A Positive Agenda for Trade Facilitation Negotiations in Africa

This paper I wrote is a little dated but the concision is still useful given the conclusion of the WTO Trade Facilitation negotiations. The paper can be assessed here.

Trade facilitation is definitely a potential source of growth promotion in Africa and African countries need to continue focus on an integrated and coherent approach. Progress achieved in such a broad approach does not, however, necessarily mean multilateral binding. It is important to provide adequate policy flexibility in the rules to enable countries commit according to own priorities and capabilities. Members should be allowed to pre-commit, with the option of linking pre-commitments to effectiveness of capacity building efforts. A multilaterally agreed monitoring framework will be necessary. Such a review needs to monitor and evaluate the commitments made, the implementation capacity and the availability of technical and financial assistance. Experience with ongoing trade facilitation programme suggests that the cost of ambitious multilateral agreement on trade facilitation will be high and certainly beyond the capability of African countries. 

There is, therefore, a need for trade facilitation fund to cater for necessary adjustment costs arising from the expected new commitments in the final WTO trade facilitation agreements. The next steps for adequate participation of Africa in these negotiations would be to document the situation in a selected group of countries that have made relatively good progress in these areas and that could provide “best practice” examples. These case could be used to design a comprehensive programme that a typical African country would have to undertake in order to comply to a multilateral agreement on trade facilitation with elements in proposals being tabled are to become binding. Additionally, submissions to the negotiating group on trade facilitation can be made specifically to address concerns of African countries and present possible positions following the needs assessment exercise.

See other comments I have made on trade facilitation here.

Africa’s Limited Participation in Trade Remedy Actions

As reported by the below piece by ICTSD, Africa has limited participation in trade defense actions.

Africa’s limited participation in trade remedy actions (anti-dumping, countervailing and safeguards) is due to: the absence of national legal and institutional frameworks, the lack of expertise, the high cost of trade remedies, the availability of alternative instruments, the disorganization of the African business community, as well as political factors. 

National legal and institutional frameworks are the basic requirements for trade remedy actions but majority of African countries do not have such frameworks. Only five African countries have comprehensive national legislation on these trade remedies and only two countries – South Africa and Egypt – have fully fledged institutions. 

Putting in place national trade remedy legal frameworks and institutions can prove costly and time consuming as trade remedy investigations require a high level of expertise (well-trained specialized lawyers and economists), which many African countries can ill-afford. For instance, the WTO training programmes for poor countries have seen many beneficiaries of the programme leave government jobs to join the private sector or international institutions. This also remains a hurdle for African countries. 

Also the availability of substitute instruments such as tariff increment within WTO-bound limits, import prohibitions, and voluntary export restraint (VERs) arrangements is another reason for the low usage of trade remedies in Africa. For instance between 75 and 80 percent of African countries’ tariff lines are unbound, which means they could raise tariffs up to any rate without necessarily violating WTO law (WTO 2009). Also, though imports prohibition has been banned within the WTO, some African countries continue to resort to it with varied frequencies. 

Voluntary export restraints (VERs), which are banned within the framework of the WTO, are parts of some African countries’ trade defence strategy. In 2006, for instance, South African government struck a deal with China to restrict the latter’s textile exports to South Africa in order to relieve its beleaguered textile industry. 

Externally, African countries’ challenges also stem from the necessity to meet WTO standards and legal requirements. Many African countries do not have the economic and legal expertise, and the resources, to fully meet these requirements in carrying out investigations. Moreover, trade remedies are among the most challenged measures before the WTO Dispute Settlement Body and many African countries would have to hire international lawyers to defend their cases. In some cases, African countries producers and even trade officials have low knowledge about how to file a case, even where the laws exist. For instance, in the West African Economic and Monetary Union (WAEMU) countries, an anti-dumping regulation has existed since 2003 but only one case has been brought so far whilst many instances clearly show dumping red-flags could be raised. To avoid similar situations, Mauritius has incorporated a capacity building programme of the private sector in its trade remedy framework worth emulating in other African countries. 

Many African countries are also aid-dependent and this may influence their decision to resort to trade remedy actions against their trading partners, particularly if these partners are their main aid donors, source of investment, or former colonial powers. 

African countries also face the challenge of porous borders fraught with corrupt customs officers. Customs rules are circumvented or violated on a daily basis. 

Additionally, most African countries are part of regional economic communities. In this regard, adopting individual trade remedy schemes could be harmful to these customs unions or common markets. Indeed, the two key features of a customs union or common market are free movement of goods between the members and common external tariffs (CET) toward third countries. As a consequence, any border trade measure, such as anti-dumping or countervailing duties, has to be adopted and implemented by all the members at the same time.

For the full article please click here.

WTO Ministerial Conference in Nairobi

The just concluded 10th WTO Ministerial Conference (MC10)  was held on 15th-19th December 2015 in Nairobi Kenya.  Four issues of interest to Africa — more favorable preferential rules of origin for LDCs,TRIPS agreement, the operationalization of the services waiver for LDCs, and elimination of export subsidies — were resolved during the 10th Ministerial Conference. The meeting also concluded the Information Technology Agreement in which tariffs on over 201 technology products will be eliminated for the benefit of participating importers all for the expansion of trade in information technology products.

The 10th Ministerial Conference has come more than 20 years after the conclusion of the Marrakesh Agreement in Morocco which led to the creation of the WTO in January 1995. The Ministerial Conference is the top-most decision-making body of the WTO. It usually meets every two years, and brings together all members of the WTO.  This is first time the meeting has been held on African soil.

For related documents see here.

Intra-African Investment Predominately in Services Sectors

According to Economic Development in Africa Report 2013, available data indicate that intra-African investment is becoming important in several African countries. For example, between 2008 and 2010, Botswana, Malawi, Nigeria, Uganda and the United Republic of Tanzania received more than 20 per cent of their total inward stock of FDI from other African countries. Furthermore, it is estimated that intra-African FDI in new projects grew at an annual compound rate of 23 per cent between 2003 and 2011. A growing share of intra-African FDI goes to the services sector. 

Between 2003 and 2011, about 68 per cent of the 673 deals relating to intra-African greenfield investments went to services, compared with 28 per cent for manufacturing and 4 per cent for the primary sector. Within services, about 70 per cent of the deals were in finance. To the extent that manufacturing firms rely on business services, the growth of the service sector is likely to have a positive impact on the development of productive capacity and therefore the performance of manufacturing firms and intra-African trade.

Africa's Competitiveness

The results of the Africa Competitiveness Report 2013 provides a good sense of the many factors that are holding back Africa’s competitiveness. The 2013 Executive Opinion Survey carried out in 2012 shows that access to financing, inefficient government bureaucracy, and corruption present the most important hindrances to doing business in Africa.

While access to finance represents business leaders’ biggest concern by a wide margin, this confirms the lack of depth of the financial market in a majority of African economies. In addition, the lack of a sufficiently skilled workforce including the inadequate supply of infrastructure presents a significant obstacle for businesses in sub-Saharan Africa. Sub-Saharan African business leaders are also more concerned about high tax rates including government instability and coups coupled with policy uncertainty which have become serious concerns for business leaders. Inflation also continues to receive attention from business leaders.

Many African countries continue to feature among the least competitive economies in the world. By competitiveness we mean all of the factors, institutions, and policies that determine a country’s level of productivity. Productivity, in turn, sets the sustainable level and path of prosperity that a country can achieve. In other words, more competitive economies tend to be able to produce higher levels of income for their citizens. Competitiveness also determines the rates of return obtained by investment. Because the rates of return are the fundamental drivers of growth rates, a more competitive economy is one that is likely to grow faster over the medium to long term. The basic building blocks for a competitive economy include governance and institutions, infrastructure, and education.

This Report provides recommendations which could facilitate trade and regional integration, and jointly could be important drivers for improving the region’s competitiveness. These include simplifying import export procedures and trade facilitation, developing and leveraging ICTs, improving energy, improving transportation and infrastructure and finally building growth poles to develop productive capacity.

Can Africa Feed Africa?

A new World Bank report Africa Can Help Feed Africa: Removing barriers to regional trade in food staples ―says that Africa’s farmers can potentially grow enough food to feed the continent and avert future food crises if countries remove cross-border restrictions on the food trade within the region. According to the Bank, the continent would also generate an extra US$20 billion in yearly earnings if African leaders can agree to dismantle trade barriers that blunt more regional dynamism. The report was released on the eve of an African Union (AU) ministerial summit in Addis Ababa on agriculture and trade.

According to the report “Africa has the ability to grow and deliver good quality food to put on the dinner tables of the continent’s families, however, this potential is not being realized because farmers face more trade barriers in getting their food to market than anywhere else in the world. Too often borders get in the way of getting food to homes and communities which are struggling with too little to eat.”

With many African farmers effectively cut off from the high-yield seeds, and the affordable fertilizers and pesticides needed to expand their crop production, including unpredictable weather patterns, the continent has turned to foreign imports to meet its growing needs in staple foods.

See full report here for some policy considerations.

India, China now Kenya's Top Import Trading Partners

The East African

India has overtaken the United Arab Emirates (UAE) to become Kenya’s top source of imported goods, newly released data show.

The world’s second most populous nation grew its exports to Kenya by 27.1 per cent to Sh174.6 billion in the first 11 months of last year or 15 per cent of Kenya’s total imports.

That growth allowed New Delhi to topple UAE from the top trading partner position it has occupied for the past two decades — helped by exports of petroleum products.

Official statistics show that the UAE’s share of Kenya’s total imports dropped to 11.9 per cent saddled by a 22 per cent drop in the value of its merchandise to Sh138.2 billion.

India’s stride to the top spot came on the back of big-ticket contracts in healthcare and energy sectors that were concluded in the past 12 months.

The Indian High Commission in Nairobi said Indian investors had intensified their search for business opportunities in Kenya and that the effort was bearing fruit.

“Kenya has become an important market for Indian firms and most have intensified their search for business opportunities with very positive results,” said Tanmaya Lal, the deputy High Commissioner at the Indian embassy.

Mr Lal said that geographical proximity has made it easier for Indian companies to export to Kenya while keeping prices close to what they charge at home.

The world’s most populous nation and the world's second largest economy China also grew its exports to Kenya by 16.4 per cent to Sh154.7 billion beating the UAE to the third position.

Chinese goods now account for 13.3 per cent of Kenya’s total imports, affirming the rise of Asia as an important trading partner for East Africa’s largest economy.

UAE has consistently featured as the top source of imports in Kenya in the past 10 years save for 2010 when China sold Sh120.6 billion worth of goods more than UAE’s Sh116 billion.

The relegation of UAE to the third trading spot has been linked to a decline in Kenya’s intake of petroleum products that form the bulk of Abu Dhabi’s exports.

Kenya’s imports of fuel and lubricants fell 5.3 per cent to Sh305.7 billion in the 11 months to November compared to Sh323 billion a year earlier.

The decline in the petroleum shipments – that accounts for a quarter of Kenya’s imports — also pulled down the value of total imports by 3.3 per cent to Sh1.19 trillion in the same period.

India and Kenya have tightened their economic ties in the past three years, paving the way for Delhi to sign major supply deals with Nairobi and deepen its export position.

Legal constraints on the EU’s ability to withdraw EPA preferences

Dr Lorand Bartels provides useful and timely advice on the legal constraints behind the EU's ability to withdraw EPA preferences from ACP States and he identifies various problems with the EC Commission’s proposal.   These include steps taken towards ratification i.e. progress to date and the mechanism of provisional application. 

He concludes by stating that EC Council Regulation 1528/2007 can only be terminated in accordance with Article 25(2) of the Vienna Convention on On the Law of Treaties. This provision lists three ways in which this can be done: by agreement between the parties; according to the treaty itself; and when the party seeking to terminate notifies the other party or parties that it does not intend to become a party to the treaty. Where these conditions are not satisfied, the provisions of the treaty being provisionally applied are treated as applicable for that party.

While the EU can still remove ACP countries from the list of beneficiaries, if it wishes to do this, it must notify them of its intention not to become a party to the respective agreements. What it cannot do is remove beneficiaries from Annex I of the Regulation as the Commission is proposing to do - not, at least, without violating Article 25(2) of the Vienna Convention on the Law of Treaties, and thereby also EU law itself.

Assess full article here and see previous EPA posts here.

World Bank Unveils Portal On Diaspora Remittances to Africa

This transparency is important.

Send Money Africa provides data on the cost of sending and receiving relatively small amounts of money from selected countries worldwide to a number of African countries, as well as within the African continent. The objective of the database is to increase transparency in the market and provide migrants with complete and reliable information on all the components of the transaction. Send Money Africa allows the users to compare the costs applied by several providers to send and receive money from 15 major sending countries to 27 African receiving countries, for a total of 50 "country corridors".

See country corridors here.

EPA Negotiations

The European Commission (EC) finally announced today that countries that have concluded an Economic Partnership Agreement (EPA) but not taken the necessary steps to ratify and implement it would no longer benefit from the EPA market access to Europe as from 1st January 2014.

The EC Market Access Regulation (MAR) 1528 of 1st January 2008 provides duty free quota free market access for African Caribbean and Pacific countries that have concluded an EPA. The Regulation requires countries to sign, ratify and implement the Agreement within a “reasonable period of time”. At it currently stands, the MAR is a temporary, unilateral instrument of the EU to ensure that, pending the implementation of the agreement by ACP countries, there would be no trade disruption.

A quick glance at it reveals the following facts: Only 18 island countries from the 36 ACP countries that had initialled or signed an arrangement have concluded the agreement. The other remaining countries are yet to complete the contract, with the risk of seeing their marriage cancelled.

The announcement of this proposal is no surprise: Trade Commissioner De Grucht and other representatives of the European Commission have constantly been warning that this situation was not sustainable and would therefore have to end at some point in time.

The proposal will come into effect on 1st January 2014, after approval by the Council. It is worth mentioning here that MAR 1528 in 2008, was adopted prior to the Lisbon Treaty, and therefore the Parliament will not have to give its assent to it. The timing is also not surprising: 1st January 2014 is also the time when the new Generalised System of Preferences (GSP) Regulation should come into effect. It is also the date when the countries that have signed and ratified an EPA will have to start implementing their respective trade liberalisation commitments (remember some countries had a 5 year moratorium before starting liberalisation).

The message is therefore clear: if countries want to continue to benefit from EPA market access, either they have to sign and start implementing their existing EPA or conclude a new regional EPA. For others, either they will fall under one of the schemes of the new GSP (i.e. Everything but Arms, Standard GSP or GSP Plus) or they will have no preferences (as might be the case for Botswana and Namibia).

What does this imply?

This coming year will be a political litmus test for the relationship between the EU and its African and Pacific partners. If from a legal and a “coherence” perspective the Proposal of the EU is well understood, there are also good reasons why, four years down the road, since the MAR in 2008, nothing has happened. First, some compromise on many issues, including on the accompanying development measures, are yet to be agreed. Moreover, most countries are also engaged in building their regional integration agenda: many are either consolidating their existing customs union or setting it up. And Europe is well placed to know that regional integration takes time. So while a deadline by 1st January 2014 might seem a reasonable time for the EU, it is in fact very short for the proper sequencing of regional agenda with trade negotiations with third countries. Finally, some might have simply lost interest in the process.

So, like in 2007, expect some tensions in the coming months: some countries might be pressured to sign, ratify and implement the EPA that might not fulfil their ambitions and interests in terms of content, timing and geographical configuration by fear of market disruption, in particular if they risk loosing preferential access to the EU. Others might simply walk out. If no common position can be found at the regional level, the EPAs could seriously disrupt any regional integration effort.

But 2014 is not 2007. The world has changed and this time the response might be different. The financial crisis invited itself to the dance, Africa has gained a lot more confidence in its economic prospects and the increasing importance of “emerging” partners has brought in a new geopolitical dynamism, de facto reducing the leverage of the EU.

Finally, it takes two to tango. African and Pacific countries now have to reveal their strategies, interests and preferences regarding their relationship with the EU. It is a question of political will in many cases and for those interested in an EPA, it will require some effort to reach a compromise. At the same time, while one might understand the European logic to put an end to an instrument that has remained “temporary” for too long and is not compatible with rules of the WTO, there are still some “contentious issues” that remain unresolved. The EU has also to reveal its cards on how far it would be willing to accommodate some genuine concerns that are blocking the negotiations. Setting a deadline is therefore not sufficient, the EU should come up with concrete proposals on how to move the negotiations forward.

Just putting a deadline could open the way for a new impetus to the current negotiations towards the conclusion of regional EPAs. But it could well turn out to be a guillotine if no flexibility is provided to advance the negotiations.

By San Bilal and Isabelle Ramdoo. 

For a another report on this see here.

Investment Arbitration- ICSID

At ICSID this year, there have been investment dispute developments involving African parties to Bilateral Investment Treaties (BITs), such as: South Africa's Mining dispute under the Italy-South Africa BIT and Belgo-Luxembourg-South Africa BIT; Egypt's hotel industry dispute under the Denmark-Egypt BIT; Ghana's cocoa production dispute under the Germany-Ghana BIT. Previously, we considered a working paper by the WTO, which found that stricter dispute settlement provisions in BITs do not necessarily result in higher FDI inflows.

ICSID is the International Center for Settlement of Investment Disputes which is an autonomous international institution, considered the leading international arbitration institution devoted to investor-State dispute settlement. ICSID's Membership consists of one hundred and forty  four (144) member States that have deposited their instruments of ratification, acceptance or approval of the Convention and have become ICSID Contracting States.  Overall however, there are currently 155 signatory States to the ICSID Convention. The ICSID Convention is a multilateral treaty formulated by the Executive Directors of the International Bank for Reconstruction and Development (the World Bank). It was opened for signature on March 18, 1965 and entered into force on October 14, 1966. 

ICSID has released this years caseload statistics Report, which shows that: 

Bilateral Investment Treaties (BITS) have a usage rate of 62% and thereby form the substantial basis for consent invoked to establish ICSID's jurisdiction in registered cases. Other legal basis for consent includes: investment contracts between the host state and investor (22%); investment laws of the host state (5%); free trade agreements e.g. NAFTA (6%) and the Energy Charter Treaty (5% ). 


Click Figures to enlarge.

  

The South American region has the largest number of disputes handled at 30% while Sub Saharan Africa's caseload is 16%, and is the third highest after Eastern Europe and Central Asia (22%).

In terms of sectors, gas, oil, mining (25%) and electricity and other energy (13%) and transport (11%) sectors  have the highest number of disputes.  Other highly disputed sectors are water, sanitation and flood protection (8%), finance (8%) and construction (7%).

The distribution of appointments of Arbitrators, Conciliators and ad hoc Committee Members appointed in ICSID Cases is about three quarters (71%) from the west i.e. North America (23%) and Europe (48%), while the rest of the world shares a quarter. Latin America holds a 10% share while Sub Saharan Africa takes a share of only 2%.

.

This Report can be accessed here.

In a previous discussion we considered the EC's proposal to accede to the ICSID Convention as part of its new EC Wide investment policy. However that would require the modification of the Convention which currently, is open only to Member States of the World Bank and any State which is a party to the Statute of the International Court of Justice, on the invitation of the ICSID Administrative Council by a vote of two-third of its members.  

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.

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.

Investment and Leadership in Africa

What Africa needs most is private sector-led growth, investment and not aid. While this may not be new, it is refreshing to hear the west call for more investment than aid into Africa. This is according to a Chatham House Report  (see video below) which finds that Africa sits at the base of the global supply chain, with almost forty percent of the mineral resources, arable land, fresh water and energy required to secure global growth. 

With a billion people, Africa offers valuable market share, and for the past decade growth across much of the continent has outpaced every other region of the world. The truth is, if Africa's low income countries are to become middle income, the additional value to the global economy would be equivalent to that of another China: over $4.5 trillion. 

Certainly the time for Africa to step up its investment policies is now. However the missing link is leadership that translates challenges and opportunities into sustainable development solutions. Personally it has been useful to see President Obama spearhead initiatives to double exports, create jobs, engage the private sector (Presidents Executive Council) and he recently spelled out his trade policy and innovation agenda. 

Tom Cargill, Chatham House on Investment in Africa

In a previous post on China, we saw how investment was facilitated by joint ventures in Special Economic Zones. Investment between foreign firms and (mostly State-owned) firms, was key in China's export development, transfer of technology and dramatic increase in a strong domestic producer base.  A strong domestic producer base was important in diffusing imported technologies and creating domestic supply chains. However, facilitating technology transfer through investment requires a strong focus on Research and Development by regional organisations and the State based institutions as well. 

Without state support and publicly funded R&D, small producers in Africa would not be able to evolve given the technological dynamism today. Certainly more could be done by our leaders to enhance south-south cooperation in investment, technology development and transfer.

Scoring for Africa: An Alternative Guide to the 2010 World Cup

This is clever.


Chair of the Africa Progress Panel, Kofi Annan and United Nations Development Programme Goodwill Ambassador and football star Didier Drogba have published ‘Scoring for Africa – An Alternative Guide to the World Cup’. The publication compares the ‘vital statistics’ of each African country in the games against their competitors in terms of development – examining key indicators such as trade, investment, economic growth, CO2 emissions and human development.

For example, on trade and investment in Africa the report shows that in:

• GROUP A South Africa-France: While France is still one of the largest wine producers in the world, South Africa is catching up fast. In 2010, South African wines outsold their French competitors in several markets, including the UK. Since 1994, wine exports from South Africa have increased from 50 million litres to nearly 400 million litres, making the country the world’s 9th largest wine producer.

• GROUP B Nigeria-South Korea: Trade between Nigeria and South Korea has been on a steady rise, totaling $2.65 billion in 2008. As a result, Nigeria has emerged as South Korea’s third largest trading partner in Africa. South Korea is Nigeria’s fourth largest trading partner.

• GROUP C Algeria-UK: The UK is the largest foreign investor in Algeria and is particularly interested in the country’s oil and gas sectors.

• GROUP D Ghana-Germany: Having a long history of trade relations, both countries are aiming to increase the total trade volume to €500 million this year. Germany is Ghana’s fifth largest supplier and seventh most important export destination. Ghana’s exports to Germany are dominated by three traditional export goods:cocoa, gold, and timber.

• GROUP E Cameroon-Netherlands: While negotiations on an EPA continue, interim agreements have been signed by Cameroon, which has allowed for duty free access to the EU for all cocoa and chocolate products. This has meant an improvement in comparison to the taxes the country was subject to previously. However, under the EPA agreement, some of the cocoa products are not covered by the duty free access and are subject to a higher tariffs

• GROUP G Brazil Cote D' Ivoire:  In line with Brazil’s renewed focus on South-South relations, the government has expanded and prioritized trade ties with African countries. As a result, Brazil’s annual trade with Africa has jumped from $3.1 billion in 2000 to $26.3 billion last year. While trade between Brazil and Côte d’Ivoire is still relatively small, both countries are major cocoa producers and founding members of the Cocoa Producers’ Alliance (COPAL).

Remittances to African Countries

Worker remittances are an important source of income for many African countries. With labour markets deteriorating everywhere, many workers were forced to cut the transfers to their families, with potentially large impacts on household income, consumption at home, import taxes  and government revenue.  A number of African countries appear to be particularly dependant on remittances and for instance, in 2008 Lesotho, had a 27% remittance–to- GDP-ratio, the highest in Africa.  According to the World Bank Report, titled Outlook for Remittance Flows 2009-2011 the remittances are mainly received from neighbouring South Africa.

It is difficult to measure remittances, since a good portion is transferred informally and does not appear in official balance-of-payments statistics. However according to the World Bank, when measured in absolute amounts, in 2008 Nigeria and Egypt belonged to the top 10 worldwide recipients of remittances, with inflows of USD 10 billion to Nigeria and USD 9 billion to Egypt. Initial results (or estimates) for 2009 show that some countries experienced sharp falls in remittances, while others were less affected by the crisis.

In Egypt and Morocco, remittances appear to have declined by about 20% in the first nine months of 2009. In Kenya, remittance inflows declined by 8.5% in the first seven months of 2009 against the previous year. Senegal, Lesotho, Sierra Leone, Ethiopia, Liberia, Mauritius and Mozambique also suffered from falling remittances. In Cape Verde, remittances remained very stable in 2009 or may even have increased marginally. Significant increases are reported for Uganda from July 2008 to June 2009. According to World Bank estimates, remittances to African countries declined from almost USD 41 billion in 2008 to above USD 38 billion in 2009 (minus 6.6%).

The decline was more pronounced in North Africa than in sub-Saharan Africa. The actual decline of remittances in 2009 could, perhaps, have been even stronger than this estimate.  Overall however, remittances-to-GDP ratios (prior to the crisis) were between 8% and 11% in Nigeria, Sierra Leone, Togo, Guinea-Bissau, Senegal, Cape Verde and Morocco.  Meanwhile, Gambia, Egypt, Sudan, Comoros, and Uganda followed, with ratios between approximately 5% and 7%.

Remittances are influenced by international movement, migration of workers, and the liberalization of temporary movements of individual service suppliers under the fourth mode (mode 4) of service delivery in the WTO trade in services negotiations.  

Additional World Bank resources on remittances can be obtained here and WTO resources on Mode 4 here.