Power Utility Distributor Extends Internet to Homes

The fibre to the home partnership between electricity distributor Kenya power and telecommunication services providers like Safaricom is a novel approach to cost cutting efficiency and universal access. 

On cost efficiency, apparently it costs about KSh 7,000 to bury a meter of fibre optic cable, but the cost of hanging the internet cables on power poles is significantly lower.  Kenya Power also says that it will make savings by using its existing labour force to connect fibre cables to homes. 

See more here.

New Database On Global Value Supply Chains

The European Union has launched the new "World Input-Output Database" which allows trade analysts to assess the global value chains created by world trade. These added-value chains have become an essential feature of economic reality as trade is becoming increasingly globalised as today's traded products are not produced in a single location but rather are the end result of a series of steps carried out in many countries around the world. Instead of counting the gross value of goods and services exchanged, the new database reveals the value added embodied in these goods and services as they are traded internationally. The findings are significant as they change the perception of the competitiveness of certain sectors in some countries. 

In addition, policy makers and societies at large are facing increasingly pressing trade-offs between socio-economic and environmental developments. Increases in production induce growth in the use of non-renewable resources such as fossil fuels, materials, land and water. Furthermore, they generate higher levels of waste and emissions of environmental pollutants. Simultaneously, increasing global integration through international trade and technological developments creates a tension. In this regard, the database considers satellite accounts with environmental and socio-economic indicators, from which industry-level data can provide the necessary input to several types of models used to evaluate policies aimed at striking a suitable balance between growth, environmental degradation and inequality across the world.

Karel De Gucht, the EU commissioner for trade has said that the change in statistical accounting for trade applied in the database has been developed to determine the consequences of the fragmentation of supply chains. For example a third of world trade happens within firms while two thirds of European imports are not of final products but of intermediate goods and raw materials, to which EU firms add one or more layers of value before they are finally sold, often for export.  The EU trade commissioner gave the example of a Nokia smartphone, "it is listed as being made in China, but in reality 54% of its value comes from tasks that are carried out in Europe. Key components are produced in other parts of Asia and only the assembly itself actually happens in China.  Today, we measure trade by counting the total price of the good that is being exported or imported, but because we do this both for components and for final products we get a distorted picture of what is really happening.  Hence according to the database, when we look at trade in value as opposed to traditional statistics, EU trade deficit with China is reduced by 36%. In 2011, the trade deficit between the EU and China stood at EUR155.9 billion however using this new method China-EU deficit starts to look like less of a problem."

On services, interestingly when looking at trade in supply chain terms,  the classic distinction in trade policy between goods and services is increasingly artificial. This is because services represents almost 60% of the value European firms add to the products exported from Europe. 

The database covers 27 EU countries and 13 other major countries in the world for the period from 1995 to 2009. It is notable that not a single African country is included in the database which possibly says something about Africa's non-participation or rather minuscule contribution to global supply chains. In addition, all BRICS economies are included in the database with the notable exception of South Africa.  One wonders why the EU wants African countries to eliminate export taxes (under the EPAs) when in essence the contribution of African exports to global trade and supply chains is too insignificant to be in included in the database.

African countries generally export largely raw materials (e.g fuels, metals) and some agricultural products to the EU and generally lack capacity to add value domestically especially for manufactured products. Other supply capacity barriers to Africa's participation in global value chains include limited foreign ownership and lack of global networks which are a significant factor in characterizing the intensity of global exports but not necessarily for regional exports. The lack of technological advancement is also a significant barrier especially in global exports. Public infrastructure constraints, such as inferior power services and customs delays, seem to have more immediate impacts on regional exports as does customs efficiency and poor trade facilitation which is also hampers the competitive participation of African producers in global supply chain industries. 

In a related article, we saw that China overcame similar challenges by exploiting joint ventures.  China allowed foreign firms access to the domestic market in exchange for technology transfer through joint production or joint ventures. In fact, 100% foreign owned firms were a rarity among the leading players in the industry in China, unlike Export Processing Zones in Africa. China’s openness to foreign investment and its willingness to create Special Economic Zones (SEZs) where foreign producers could operate with good infrastructure and with minimum hassles must therefore receive considerable credit. However if China  welcomed foreign companies, she always did so with the objective of fostering domestic capabilities.

Rwanda-US Bilateral Investment Treaty and the EAC Common Market Protocol

The Rwanda-US Bilateral Investment Treaty (BIT) was signed in Kigali in 2008 and the United States Senate unanimously approved the treaty on September 26, 2011. Meanwhile, the EAC-US Trade and Investment Framework Agreement (TIFA) was signed in July 2008 between USTR and the EAC.  In addition, the EAC Common Market Protocol (CMP) to which Rwanda is a member came into force into force on 1st July 2010. 


The Rwanda-US BIT is the first to be concluded between the US and a sub-Saharan African country since 1998 (when a BIT was signed with Mozambique). Although there are over 40 BITs in force to which the US is a Party, this Treaty with Rwanda is only the second concluded on the basis of the ambitious 2004 U.S. model BIT. Other African countries with BITs currently in force with the US include: DRC, The Congo, Morocco, Senegal, Egypt, Cameroon and Tunisia. The BIT with Rwanda will remain in force for ten years after its entry into force and will continue in force unless terminated by a Party by providing one year’s advance notice to the other Party. 

The BIT provides investors with legal protections which include non-discriminatory treatment of investors and investments and the right to freely transfer investment-related funds.  Unlike the EAC CMP however, the BIT also provides for prompt, adequate, and effective compensation in the event of an expropriation; freedom from specified performance requirements, such as domestic content or technology transfer requirements; and provisions to ensure transparency in governance. The BIT also gives investors in all sectors the right to bring investment disputes to neutral international arbitration panels.  

In comparison, EAC CMP Article 29 on the Protection of Cross-Border Investments, undertakes to protect investors and their returns in a non-discriminatory manner however the modalities for doing so are not yet finalised. Article 29:3 proposes that within 2 years after the coming into force of the CMP, Partner States will take measures to ensure necessary protections in the Community.


In contrast, the EAC-US TIFA establishes a EAC-US Council On Trade and Investment to monitor trade, identify and remove impediments to trade and investment.

The BIT contains provisions on National Treatment and Most-Favoured-Nation Treatment whereby it protects investors of a Party and their covered investments from discriminatory measures by the other Party during the full life-cycle of an investment, including the establishment phase. Each Party commits to provide to investors of the other Party and to their covered investments treatment no less favorable than that which it provides, in like circumstances, to its own investors (National Treatment) or to investors from any third country and their investments (MFN Treatment). In this instance, Rwanda has committed in the BIT to give US investors similar treatment it is providing to EAC Partner States, in like circumstances, under the Common Market Protocol. 

In contrast however, the EAC CMP Article 13 on the Right of Establishment, EAC States have committed to the principle of MFN but not the principle of National Treatment. However in Article 16 on the Free Movement of Services, the principles of MFN and National Treatment are addressed. Hence National Treatment is applicable in the EAC CMP for investment in the services sectors but seemingly not investment in industrial sectors e.g. agriculture, manufacturing, hunting, and forestry, mining and quarrying, energy production/transmission and distribution. 

On Transfers, the BIT has free transfer obligations which require that a Party permit capital and other transfers related to an investment be made freely both into and out of its territory. Additionally, a Party must permit transfers to be made in a ‘‘freely usable currency,’’ as designated by the IMF, at the market rate prevailing at the time of the transfer. Parties may however prevent transfers through the equitable and non-discriminatory application of certain laws. The EAC CMP on the other hand has provisions on the Free Movement of Capital Articles 24-28 which corresponds to the CMP Schedule on the Removal of Restrictions on Free Movement of Capital (Annex VI).

On Performance Requirements, the BIT prohibits the imposition by the Parties of several requirements relating to the performance of investments, including a requirement to achieve a given level of exports or domestic content or requirements linking the value of imports or domestic sales by an investment to the level of its export or foreign exchange earnings. The Article also prohibits Parties from offering advantages, such as tax holidays, in exchange for a more limited set of performance requirements. In the WTO context, the Agreement on Trade Related Investment Measures (TRIMS) takes a similar prohibitive approach however only in the context of trade in goods. 

So as not to place U.S. and Rwandan investors at a competitive disadvantage, the disciplines on performance requirements also apply to all investments in the territory (non-discrimination) of a Party, including those owned or controlled by host-country investors (domestic investors) and those owned by non-Parties. The EAC CMP does not impose performance requirements however it would seem that by virtue of the BIT, Rwanda cannot impose such measures even in the services sectors vis a vie any third Party. In practice, Rwanda may want as a policy to impose some performance requirements e.g. the technology transfer in targeted sectors, vis a vie more developed countries and justifiably so, in order to meet key development objectives.  This provision is therefore not in the interest of Rwanda given her level of development. It should be mentioned that the development of China is linked to performance requirements (local content) the Chinese government put in place for foreign investors. See related piece here. Fortunately however Rwanda has exempted performance requirements in her Annex II on non conforming measures (discussed below).

On Senior Management and Boards of Directors, the BIT prohibits measures requiring that persons of any particular nationality be appointed to senior management positions in a covered investment. A Party may require that a majority of the board of directors of a covered investment be of a particular nationality, or that a director be a resident of the host country, so long as such requirements do not materially impair an investor’s control over its investment. This provision would prevent Rwanda from implementing broad-based local empowerment policy to foster development of its own nationals into senior management positions and fortunately Rwanda exempted this in her list of non conforming measures (discussed below). Meanwhile in this context, the EAC CMP does not discipline the composition of Boards of Directors and the nationality of Senior Management by virtue of the principles of free movement of workers and right of establishment. The CMP only requires that juridical persons be established in accordance with the national laws of a Partner State.  

In the Publication of Laws and Decisions the provisions in the BIT seek to promote transparency in the legal framework governing investment. It requires the Parties to ensure that laws, regulations, procedures, administrative rulings of general application, and adjudicatory decisions that relate to any matter covered by the Treaty are promptly published or otherwise made publicly available. The EAC CMP contains a mildly similar provision in the Free Movement of Services chapter Article 19 whereby notification is required but not publication and the notification only applies after the introduction of the measure. 

In the BIT, each Party is obligated, to the extent possible, to publish in advance any laws, regulations, procedures, or administrative rulings of general application with respect to matters covered by the Treaty that the Party proposes to adopt, and to provide interested persons and the other Party a reasonable opportunity to comment on the proposed measures. In the EAC CMP, provisions on advance publication and comments are not addressed.  In practice this means that the US would have the opportunity to view, comment  and make recommendations in advance, on Rwanda's proposed laws and regulations however EAC Partner States would not.

On the rules of origin (Denial of Benefits) the BIT establishes that a Party may deny the benefits of the Treaty to an investor of the other Party if persons of a third country own or control the enterprise and the denying Party either (1) has no diplomatic relations with the third country; or (2) adopts or maintains measures, such as foreign policy sanctions, with respect to the third country or to a person of the third country that prohibit transactions with the enterprise or that would be violated or circumvented if the benefits of the Treaty were accorded to the enterprise or to its investments. This provision impacts on third Parties that are on sanctioned lists of either Party.

The provisions on Denial of Benefits also establishes that a Party may deny the benefits of the Treaty to an investor of the other Party if the enterprise has no substantial business activities in the territory of the other Party and persons of a third country, or of the denying Party, own or control the enterprise. 

The Agreement also lists Non-Conforming Measures (equivalent to negative lists) and in these Annexes, each Party lists existing measures to which any or all of four key obligations of the Treaty do not apply, and sectors or activities in which each Party reserves the right to adopt future measures to which any or all of those obligations will not apply. Annex III of the BIT is reserved for financial services NCMs. 

Annex I:

Rwanda: Exemption from MFN and National treatment in all sectors to allow for differential minimum capital requirements for investment registration. Here Rwanda identifies "local investors" to include Rwandese and COMESA investors who are entitled to a lower capital threshold (USD 100,000) than "foreign investors" (USD 250,000). While EAC is not mentioned in the BIT given the common market was not yet in place, one can argue that the EAC falls in the "local investor" category since the common market is technically working towards a single market.

United States: Atomic Energy; Mining; Air Transportation; Customs Brokers; Radiocommunications Licenses; and restrictions on securities registration and OPIC insurance eligibility. 

Annex II 

Rwanda: Preferences for socially or economically disadvantaged communities and differential treatment pursuant to existing international treaties. Here Rwanda reserves the right to adopt  measures in all sectors that are not consistent with the provisions on National Treatment, Performance Requirements and Senior Management and Boards of Directors in order to accord rights or preferences to socially or economically disadvantaged communities. 


Rwanda also reserves the right in all sectors to deviate from MFN provisions in order to adopt or maintain any measure that accord differential treatment to countries under any bilateral or multilateral international agreement in force or signed before the BIT. For agreements signed or in force after the date of entry into force of BIT, Rwanda reserved the right to deviate from MFN treatment with regard to: (a) aviation; (b) fisheries; and (c) telecommunications.  

United States: Radio/Satellite Communications, Cable Television, Social Services, Minority Affairs, measures relating to U.S.-flagged maritime vessels, and differential treatment pursuant to existing international treaties. 

Annex III 

Rwanda: On insurance, Rwanda states that the entry shall cease to have effect on the earlier of: (i) the date that Rwanda enacts an insurance law that eliminates the non-conforming aspects of the measure as set forth above;' or (ii) September 1, 2009.

United States: Financial Services/Banking, Insurance, and general Financial Services. 

****************

Overall the US has more detailed sector specific Non Conforming Measures than Rwanda especially in the services sectors (transport (maritime, aviation), communication (audio visual, telecom), financial services (banking, insurance and other financial services). However Rwanda also made useful exemptions but at a sectoral level made general carve-outs in insurance, aviation, telecommunications and fisheries.  

The key take away from this comparison is the Rwanda-US BIT is highly asymmetrical and is more ambitious than the EAC CMP. Theoretically it can prejudice the regional processes given its objectives of MFN, National Treatment, Dispute Settlement (including Expropriation, Compensation), Intrusion in Law Making Processes (governance) and broad-based elimination of: performance requirements, empowerment measures including elimination of legitimate development oriented requirements for foreign investment and repatriation. 


Whether such comprehensive coverage is desirable for African countries is an important question, the answer to which is highly context- and situation-specific, and needs to be assessed against the overall objective of ensuring that investment treaties promote investment that actually exists or has the compelling potential to exist and that fosters sustainable development. The propensities to invest and hence the need for protection through an ambitious BIT is an important consideration before signing BITs as such needs may change over time. In closing its important to note that several countries receiving high FDI receipts in Africa e.g. Angola, Sudan have very few BITs and in a previous post we found that strict FDI provisions in BITs do not increase investment.

Kenya: Safaricom’s M-Pesa goes global with Western Union

Safaricom, Kenya’s biggest mobile operator, has announced a deal with Western Union, the international money transfer company, to enable its M-Pesa mobile money service subscribers to receive direct cash transfers from Western Union agents worldwide.

Consumers can now send money directly to the mobile ‘wallets’ of Safaricom M-PESA subscribers in Kenya from 45 countries and territories,” explains Karen Jordaan, East and Southern Africa Director at Western Union.

The service taps into Africa’s huge remittances flows, which the World Bank estimates to have totalled $40bn in 2010. 

See full piece here and related posts here.

Innovation for Growth in Africa

...there are a number of areas where Africa must quickly focus its energy to improve its productivity and accelerate growth; agriculture, health, information technology and the arts. 

Access the full speech by Dr. Ngozi Okonjo-Iweala, Managing Director, World Bank here

India's National Innovation Council

There is much we can learn from India on innovation (viewed as the transformation of knowledge into goods and services for the marketplace).  Realising that innovation is the engine for the growth of prosperity and national competitiveness in the 21st century, the President of India declared 2010 as the ‘Decade of Innovation’. To take this agenda forward, the Office of Adviser to the PM on Public Information Infrastructure and Innovations (PIII) developed a national strategy on innovation with a focus on an Indian model of inclusive growth. The idea is to create an indigenous model of development suited to Indian needs and challenges.

Towards this end, the Prime Minister has approved the setting up of a National Innovation Council (NIC) under the Chairmanship of Mr. Sam Pitroda, Adviser to the PM on PIII to discuss, analyse and help implement strategies for inclusive innovation in India and prepare a Roadmap for Innovation 2010-2020. NIC would be the first step in creating a crosscutting system which will provide mutually reinforcing policies, recommendations and methodologies to implement and boost innovation performance in the country.

One of the outcomes of this process has been a proposal to set up 14 new “universities for innovation” that will aim at stimulating economic growth.  Africa can learn a lot from India’s experiences, especially in regard to the importance of bringing technical knowledge to bear on development through a new species of universities.  These universities will aim at doing for India in the 21st century what its institutes of technology did in the last century.  India is showing Africa that the secret of economic success is not a secret: it lays in re-inventing the university system.

Africa should therefore no longer be an enclave reserved for mineral and raw material extraction.  There is alot of potential in the African continent however the limiting factors include Africa’s low level of training in engineering sciences and the lack of venture capital to turn ideas of products for the marketplace. On education, a new generation of technology/innovation schools directly linked to the productive sector, will be an effective way to move to the frontiers of technological innovation.

Useful discussion on innovation in Africa can be accessed here.

Kenya's MPESA to Spearhead Seamless Mobile Financial Transfers in the Continent

Michael Joseph, the immediate former CEO of Safaricom, has been tapped to spearhead the expansion of M-Pesa to other African countries as part of a plan to have a seamless mobile money transfer service on the continent.  M-Pesa is already successful in Kenya, and is now also available in Tanzania, Afghanistan, South Africa, while a pilot service is on in India.

But Vodafone is looking at spreading the services to other African countries such as DR Congo, Lesotho, and Mozambique with the aim of linking the market.  This will see mobile phone consumers send and receive money across borders in a move that will pile pressure on traditional money transfer service operators such as Western Union and Money Gram who have lost market share in the local market.

“M-Pesa is the most successful mobile money transfer service in the world and with Michael is a sure bet to drive its regional expansion having been behind its growth in Kenya,” said a senior executive at Safaricom who sought anonymity because he is not the firm’s spokesperson. “The rollout of the service in the new territories will not automatically enable registered Kenyan subscribers to send or receive money.

“But there is a plan to link them to these markets in coming years,” said the source. At present, Safaricom subscribers can receive money from the UK directly to their mobile phones in transactions carried out in partnership with Western Union and Vodafone. Mr Joseph retired from Safaricom in November after serving for 11 years and passed the leadership mantle to Bob Collymore.  He sits on the board of Safaricom and Johannesburg-based Vodacom, which is owned 65 per cent by the Vodafone Group — which has operations in five countries including South Africa, Tanzania, DR Congo, Lesotho and Mozambique.

It was under him that Safaricom rose to become East Africa’s largest and most successful firm in terms of earnings, and a market leader in Kenya’s mobile telephony market with a 76 per cent stake.  By 2005, Safaricom’s grip on the Kenyan mobile market had been cemented and in 2007 the company launched its mobile money transfer service M-Pesa — an innovation whose implementation was credited to Mr Joseph’s courage and which paid off handsomely winning over more than 13.5 million subscribers by September 2010.

Transactions worth Sh596.8 billion have gone through M-Pesa since its inception.  The service accounted for 11 per cent of Safaricom’s revenues or Sh5.2 billion in the six months to September this year up from Sh930 million in the same period in 2008.  Safaricom has used M-Pesa as a value added service, successfully using it to defend and attract subscribers from rival networks.

The service has driven a revolution of sorts in Kenya’s financial services where it is being used for payment of utility bills, dividend, goods at retail shops and banking services such as ATM withdrawals, deposits and cash transfers.  It is this market position that Vodafone seeks to replicate in five African countries served by Vodacom, especially DR Congo, Lesotho and Mozambique. Mr Joseph’s brief will be to shepherd the rollout of the product in the three countries and to shore up its performance in Tanzania and South Africa where the mobile money transfer service is yet to penetrate the market.

Low cost

The service was launched in South Africa in September and Tanzania in April 2008.  Nearly half (47 per cent) of all money transfers in Kenya now take place through the mobile phone, according to a survey by Financial Sector Deepening, a research firm that conducted the survey for the Central Bank of Kenya.

This has seen traditional money transfer service operators lose their grip on the market as more Kenyans turn to mobile phone-based platforms.  Popularity of the service is mainly hinged on the low cost of transaction, safety, and speed. Mr Joseph succeeded Mr Grieves-Cook who had served as the KTB chairman for two consecutive terms since his first appointment in November 2004.  Under his chairmanship, KTB managed to put up aggressive marketing campaigns targeting domestic and international tourists.

In addition, the organisation partnered with international travel and leisure groups as well as the media and airlines to build a strong image for Kenya as a niche tourist destination.

Nation Media

Trade in Natural Resources: A look at Norway

The WTO World Trade 2010 Report on Trade in Natural Resources illustrates that Russia, Saudi Arabia, Canada, United States and Norway are the top five global exporters of natural resources, with Algeria and Nigeria (ranked globally at 13th and 15th respectively) included in the top 15 in the world (data includes intra EU trade).

This is a focus on Norway, an EFTA Member but not part of the European Community EC.  Norway is the fifth highest exporter of natural resources globally and a European country whose exports display some similarities with Africa’s overall export profile. Like many African economies, Norway is particularly rich in commodities and energy resources (oil, natural gas and water for hydro power production).  Commodities include fish, timber, and some minerals, including thorium as a potential resource base for new technologies of nuclear power generation. Norway however has not suffered many of the curses that plague some resource-rich countries, such as corruption, inequitable benefit sharing, capital flight or the “Dutch disease”. Norway has consistently been ranked by the UN Human Development Index as the best country in the world to live in, and the World Economic Forum has ranked Norway as one of the top 15 most competitive countries globally. The small size of the country (population 4.8 million), its geographic location on the outskirts of Europe, makes its development trajectory which is based on sustainable natural resource management, an interesting case study for Africa.

While industrial products typically make up 85 per cent of OECD countries’ total merchandise exports, the OECD figure for Norway is around 28 per cent. Norway’s reputation as raw materials supplier however, should be understood in light of the fact that major segments of its raw materials industry are highly knowledge- and technology-intensive, even though the end products are not considered to be processed industrial goods. A good example is the petroleum industry, in which technology and know-how have in themselves become an increasingly important business sector. In fact, the increase in oil and gas revenues has resulted in a reduction in the share of export revenues attributable to services, from around 28 per cent in 1991 to around 24 per cent in 2004. While services typically account for a growing share of world trade, the opposite trend in Norway is due to the fact that its petroleum exports are growing even more strongly than its services exports.

Norway’s direction of trade is unlike that of most African countries. For geographical and historical reasons Norwegian trade largely takes place with its European neighbors while African countries trade primarily with other continents. Crude petroleum and natural gas remain Norway's most important export products which together account for about 56.8% of the exports, 25.8% of Norway's GDP and 65.1% of the total value of merchandise exports (however Norway is not an OPEC Member). Within the food sector, Norway is the tenth biggest fishing nation in the world in terms of quantity produced, and the world's second largest exporter of seafood in terms of value. Forests cover 38% of Norway's land area, and are mainly privately owned (88%) and export financing in the forestry sector is subject to local content requirements. In addition, Norway is the largest producer of hydropower in Europe; about 96% of electricity generation in Norway is hydroelectric. 

The manufacturing sector is relatively small and is concentrated on industries associated with the production of equipment used in the extraction and processing of natural resources such as aluminium, machinery and transport equipment, followed by chemicals.  However 80% of Norway's imports are manufactured goods.

The Norwegian economy is generally characterized as a mixed economy - a capitalist market economy with a clear component of state influence.  For example, revenues from Norwegian oil and gas activity are invested in the Government Pension Fund, ensuring that the country’s petroleum wealth will benefit future generations. The fund serves as a resource as it makes long-term investments in solid companies throughout the world, with ethical considerations as cornerstones in the fund’s investment strategy. The “oil fund”, as it is known to the general public, is often cited by the IMF as an exemplary sovereign wealth fund which has an average ownership stake of one per cent in the global stock markets, thus securing its right to a considerable share of future profits in listed companies throughout the world. 

What seems to make the difference is the participation of the Norwegian State and her effective management of natural resources in the economy. For instance it is estimated that in 2008, the State owned around one-third of the Oslo Stock Exchange capitalisation and is a major shareholder in several of the larger commercial listed companies.  The State’s ownership contributes to safeguarding the public interest in Norway’s natural resources and the revenues flowing there from.  For instance, the Petroleum Act establishes that the property rights over Norway's petroleum and gas resources are vested in the State. In the same vein, revenue management and taxation in this sector are directly linked to the States responsibility to its citizens which historically is proven to be an important driving force to strengthen accountability- because of the social fiscal contract created between citizens and the government.

Along these lines, we should recall a previous post which highlighted the importance of local content as a basis for sustainable development in Africa. This is relevant since natural resource exports as a share of Africa’s total merchandise exports, are second highest globally at 73%, after the Middle East which holds the highest concentration at 74%. This is according to the WTO Report on Trade in Natural Resources, which also reveals that export taxes on natural resources appear twice as often as export taxes in other sectors. Hence it appears that there is a global fiscal practice where the State intervenes to provide for effective natural resource management, sustainable development and the advancement of comparative advantage in an economy. Despite this, WTO and EPA negotiations continue to push for the elimination of export taxes in Africa’s resource based sectors.  Export taxes could be used to fund research, technology and innovation in resource sectors just like Norway does in the fish and seafood sector. Exporters of fish and fish products have been subject to a levy that varies between 0.2% and 1.05% of the export value depending on the species and the stage of processing.  The levy is used to finance the activities of the Norwegian Seafood Export Council (NSEC) and the Fishery and Aquaculture Industry Research Fund.  The elimination of export restrictions for the sole benefit of importers can also be detrimental to the environment and the development of African resource economies.

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.

South-South trade risks reinforcing Africa's commodity dependence

This is Africa By Peter Guest | Published: 18 June, 2010

The United Nations Conference on Trade and Development has warned that trade flows between Africa and industrialising players in the “Global South” are currently reinforcing the longstanding trend that sees Africa export unprocessed commodities and import manufactured goods.

In its annual 2010 Economic Development in Africa Report, UNCTAD says that this trend needs to be reversed while the South-South relationship remains in its early stages. Companies and sovereign investors from China, India and Brazil are all investing heavily into Africa across a variety of sectors, but minerals, hydrocarbons and agricultural products continue to attract the most interest. These relationships need to be managed in order that they result in economic diversification in African countries, the report recommends.

Africa’s total merchandise trade with non-African developing countries rose from $97bn in 2004 to $283bn in 2008, the report says. For the first time, trade with this group of countries outstripped trade with the European Union. The number of greenfield foreign investment projects by investors from non-African developing countries was 184 in 2008, compared to 52 in 2004.

Chinese total merchandise trade with Africa increased from $25bn in 2004 to $93bn in 2008, according to the report. Over the same period, the continent’s trade with India increased from $9bn to $31bn and with Brazil from $8bm to $23bn.Aside from the BRIC countries – Brazil, Russia, India and China – relationships between other emerging nations, including South Korea and Turkey, and Africa, look likely to take on greater prominence.

While trade is taking on traditional patterns, foreign direct investment from the rest of the developing world into Africa is, to some extent, having a more positive effect on diversification, according to the report’s author, Charles Gore.

“What you see from the trade flows is that that is reinforcing commodity dependence. What you see from the FDI is a more mixed picture. Some of it is going into extractive industries, but a lot of the new Chinese investment, small and medium enterprises, is actually market-seeking,” Mr Gore says. “That’s tended to have a pattern where they first go in as traders but then they start producing there locally, and now they’re starting to cluster to get the benefits of being located closer to each other.”

Official finance is also following new patterns. The majority of developing world official development assistance is directed to infrastructure, with some, notably that of Brazil, also being used for technology transfer.

China is also becoming the most significant bilateral source of support to African infrastructure and production, rising from $470m in 2001 to $4.5bn in 2007. With a slowdown in growth in the developed world prompting concerns of reductions in Western ODA, these relationships are likely to increase in importance.

The report recommends that African governments play a more active role in managing the support and investment that they are receiving from the Global South. This means that their focus should not be on simply attracting FDI from other developing countries, but on directing investment into sectors which will promote development. “What we emphasise is developmental leadership. I think the approach of the new Southern partners is encouraging this more developmental approach to governance.”

EU Plans to Import North African Solar Power

Bridges Trade BioRes • Volume 10 • Number 12 • 25th June 2010

Gunther Oettinger, Europe’s Energy Commissioner, has announced that the EU is expected to begin importing hundreds of megawatts of solar energy from North Africa within the next five years. The Commissioner’s comments came following a 20 June meeting with Algerian, Tunisian, and Moroccan ministers aimed at moving the renewable energy initiative forward. Importing energy from arid regions south of the Mediterranean has been proposed by Brussels as one of several strategies for helping the EU to meet its long-term goal of decarbonising its economy.

The EU currently aims to have 20 percent of its total energy requirements come from renewable sources by 2020. To help meet this goal the EU is looking to import solar energy to supplement domestic renewable energy initiatives. The solar energy captured in northern African nations would be transmitted to Europe via an inter-connector - a high voltage cable that will run under the Mediterranean Sea.

Launched in July 2009, the Desertec Industrial Initiative, which comprises 12 companies including Siemens, Deutsche Bank and REW, is in the process of developing a plan for solar power development in northern Africa. The consortium will seek public funding for its projects. The EU has stated that it will assist with updating regulations to allow transmission across European borders, coordinating stakeholders and conducting feasibility studies. The consortium has yet to produce a business plan for the proposed projects.

“I think some models starting in the next 5 years will bring some hundreds of megawatts to the European market,” Oettinger told Reuters on Sunday after the meeting. The long-term vision for the project is to provide thousands of megawatts to Europe in the next 20-40 years. The project will require a projected investment of about €400 billion and will aim to provide 15 percent of EU electricity demand. Subsidies from the EU will not be considered until the consortium produces a business plan for the project but are expected to go towards the construction of the interconnector.

Because the cost of transmitting energy from North Africa will be significant, officials must first determine whether the costs are offset by the amount of green energy the EU will actually receive. Even if solar power plants in the Sahara exhibit much higher performance, there could be a significant energy loss in the transmission to the EU.

The ministers from Algeria, Tunisia, and Morocco have agreed they are ready to start trade negotiations. In response to past concerns from Algerian officials regarding the EU’s exploitation of North African resources, Oettinger responded in a Reuters interview by saying, “maybe a bigger percentage of the electricity will be exported to Europe but at the same time we have to export the technology, tools, machines, experts, and so it’s a real partnership, not only a partnership by selling and by buying.”

There are concerns over how the EU will ensure that the energy transmitted is, in fact, green energy, not cheap and dirty fossil fuels. Oettinger says the problem of monitoring must be resolved in the next couple of years.

Climate Change and Africa’s Food Deficit

"Africa is now facing the same type of long-term food deficit problem that India faced in the early 1960s". This is according to a Study by the International Food Policy Research Institute (IFPRI) which recommends that Africa should spend more on Agriculture in order to avert a possible crisis. Sub-Saharan Africa’s (SSA) food deficit is also increasingly compounded by climate change. In fact, one-third of the African population lives in drought-prone areas while two-thirds of SSA’s surface area is desert or dry land. The major impact of climate change on food security includes changes in precipitation and insulation, changes in the length of growing seasons and changes in carbon uptake. Additionally there are declines in agricultural yields, decline in the quality of pasture and livestock production, and reduced vegetation cover which place local people at risk of famine.

Climate change also affects rain-fed agriculture which is the main safety net of poor people in rural areas where agriculture employs about 70 percent of the population. The rain related challenges can either cause drought or floods and the maps shown (Source: World Bank Development Report 2010) indicates the countries likely to be affected by either.

Despite the fact that most people in SSA are engaged in agriculture, its productivity has stagnated for several years across the whole sub-region making the region a net food importer. In fact, according to the Food and Agriculture Organization’s (FAO) list for 2010 of Low-Income Food-Deficit Countries (LIFDC) - 44 of the 77 low income food deficit countries in the world are in Africa.

An example is the disappearance of Lake Chad over a 40 year period as shown in the image (source: GRID Arendal UNEP). Lake Chad is shared by Nigeria, Chad, Cameroon and Niger and its disappearance is a grim reminder of the dramatic ecological challenges and food shortages that lie ahead. The lake's area has decreased by 80 per cent over the last four decades, with catastrophic impacts on those reliant on its resources. Lake Victoria is receding as well and projected reductions in the rivers in the Nile region signal difficult times ahead. 

Another dimension is that of water, storage and infrastructure. Most rivers cross more than one country, necessitating effective cooperation across borders. Africa’s 63 transboundary river basins together account for 90 percent of its surface water resources necessitating regional water control systems.  Armed conflict further complicates agriculture and climate change risk management. For poor people living in weak or unstable states, climate change will deepen hunger, suffering, and intensify the risks of food insecurity, mass migration, violent conflict, and further fragility.

According to a World Bank Publication, by 2050, Sub-Saharan Africa will need to feed more people in a harsher climate. Agriculture will simply have to become more productive, getting more crop per drop while protecting ecosystems. Water resources need to be managed better by scaling up existing infrastructure to manage watersheds, rainfed agriculture and protecting forests. Improved planning for storage, power transmission, and irrigation including screening investments for climate risks will also be necessary. Countries will need to develop mechanisms for collaboration across sectors and countries.

There is a role for innovation and academic research institutions as well. This could be done by adopting simple technologies suitable for small farmers such as low-cost drip irrigation and storage of rainwater. African farmers should also be helped to work with new crop varieties. One example is "New Rice for Africa" (Nerica), an Asian-African hybrid developed in Africa with support from the Japanese International Cooperation Agency (JICA), that combines drought resistance with high yields and high protein content. 

NERICA, the new rice variety was the result of years of work by a team of plant breeders and particularly Sierra Leonean molecular scientist Monty Jones at the West Africa Rice Development Association (WARDA – now the Africa Rice Center). When Dr. Jones (a 2004 winner of the WFP) set up the biotechnology research program in 1991, some 240 million people in West Africa were dependant on rice as their primary source of food energy and protein, but the majority of Africa’s rice was imported, at an annual cost of US$1 billion. According to WIPO, the most popular Nerica rice takes only three months to ripen, as opposed to six months for the parent species, thus allowing African farmers to “double crop” it in a single growing season with nutritionally rich vegetables or high-value fiber crops. 

Meanwhile in 2009, Dr. Gebisa Ejeta of Ethiopia, was the recipient of the World Food Prize for his sorghum hybrids which are resistant to drought and the devastating Striga weed and which has dramatically increased the production and availability of one of the world’s five principal grains and enhanced the food supply of hundreds of millions of people in sub-Saharan Africa.

Overall, a Climate Strategy for Africa and food security should also include: sustainable land and forest management; increased knowledge and analytical capacity, improved weather forecasting, research, extension services, market infrastructure and renewal energy generation systems. Farmers will also need to benefit from integrating biodiversity into the landscape and reducing carbon emissions from soil and deforestation.

EU Raw Material Shortages and Elimination of Export Restrictions

According to a European Commission Report, the EU faces shortages of 14 key raw materials used in making cell phones, solar power cells, batteries, and other electronics. The materials that are critical for the EU include: Antimony, Beryllium, Cobalt, Fluorspar, Gallium, Germanium, Graphite, Indium, Magnesium, Niobium, PGMs (Platinum Group Metals), Rare earths, Tantalum and Tungsten.  According to the Report, demand for these metals and minerals could triple over the next 20 years. 

The low global supply of these raw materials is mainly due to the fact that a high share of  worldwide production mainly comes from a handful of countries: China (antimony, fluorspar, gallium, germanium, graphite, indium, magnesium, rare earths, tungsten), Russia (PGM), the Democratic Republic of Congo (cobalt, tantalum) and Brazil (niobium and tantalum). This production concentration is compounded by low substitutability and low recycling rates. Nonetheless, this puts pressure on European nations to maintain strong trade relations with the primary exporters of those materials namely; China, Russia,the Democratic Republic of Congo, and Brazil.

Source: Europe Press Release Rapid

However, as shown above, China is the major source of most of these raw materials.  However she has been accused of restricting the export of certain deposits thereby affecting global supply and prices. A notable illustration of the growing importance of export restrictions, was the establishment of a panel by the WTO Dispute Settlement Body (DSB) in December 2009 to examine complaints brought by the United States, the European Union, and Mexico concerning China’s export restrictions on selected raw materials. Meanwhile Argentina; Brazil; Canada; Chile; Colombia; Ecuador; India; Japan; Korea (Republic of); Mexico; Norway; Chinese Taipei; Turkey and Saudi Arabia have also joined this dispute as third parties. 

According to the USTR, China is the top or near top producer of these materials and these measures skew the playing field against the US and other countries, by creating substantial competitive benefits for downstream Chinese producers, that use the inputs in the production and export of numerous processed steel, aluminum and chemical products and a wide range of further processed products. 

Meanwhile, there has been considerable debate in the WTO, as to whether export taxes actually violate any WTO disciplines, with some arguing that is an area of policy space that was intended to be outside of the multilateral disciplines and hence within Members jurisdiction- especially in low income developing and LDCs.  

However, in the EPA context, the EU has insisted on the elimination of export taxes, even though EPAs are supposed to meet the development needs of the world's poorest countries. Export taxes are used in Africa for industrial or export diversification, revenue, efficient management of resources, environment, job creation, value addition and macro-economic stability. In fact some have advocated that a policy focus on local content, such as available raw materials, is the most sustainable way of ensuring attainment of broader development goals. (see previous post on local content here).

The irony of the matter is that Europe's critical needs are met largely by China- and not Africa. Can the use of such policy measures by African countries be seen to distort world trade or be expected to help Africa move out of poverty and lessen her reliance on donor aid?