EAC: U.S. Counters with New Trade Pact

By Business Daily

Kenya and other East Africa economies could witness a huge inflow of investment and development support as the US moves to counter the gains made by the EU and surging Asian nations such as China and India. The US said it is crafting a new incentive-laden trade and investment treaty for the East African Community (EAC), which it has identified as a potential hub to host its regional business interests.

The proposed treaty would mark a major shift in America’s engagement with the region, which at present is anchored on a simple Trade and Investment Agreement (TIFA) signed with the EAC in July 2008. The TIFA’s main role is to strengthen the US-EAC trade and investment relationship, expand and diversify bilateral trade, and improve the climate for business between the two blocs. The framework further seeks to bolster partnerships in initiatives such as the African Growth and Opportunity Act, the World Trade Organisation’s Doha Round of negotiations, trade facilitation and skills building.

The US, however, said it was now pursuing a full treaty with the EAC, just six months after China signed a TIFA with the EAC to promote commodity trade, tourism, investment, infrastructure development and training.

“It is great that other parties such as China are looking more to East Africa and that shows the region has huge potential,” said Mr Camunez US Assistant Secretary for Commerce. “We however cannot hide the fact that America is also interested in the region.  ”China is particularly active in the construction and infrastructure development sector in East Africa and has since branched into other key economic areas such as manufacturing. “I’ve witnessed first-hand the skyrocketing level of investment that has come into Kenya from other parts of the world such as China, India, the Gulf region and elsewhere,” he said. “It’s easy to see why American exporters and investors simply must be more fully engaged.”

To claw back America’s influence in East Africa, President Barack Obama’s administration has taken on a fresh campaign to press for new trade and investment partnership with the bloc. “The proposal calls for the negotiation of a regional investment treaty, the creation of trade enhancing agreements in areas such as trade facilitation, and importantly the establishment of a new commercial dialogue that will facilitate engagement between public and private sectors,” the US official said. Mr Camunez said as part of the deal the US will press for good governance in key areas such as procurement and the adoption of asset protection and intellectual property rights enforcement policies. “We are hopeful that our proposed regional trade package will be accepted by Kenya and the greater EAC and we look forward to deepening our engagement here,” he said.

“Kenya is extremely well positioned to capitalise on this momentum. It holds great potential, enormous opportunity and extra ordinary promise and is a critical hub for American companies in Africa and it offers an important platform and hub for doing business in the continent,” Mr Camunez said.

Kenya hosts more than 60 US firms including giants like General Electric, IBM, Citi, Dow Chemicals, farm machinery maker John Deer, Google, Microsoft, Corn Products, General Motors East Africa and Coca-Cola.  An audit by consultancy firm, Ernest & Young showed that the US was the highest source of new foreign direct investment into projects in Kenya between 2003 and last year.

This move by the US is not surprising. Apart from the EAC-China agreement, we should not forget the EAC EPA with the EU which was initialled, remains unsigned and is still yet to be concluded.

The Year in Trade 2010

A good resource for anyone working in or covering the field of international trade. The USITC’s Year in Trade 2010 is one of the US government’s most comprehensive reports on U.S. trade-related activities, covering major multilateral, regional, and bilateral developments.

The publication reviews U.S. international trade laws and actions under these laws, activities of the World Trade Organization (WTO), U.S. free trade agreements and negotiations, and U.S. bilateral trade relations with major trading partners. The Year in Trade 2010 also includes complete listings of antidumping, countervailing duty, safeguards, intellectual property rights infringement, and section 301 cases undertaken by the U.S. government in 2009.

US State Department to aggressively increase FDI in Africa.

Its about time we linked AGOA to FDI.  So far, US companies have played a more limited role in boosting AGOA exports from Africa. 

Regarding the linkage between AGOA and FDI, especially in the textile and apparel industry in SSA, an example is the textile and apparel industry in Lesotho, one of the largest in SSA, which has been boosted in recent years by the influx of Asian investors who have taken advantage of the AGOA program.

However this is not investment coming from the US.

See related article here.

Growth in the African Skies

With air traffic between the United States and Africa growing at more than 5 percent annually, the US based carrier Delta Airlines has increased flights to the continent in response to strong customer demand. Africa is home to 12% of the world’s people, but it accounts for less than 1% of the global air service market. Part of the reason for Africa’s under-served status, according to a just-published World Bank study, Open Skies for Africa – Implementing the Yamoussoukro Decision, is that many African countries restrict their air services markets to protect the share held by state-owned air carriers. 

According to Delta Airlines as well, there has been an underserved U.S.-Africa demand for many years that historically did not have many options for service other than circuitous routings through Europe. Delta began to fill that void in 2006 by introducing the  service to Johannesburg from Atlanta via Dakar- a flight that operates nonstop and has been very successful. Since then Delta has been expanding its footprint in the region.

In the EAC Region, players in the aviation sector have also witnessed growing business opportunities especially with the coming into force of the East African Common Market. The East African region initiated an open skies agreement in 2006 when the EAC Partner States undertook the implementation of Yamoussoukro Decision on the liberalization of air transport in the region. The framework for liberalization is progressing, however, despite slow liberalization of the regional airspace, airlines have been pushing their governments to negotiate for landing rights. Meanwhile, the region has discussed and passed the Civil Aviation Safety Standards Oversight Agency (CASSOA) Bill, which will harmonize aviation safety and training standards- thereby seeing to safer EAC skies.

For local cargo carriers operating in the region, Tanzania has been a major destination mainly driven by the mining industry since a substantial amount of mining cargo is moved by air from the country.  With commodity prices on the rise, demand for minerals has increased leading to more demand for air services. In addition, the boom in tourism has seen a rise in business on the Zanzibar route and to Juba which relies heavily on imports, thus creating an opportunity for cargo services. Additionally, as the capital city of Southern Sudan emerges from 21 years of civil unrest, it has become an attractive investment destination, making it new ground for business in the region. 

Delta Airlines has also attributed the growth in Africa's aviation industry to three key factors: strong economic growth across the African continent, the large number of African-born American citizens who are now traveling back and forth to Africa on personal and business travel, and increased investment in the continent’s oil and natural resource industries. Despite restrictions in Africa's aviation market, in July 2007, Delta had 97 departures to Africa from the U.S but by July 2010, they had 320 flights, hence they tripled in size in three years. 

The Yamoussoukro Decision of 1999, named after the Ivorian city in which it was agreed, commits its 44 signatory African countries to deregulate air services, and promote regional air markets open to transnational competition. In 2000, the Decision was endorsed by head of states and governments at the Organization of African Unity, and became fully binding in 2002.  In general terms, the Yamoussoukro Decision calls for:

• Full liberalization of intra-African air transport services in terms of access, capacity, frequency, and tariffs
• Free exercise of first, second, third, fourth and fifth freedom rights for passenger and freight air services by eligible airlines (These rights, granted by most international air service agreements, enable, among others, non-national carriers to land in a state and take on traffic coming from or destined for a third state.)
• Liberalized tariffs and fair competition
• Compliance with established ICAO safety standards and recommended practices

Open Skies for Africa’s recommendation is for African states to implement the Yamoussoukro Decision which applies to all its signatories, but especially mentions those that have not signed or properly ratified it, namely: Djibouti, Equatorial Guinea, Eritrea, Gabon, Madagascar, Mauritania, Morocco, Somalia, South Africa, and Swaziland.

Meanwhile at the WTO level, the General Agreement on Trade in Services (GATS) Annex on Air Transport Services, excludes the liberalization of traffic rights and services directly related to the exercise of traffic rights. However the GATS addresses measures affecting aircraft repair and maintenance services; selling and marketing of air services and computer reservation services. 

The EC EPA Text (2009 version) includes the later elements as well however the EPA Text also extends the scope of air services covered by the Agreement, to include: other ancillary services that facilitate operation of air carriers such as ground handling services, rental services of aircrafts with crew and airport management services.

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.

SSA Exports to the EU and US

Useful summary on the composition of Sub Saharan Africa's Exports to the EU and US, which shows:

• SSA non-oil exports to the European Union have been noticeably higher than to the United States
• Textiles and apparel were prominent in non-minerals/metals SSA exports to the United States, while agricultural products were a larger component in SSA exports to the European Union.
• SSA agricultural exports to the United States are markedly lower than to the European Union (due, in part, to the closer proximity of Europe to SSA).
• While remaining (non-oil, non-minerals/metals, non-textiles/apparel, non-agriculture) SSA exports to the United States have grown, they are still markedly lower than to the European Union. In 2008, exports from South Africa accounted for 81% of total SSA exports in this category to the U.S., and 59% to the EU.

Meanwhile, the US is the largest country importer globally and the single largest importer of African goods at a country level. Hence the U.S. has a merchandise trade deficit with Sub-Saharan Africa and the deficit continued to widen in 2008 to $67.5 billion, from $53.0 billion in 2007. Nigeria, Angola, the Republic of Congo, South Africa, Chad, and Equatorial Guinea accounted for 97.2 percent of the U.S. trade deficit with Sub-Saharan Africa in 2008. 

Meanwhile Africa's trade with the EU has continued to decline, from a high of 55% in the mid eighties to about 35% share of total Africa trade in 2008. See previous post on Africa's Trade Profile with Global Partners.

President's Obama 2010 Trade Policy Agenda

 President's Obama's 2010 Trade Policy can be accessed here. 


The policy has a distinctly Asian and Pacific slant (understandably so) and in particular mentions China, India, ASEAN, APEC and a proposed FTA- the- Trans-Pacific Partnership (TPP) Agreement, with Australia, Brunei, Chile, New Zealand, Peru, Singapore, and Vietnam.  

EU, Russia and Brazil are also addressed (i.e. all the BRICs).

Snippets of the policy priorities include:

a). Support and Strengthen a Rules-Based Trading System

b). Enforce Our Rights in the Rules-Based System

c). Enhance U.S. Growth, Job Creation and Innovation

d). Work to Resolve Outstanding Issues with Pending FTAs and Build on Existing Trade and   Investment Arrangements

e). Facilitate Progress on National Energy and Environmental Goals

f). Foster Stronger Partnerships with Developing and Poor Nations: 

• "The United States stands by our Hong Kong commitment to provide duty-free and quota-free market access to least-developed countries as part of the implementation of a successful conclusion to the Doha Round.
• Sub-Saharan Africa is the location of the world’s largest cluster of extremely poor countries, but the beginnings of growth and reform are evident. The United States will continue to partner with African countries to perpetuate positive changes. Building on the success of last summer’s AGOA Forum in Nairobi, USTR will work with Congress and stakeholders toward a new U.S.-Africa trade paradigm that takes into account new and evolving global trade developments. The next AGOA Forum of U.S. and African trade ministers, to be hosted by the United States this year, can promote the benefits of U.S.- Africa trade to the American public, develop plans to better incorporate small- and medium-sized businesses into trade with Africa, and work with Congress to help African countries take better advantage of AGOA and other trade opportunities. The United States also will continue to work on a bilateral investment treaty with Mauritius, to work with African partners through existing Trade and Investment Framework Agreements (TIFAs), and to consider what other types of trade arrangements the United States can advance with African nations".

g). Reflect American Values in Trade Policy

Comment: On the new policy approach to Sub Saharan Africa,the newly proposed trade agenda, is expected, among other things, to foster regional integration in Africa and increase investment by offering incentives for US investors in Africa. See previous post here.

Africa's Top 20 Global Merchandise Trade Economies

Source: Customised from EC Trade 2008 data. Click to enlarge

SA is the top African importer and exporter and globally has a 0.6% share of world trade. However SA has a negative trade balance with imports valued at about 70billion Euros and exports at 55.8 billion Euros . 

Nigeria comes in second on total trade (both imports and exports) and the country has a positive trade balance with a higher share of global exports (52.2 billion Euros) than imports (37.1 billion Euros). 

In Sub Saharan Africa, the big players on total trade (over 10 billion Euros) are SA ranked globally at no. 36, Nigeria (44), Angola (55), Sudan (82), Ivory Coast (89), Kenya (90) and Ghana (95). 

Naturally oil exporters are at the top. Angola and Sudan are 2 LDCs in the top 10 on total trade. The North African countries have a higher combined total trade than most Sub Saharan African countries.

Top global trade economies:

EU combined trade is highest in all three categories. However on a per country basis:

• Importers (and total trade and in the same order): USA, Fr Germany, China, Japan, France.
• Exporters: China, Fr Germany, USA, Japan, Netherlands.

Interestingly, China is the world's largest exporter and leading source of imports for Africa. See Africa- China engagement here.

Meanwhile, the US is the largest importer globally and the single largest importer of African goods at a country level.  See US-Africa trade profile here.

See previous post on trade between Africa and trading partners here.

Trade Between Africa and Trading Partners 1980-2008

Interesting illustration from the Africa Progress Report regarding percent (%) share of trade between Africa and her trading partners from the period 1980-2008.

In the almost 30 years illustrated in the chart; Africa's trade with the EU has continued to decline, from a high of 55% in the mid eighties to about 35% share of total Africa trade in 2008.

South-south trade with non African countries, has increased from a low of 8% of Africa's total trade to almost 30%. This increase is largely trade with Asia. See previous posts on Africa Asia trade.

US Africa trade has declined compared to pre 1980 at 18% of total Africa trade. However since then, US Africa trade has been at a similar level at slightly over 10% since the mid 80's. See previous post on US Africa trade.

Intra Africa Trade has risen from a low 3% to slightly over 10% of Africa's trade, however this has been hovering at a similar level since in the mid nineties.

It will indeed be a historic moment when Africa's trade with other developing countries outperforms colonial trade flows.

What Could the Doha Round Mean for Africa?

The Doha Debates continued….

Recently, This is Africa held an exclusive interview with Mr Pascal Lamy, the Director General of the WTO, to discuss the status of the Doha Negotiations and Africa. Lamy said “What is on the table for Africa is huge,” referring to issues such as the possibility of duty free-quota free access to developed markets for Least Developed Countries, many of which are in sub-Saharan Africa.  He added that "the reduction of export subsidies by the EU, US, Japan and other developed economies, as well as reducing tariff escalation, both of which are often seen to stifle low income countries’ ability to compete on the export of manufactured goods, can also have a potentially significant impact on African trade".

However, according to a study by the Carnegie Endowment for International Peace entitled “What Could the Doha Round Mean for Africa?”, the actual benefits for low income African countries would be minimal, with the exception of South Africa.   In addition, the study found that, assuming FULL Duty Free Quota Free (DFQF) access to developed markets for LDCs was provided, this would allow Africa to benefit from the Doha Round. The estimate sees the region gaining $1.2bn or 0.63 percent of GDP, clearly highlighting the importance of this particular metric.

Indeed at the October 2009 Sixth LDC Ministerial meeting in Dar Es Salaam Tanzania, LDCs called on the WTO Membership to fully implement, the decision on DFQF market access for all products originating from all LDCs, as contained in Annex F of the Hong Kong Ministerial Declaration, accorded through Agricultural and Non-Agricultural Market Access modalities and ensure market access for at least 97 per cent of products originating from LDCs, at the tariff-line level.  Lamy reportedly attended this meeting and informed Ministers that there was no mandate for an early harvest and that LDCs would have to wait until the round was concluded to reap any benefits.

Meanwhile, products from LDCs have enjoyed DFQF access to the EU market since 2001 under the Everything But Arms initiative which gives the 49 LDCs duty free access to the EU for all products, except arms and ammunition.

Additionally,the Canadian Africa PACCIA/PACT program also implements DFQF for LDCs.

The US market benefits some African countries under the AGOA regime however it excludes other LDCs due to the eligibility criteria established in the Act.  For instance, of the 47 GSP eligible Sub-Saharan African countries, only 34 are AGOA eligible. A non discriminatory regime for LDCs would be ideal however, at the December 2009, 7th WTO Ministerial meeting in Geneva, the US Trade Representative Ambassador Ron Kirk instead called on major developing countries to offer DFQF access to LDCs and indeed Brazil and India have extended such offers.  China has extended a similar offer to African LDCs with diplomatic relations with China.

One could say Africa is already enjoying the huge benefits- ahead of the conclusion of the Doha round. However, recent DFQF offers do not immediately extend 100% market access.  In addition, most LDCs, exports to these markets have not materialized due to: the immediate exclusion of non commodity products they are able to produce competitively; the high costs of doing business; transport costs to distant markets; non-tariff barriers, and the lack of capacity to produce diversified exportables.   

A New Policy Approach Towards Africa Unveiled by AGOA Architects

Ten years after the enactment of the African Growth and Opportunity Act (AGOA), a coalition of its original architects and supporters have unveiled a comprehensive and ambitious new trade and economic policy to be presented to the Obama Administration, that would build on AGOA’s successes and expand the growing trade relationship between Africa and the United States.

The new policy proposal, entitled Enterprise for Development: A New Policy Approach Toward Africa, calls for the continuation of AGOA’s exclusive duty- and quota-free access to the US market for African goods, as well as policies to strengthen and grow indigenous enterprises in Africa and measures that support job creation, export promotion and prosperity in both the US and Africa.  

The main policy proposals include efforts to:

a) Expand and protect AGOA and make it permanent

b) Develop tax incentives and credits for US investors in Africa

c) Support regional integration through AGOA

d) De-link AGOA from the WTO Doha Round

e) Partner to revitalise Africa's agricultural sector

f) Make US aid smart and effective

g) Expand and reform the Millennium Challenge Corporation

h) Increase funding for US exports to Africa

i) Increase support for the Overseas Private Investment Corporation (OPIC)

The proposals recognise that the private sector is pivotal to the expansion of trade and investment and that efforts to support the US private sector as well could increase investment in Africa.

Additional information on this development can be found here

US Africa Trade Profile

The United States is Africa’s largest single country market, purchasing 28.4 percent of the continents exports in 2007.  Sub-Saharan Africa accounts for slightly more than one percent of U.S. merchandise exports, and slightly more than three percent of U.S. merchandise imports, of which about 81 percent are petroleum products.

However, the U.S. has a merchandise trade deficit with Sub-Saharan Africa and the deficit continued to widen in 2008 to $67.5 billion, from $53.0 billion in 2007.  Nigeria, Angola, the Republic of Congo, South Africa, Chad, and Equatorial Guinea accounted for 97.2 percent of the U.S. trade deficit with Sub-Saharan Africa in 2008.  Other leading AGOA (see AGOA Extension Act 2015) beneficiaries include Gabon, Cameroon, Lesotho, Madagascar, Kenya, Swaziland, and Mauritius.

Predictably, petroleum products continued to account for the largest portion of AGOA imports by the US with a 92.3 percent share of overall AGOA imports. With fuel products excluded, AGOA imports were $5.1 billion, increasing by 51.2 percent. Much of this non-energy product increase was due to a 224.8 percent increase in imports of AGOA transportation equipment, virtually all from South Africa.

AGOA minerals and metals imports by the US also increased by 58.8 percent and AGOA chemical and related products by 38.7 percent.  Meanwhile, AGOA textiles and apparel imports declined by 10.4 percent and AGOA agricultural products by 7.9 percent.

The good news however is that  U.S. imports under AGOA are becoming increasingly diversified. Some of the more significant products include: jewelry and jewelry parts; fruit and nut products; fruit juices; leather products; plastic products; and cocoa paste.