announcement by the EU Commissioner for Energy on the EU's plans to start importing solar power from Northern African countries; Algeria, Tunisia, and Morocco, through the the Desertec Industrial Initiative, launched in July 2009. 

Along similar lines, West Africa is also gearing up to develop solar resources given the abundance of sunshine and near possession of the largest desert in the world. In this regard, the Heads of State and Government of ECOWAS have endorsed an initiative by President Abdoulaye Wade of Senegal that will enable the region to harness its solar energy potentials through the construction of solar power plants that will provide cheap energy as a complementary source for meeting West Africa’s energy needs. 

The move reiterates a proposal at the Copenhagen World Summit on Climate Change for Africa to commit to solar energy not only because of its availability but also because it is a less expensive source of energy that would help improve the competitiveness of the continent’s industries.

As evidence of support for President Wade’s initiative, the regional leaders urged each Member State to attach technical and financial experts to President Wade ‘in view of establishing the Commission on solar power that shall operate under President's Wade's chairmanship and authority.

New EU-Wide Investment Policy

As a region, the EU is the most significant global investment player. It is the world's leading host of Foreign Direct Investment (FDI) as well as the world's biggest source of FDI outside the EU. By 2008 outward stocks of the EU FDI amounted to € 3.3 trillion while EU inward stocks accounted for € 2.4 trillion. 


According to a recent press statement, the EC has now formulated a comprehensive investment policy which will seek to integrate investment liberalisation and investment protection.  Under the Lisbon Treaty, investment is one of the areas covered by the EU common commercial policy which is developed and managed at the European level giving the EU a strengthened negotiating leverage. However, there are 1200 Bilateral Investment Treaties (BITs) concluded by individual EU Member States and other countries. In addition, the European Commission (EC) as a legal entity is also negotiating investment agreements, for instance with African countries, as part of the Economic Partnership Agreements (EPAs). 

To address this anomaly, the  EC has released a comprehensive investment package which consists of: 

(1) a policy paper titled "Towards a comprehensive European international investment policy" and 

(2) a draft regulation which sets up transitional arrangements offering guarantees to existing or pending BITs concluded between EU and Non-EU countries prior to the enforcement of the Lisbon Treaty. Here, the Commission has provided legal security for European and foreign investors, without hampering the EU's ability to negotiate new investment treaties at EU level.  

The EU Member States together account for almost half of the investment agreements currently in force around the world. However, not all Member States have concluded such agreements, and not all agreements provide for the same high or equivalent level of standards. According to the EC, this leads to an uneven playing field for EU companies investing abroad, depending on whether they are covered as a "national" (granted national treatment) under a certain Member State BIT or not. 

Another feature of the agreements of individual EU Member States is that they relate to the treatment of investors “post-entry” or “post-establishment” only. This implies that Member States’ BITs provide no specific binding commitments regarding the conditions of entry, neither from third countries regarding outward investment by companies originating in EU Member States, nor vice versa. Here the EC might want to be guaranteed non discriminatory pre-establishment MFN Status.  Gradually, the European Union has begun the process of filling the gap of "entry" or "admission" through both multilateral and bilateral agreements at EU level, covering investment market access and investment liberalization, ensuring the non-discriminatory treatment of investors upon entry to a third country market.

The EC recognizes that a one-size-fits-all model for investment agreements with 3rd countries would be neither feasible nor desirable. Therefore the EC will have to take into account each specific negotiating context. However since actual trade and investment flows are in and of themselves important determinants for defining priorities, the EC indicates that they should go where its investors would like to go, through the liberalisation of investment flows. The policy paper identifies some candidates for a full investment agreement including India, Canada, Mercosur and where possible China and Russia, but also states that should a comprehensive, across-the-board, investment agreement with a country, or a set of countries, prove impossible or inadvisable, sectoral agreements may be an option whose desirability, feasibility and possible impact would have to be further assessed.

On the specifics of the approach, the EC would look beyond FDI and protect all the operations that accompany investment and make it possible in practice e.g. payments, the protection of intangible assets such as Intellectual Property Rights, etc. Enforcement is also addressed and identified as a key issue in the new policy. Currently, the EC has included in all of its recent FTAs, an effective and expedient state-to-state dispute settlement system. In addition, investor-state dispute settlement will be featured since it is a key part of the inheritance that the Union receives from its Member State BITs.  

However there is a uniqueness of investor-state dispute settlement in international economic law which impacts the EC's mandate in this area. For example, the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the ICSID Convention), is open to signature and ratification by Member States of the World Bank or those party to the Statute of the International Court of Justice. The European Commission does not qualify under either.  This new investment policy paper however proposes that the EC could seek accession to the ICSID, but notes that this would require modification of its convention.


A key outcome of this policy is that the EC may request renegotiation of existing BITs by individual member States. "The Commission will review the existing MS BITs. If it finds clauses that are incompatible with EU law (e.g. transfer clauses that would hamper the implementation of EU financial restrictions against a certain third country), it would ask the Member State to renegotiate such clause. If this proves impossible, the authorisation may be withdrawn as a matter of last resort.  Likewise, authorisations can be withdrawn if the EU negotiates an investment treaty at European level, and recourse to Member State BITs with the same third country is not necessary anymore."

While FDI will be within the full competence of the EC, the expectation is that by following available best practices, they would ensure that no EU investor would be worse off than they would be under Member States' BITs. Member States will however have scope to pursue and implement investment promotion policies that complement and fit well alongside the common international investment policy. In addition, BITs maintained by Member States may require amendments in order to bring them in compliance with EU law. The same framework is intended to be available also for Member States that would like to negotiate and conclude new investment treaties with countries, which are not targeted for EU-wide investment agreements, e.g. for foreign policy purposes.  

Overall, this is an interesting development in the wake of the EPA services and investment negotiations and should be studied carefully in light of the scope of the EC's investment text which covers all economic sectors including services i.e.: A) Agriculture, hunting and forestry; B) Fishing; C) Mining and quarrying; D) Manufacturing; and E) Production, transmission and distribution on own account of electricity, gas, steam and hot water. It is therefore useful to note that sectoral agreements rather than comprehensive investment agreements could be considered a viable option where feasible. 


One should also note that on "policy space" the EC's approach will be to ensure that the EU common investment policy fits in with the way the EU and its Member States regulate economic activity within the Union and across its borders. ...."EU investment policy has to be consistent with the other policies of the Union and its Member States, including policies on the protection of the environment, health and safety at work, consumer protection, cultural diversity, development policy and competition policy." African States negotiating investment chapters in the EPA could opt to also ensure compatibility of proposed EPA investment provisions with their own development policies.

US Services Trends 2010

The United States (US) is once again the single most competitive global services economy and the US has the largest services surplus. This is according to the 2010 USITC Study on Services Trends in the US. 

As the world’s top exporter of services, the US accounted for $521.4 billion, or 14 %, of global cross-border commercial services exports in 2008. Other top single country exporters included the United Kingdom (7 %) and Germany (6 %) which  further confirms that the EU as a region, is the largest services exporter. Although most of the world’s top 10 services exporters in 2008 were developed countries, China and India, two of the BRIC economies, ranked as the world’s fifth- and ninth-largest services exporters respectively. Overall, the top 10 exporting countries accounted for 52 percent of global cross-border services exports in 2008 and US services exports to the Middle East and Africa accounted for only 5% of total US services exports.

The US was also the world’s largest services importer in 2008, with $367.9 billion, or 11 percent, of global commercial services imports. In that same year, Germany and the United Kingdom respectively accounted for 8 % and 6 % of such imports, while the top 10 importing countries together accounted for one-half of total global commercial services imports. China, which was the fifth-largest importer of commercial services in 2008, was the only developing country to rank among the top 10 global importers. The Middle East and Africa accounted for 8% of of US services imports reflecting a trade deficit with the US.

Overall, sales volumes of affiliates in host economies remained much larger than cross-border trade, with U.S.- owned affiliates (in foreign markets) reporting sales of $1 trillion in 2007, and foreign owned affiliates (in the US) reporting sales of $677.8 billion. This reflects the prominent outward nature of the US mode 3 services exports.

Among the world’s top 10 exporters and importers of commercial services, the US recorded the largest services trade surplus ($153.5 billion) in 2008, followed by the United Kingdom ($86.8 billion). Germany and Japan recorded the largest services trade deficits, with imports exceeding exports by $41.4 billion and $21.0 billion, respectively.

USITC draws much of the services trade data used throughout this report from the U.S. Department of Commerce (USDOC), Bureau of Economic Analysis (BEA).  Trade data remains an area of concern for African countries who might lack the research and data management capabilities required undertake credible analysis for services negotiations.

US and India on Partnering with Africa

Recent discussion by the Carnegie Endowment for International Peace on how India and the US could partner with Africa to foster its development. This is relevant because foreign investors interested in Africa are facing similar risks and opportunities to those they faced when investing in India. African countries could therefore learn from India’s successful economic reforms in service and industrial sectors which helped it achieve an impressive growth rate for several years. 

Some useful ideas from this discussion include:

India can contribute to Africa’s development by sharing its experiences in mobilizing human capital and social policy innovation, such as the ongoing large-scale rural employment program launched in India in 2006. In fiscal year 2009/10 alone, it provided employment to 52.5 million rural households. India can help Africa produce high tech yet low cost goods that are within the purchasing power of the African people.

India’s Green Revolution transformed the country from a food deficit nation into a food self-sufficient country. The introduction of high-yielding varieties of seeds, increased use of fertilizers, and improved irrigation helped to increase agricultural productivity in India, leading to self-sufficiency in food grains. It also helped India to effectively address famines. This revolution is similar to what happened in China.

Foreign investors need to diversify from energy investment in Africa and investment needs be increased in non-energy sectors as well.

The US government and the private sector could consider public-private partnerships in order to reduce investment risks while making investments in Africa. This could also be done by developing tax incentives and credits for US investors in Africa (see previous post on this here).

On financing, U.S. banks are risk-averse and less willing to finance businesses in Africa, which creates a financing problem for U.S. businesses interested in doing business in Africa. However, European banks have been more forthcoming in financing investment in Africa. A possible proposed solution in this regard could be increased support from the Overseas Private Investment  Corporation (OPIC) in the US.