AfricaFocus (Washington, DC)

21 March 2012

Africa: Europe - Underdeveloping Africa (Again)

"EPA [Economic Partnership Agreement], as currently designed, is a poison chalice. Fragmenting Africa and ramming through deadly trade arrangements in a manner that undermines internal African integration, ties the hands of policymakers and circumscribes the policy space, and literally enslaves the African economy may be smart for Europe in the short-run but not wise in the long term." - Chukwuma Charles Soludo

In the commentary excerpted in this AfricaFocus Bulletin, highly respected economist Charles Soludo, a former governor of the Central Bank of Nigeria, lays out a devastating critique of the Economic Partnership agreements being pushed on African countries by the European Union. They have only advanced, he argues, because Europe has pursued an unscrupulous strategy of divide and rule, and many of those involved in the negotiations fear to voice their criticisms publicly.

There is an urgent need, he says, for a more open discussion about future European-African economic relations, for the long-term benefit of both Europe and Africa and to avoid crippling Africa's chances to break out of long-term patterns of underdevelopment.

For previous AfricaFocus Bulletins on economic issues, visit http://www.africafocus.org/econexp.php

Updates - Zimbabwe

Six pro-democracy activists in Zimbabwe have been convicted for watching a video of "Arab Spring" events in Tunisia and Egypt last year. Yet another sign of increased crackdown by Mugabe regime. See updates and call to action at http://justiceforzim6.blogspot.com

Just in (9:40 a.m. U.S. East Coast time) - The final verdict for the Harare Six/Zim 6 is 2 years in jail BUT suspended for 5 years (on condition that no similar "offence" is committed), 420 hours of community service (about 6 weeks Mon-Fri) and 500 US Dollars fine each.

Updates - KONY 2012

If you haven't seen it yet, watch the response to KONY 2012 by Rosebell Kagumire at http://www.youtube.com/watch?v=KLVY5jBnD-E As of this morning, it's up to 564,000 views on YouTube.

I've added several new selected suggestions to the lists at http://tinyurl.com/7tea5ju

Particularly noteworthy, for its clarity in providing background on the LRA for the reader new to the realities in Uganda and other affected countries, is a "Letter from Uganda" by a teacher in Gulu (http://tinyurl.com/6oe6bhs).

In the overwhelming cascade of commentary on KONY2012, the most significant missing piece is that of voices from the affected areas outside Uganda, namely in the Democratic Republic of the Congo, the Central African Republic, and South Sudan, which have much less access to communications and internet-savvy spokespeople than does Uganda. I've added a few articles focusing more on the regional perspective at http://tinyurl.com/7tea5ju, and the articles on military realities in http://www.africafocus.org/docs12/kon1203b.php do highlight the regional situation. But I haven't yet seen any analysis with an in-depth exploration of this regional component, or commentaries from people of these affected areas. -- Editor's Note

Africa: From Berlin to Brussels - Will Europe Underdevelop Africa Again?

by Chukwuma Charles Soludo

This Day (Nigeria), 19 March 2012

[Excerpts only: full text available at http://allafrica.com/stories/201203191099.html]

Soludo, a Professor of Economics, has served as Chief Economic Adviser to the President of Nigeria as well as the Governor of the Central Bank of Nigeria. He is currently on the Board of the South Centre, Geneva; Chairman of Board of the African Institute for Applied Economics; and a Member of the Chief Economist's Advisory Council, World Bank.

Africa is in trouble. Its future is once again on the table, and it is Europe that holds the ace. Unlike the Berlin Conference of 1884 to 1885 which balkanized Africa among 13 European powers as guaranteed sources of raw materials and market, the current contraption under the Economic Partnership Agreements (EPAs) spearheaded from Brussels is the modern day equivalent of the Berlin Conference.

At issue in both Berlin and Brussels is whether or not Africa can be allowed latitude to conduct trade, industrial and development policies for her own development or for the development of Europe. A major difference is that the 'agreement' will now be signed by free people, under supposedly democratic regimes, and in contexts where the African people again have neither voice nor choice. Only about 10 out of 47 Sub-Saharan African countries (SSA) have either signed or initialled the EPAs. Trade ministers of the affected regions-the African, Caribbean and Pacific (ACP) countries as well as African trade ministers and the African Union-have largely rejected the EPAs. Despite all of these, and the reported public protests in twenty countries against the raw deal, it seems all but certain to be rammed through. In private whisperings, not many Africans or policymakers are happy with the deal but there is a certain sense of helplessness.

Since 2002, the EU has been negotiating the EPAs with the ACP countries as a fully reciprocal trade arrangement to replace the previous non-reciprocal, preferential trade access of ACP countries to EU markets under the various Lome Conventions and the Cotonou agreement. The argument, according to the EU, is that such preferential access violated Article XXIV of GATT, and that the WTO waiver that allowed such preferences expired in December 2007. Consequently, the ACP countries are divided into seven regions (with five in Africa) for the purposes of the negotiations. As advertised, EPAs are "set out to help ACP countries integrate into the world economy and share in the opportunities offered by globalization". The EU points to the 'failures' of the previous preferential arrangements to 'boost local economies and stimulate growth in ACP countries'. Thus, the new reciprocal arrangement is expected to remedy the failures of the past and usher the Eldorado to Africa.

Specifically, EPAs are expected to be "tailor-made" to suit specific regional circumstances; go beyond conventional free-trade agreements, focusing on ACP development, taking account of their socio-economic circumstances and include co-operation and assistance to help ACPs implement the Agreements; open up EU markets fully and immediately (unilaterally by the EU since 1st January 2008), but allowed ACPs 15 (and up to 25) years to open up to EU imports while providing protection for the sensitive 20% of imports; provide scope for wide-ranging trade co-operation on areas such as services and standards; and are also designed to be drivers of change that will kick-start reform and help strengthen rule of law in the economic field, thereby attracting foreign direct investment (FDI), so helping to create a "virtuous circle" of growth. The above sounds quite familiar, and anyone familiar with the Structural Adjustment Programme (SAP) documents will recognise the language. Consequently, countries were rushed to initial interim EPAs before the end of 2007, and some countries went on to sign them later. These have mainly been single countries. Most of the sub-regions, as groups of countries, are still negotiating the regional EPAs (e.g. West Africa, Central Africa, SADC etc).

Put simply, in order to continue to have access to European markets (on the terms that it had enjoyed for more than three decades) Africa is now required to eliminate tariffs on at least 80% of imports from the EU; in some cases, abolish all export duties and taxes, in others, countries can retain existing export taxes but not increase them or introduce new taxes; eliminate all quantitative restrictions; and meet all kinds of other intrusive and destructive conditionalities that literally tie the hands of African governments to deploy the same kinds of instruments that all countries that have industrialised applied to build competitive national economies. Under the WTO, least developed countries (LDCs) are not required to further reduce their tariffs (at least they have the choice to decide whether and when to do so) but EPAs require at least 80% of them eliminated.

Indeed, Africa is being asked to comply with more stringent conditions than Brazil, India and China are required to meet under the WTO. Almost all the flexibilities in policy choice that Africa and other developing countries won under the WTO are lost under the EPAs. Hitherto, the EU had also (in addition to the Cotonou agreement) granted a special concession to all African LDCs - the 'Everything But Arms' (EBA) - allowing them to export duty-free to the EU. This was the EU's equivalent of the US Africa Growth Opportunity Act (AGOA) and African LDCs were not expected to reciprocate. With EPA, it means that EBA is effectively dead. LDCs would have to provide reciprocal market access opening. In addition, what the EU has failed to get under the WTO or issues that developing countries have rejected under the WTO are being foisted on Africa under the EPA. For example, the so-called trade-related issues (the Singapore issues) such as investment, competition and transparency in government procurement, which are dead under WTO are being smuggled into EPA.

There are all kinds of studies on the possible effects of the EPAs on African economies. While it is fair to acknowledge that some of the presumed impacts (positive and negative) may be exaggerated, there is abundant evidence that the EPAs would be damaging. Africa's nascent industrial sector and agriculture (which is the mainstay of the poor) would be damaged by the new import armada and dumping thereby exacerbating unemployment and poverty. In some countries, imports of sugar, dairy, poultry, rice, vegetable oil, etc have already increased four-fold. Tariff revenues will shrink; premature and permanent opening up of service sectors including financial services leaves them open to the full hazards of the perennial global financial bubbles; and it will badly hurt intra African economic integration. Africa would almost be consigned to be specialists in the export of raw materials. African countries cannot use government procurement and contracts to prop up and promote domestic companies as European companies would be required to be given equal treatment in competition for government contracts. The list of the damages is long and cannot be detailed here. Some independent studies by EU admit these damages, and one such study predicts that EPA could accelerate the collapse of manufacturing in West Africa. Perhaps, that is why the EU is promising 'aid for trade' - to sooth and compensate for some of the damages.

What is worrying is that it is difficult to point to any significant net benefit of EPAs to Africa. Already 33 out of the 47 countries are LDCs and therefore qualify to export 'everything but arms' to the EU with 100% duty-free and quota-free. So, what is the additional benefit to these countries? For the remaining 14 non-LDC countries, it is curious why the EU cannot accede to the request by the African Union to treat Africa as the world's archetypical LDC region and grant the same EBA to all of the countries. Or, alternatively there are several proposals about benchmarking and sequencing the conditionalities/liberalization to synchronize with economic advancement of these remaining 14 countries. So far, these proposals have not been accepted by the European Commission even for discussion.

In any case, the EU's peculiar interpretation of Article XXIV of GATT is a convenient one. The EU relies on this Article to argue that the WTO outlaws non-reciprocal, preferential trade to Africa under the Cotonou agreement. But the same Article refers to trade in goods, and so why has EU brought up all kinds of issues - services, investment, procurement into the EPA? Second, it must be noted that this article crafted in 1947 is itself still a subject of the Doha trade negotiations. Third and to be honest about it, the WTO does allow for non-reciprocal preferential trade arrangements if the motivation for EU's action is to assist Africa. Currently there are more than 7 active waivers in the WTO provided to the US, EU and Canada for preferential trade schemes for developing countries and transition economies. For example, the US has a waiver for its AGOA for sub-Saharan Africa. Recently, the EU has obtained two waivers to grant non-reciprocal trade preferences to poorer European countries namely, Moldova, and another one to the Western Balkan transition economies (Albania, Bosnia and Herzegovina, Croatia, Macedonia, Serbia, Montenegro, and Kosovo).

It is remarkable to note the EU's argument for applying for waiver to the WTO in respect of Moldova. According to the EU, "Moldova is the poorest country on the European continent... and does not have the competitive strength to take reciprocal obligations of a free-trade agreement with the European Communities" (WTO document of 29 February, 2008). But Moldova (the poorest European country with per capita income of about $2,300; life expectancy of 71 years and adult literacy rate of 99%) is far better than most subSaharan African countries, and not to talk of much richer ones like Croatia with about $10,000 per capita income. Compare this to much of Africa and even the 14 countries dubbed 'non-LDC' (Nigeria has a per capita income of about $1,200; Ghana $1,475; Kenya $1,125; etc and in all of these countries poverty incidence is at least 50%). Something is not adding up here. According to the EU, granting nonreciprocal preferential trade concessions to fellow European countries that are richer than most African countries does not violate WTO rules, but doing so for Africa does. Africa remains the world's poorest region and perhaps the last development challenge. The EU needs to come up with a credible explanation. I can almost hear some people screaming... Double standards, or isn't it?

EU needs to come clean. It does not have to apologize about it because after all, it can argue that it is the way the world works. From the time of slavery to the Berlin conference, Africa has either been a source of free labour and profit or source of raw materials and market. Only the dynamics change but the substance has remained. After all, nation states hardly act out of love but in pursuit of selfinterests.

We appreciate that the global economy today is rumbling, with new tensions and challenges. As the old economic powers are largely broke, the emerging economies with cash are roaring. The BRIC (Brazil, Russia, India, and China) are seen as the 'new threats'. The global economic landscape is unravelling and recoupling in such a manner that would likely alter the economic, military, and geopolitical power in the medium term. With this has emerged new pressures and demand for exhaustible natural resources and markets to sustain national security and prosperity. Since the major powers are no longer able to make use of the WTO as they wish to impose new rules on developing countries, they are now resorting to bilateral and regional policies and agreements to try and get their way. There is a subtle war for 'territories' and Neo-mercantilism is the name of the game.

The US is locking-in its neighbours in Latin America into one form of free trade agreement (FTA) or another. Africa has once again attracted attention as a theatre of the new struggle. China is accused by the West of either 'invading' or 'exploiting' Africa with its peculiar brand of 'aid'. In this circumstance, it could only be expected that EU would move quickly to secure its possession-Africa. In the European Commission's 2008 document entitled "The Raw Materials Initiative-Meeting our Critical Needs for Growth and Jobs in Europe" and presented to the European Parliament and the Council, one can get a clearer glimpse of the real impetus for EPA. Trust the sophistication of the negotiators, it is being branded as an initiative to 'help' or 'develop' Africa. History repeats itself in a funny way. Recall that the advertised 'benefit' to Africa of the Berlin conference that cemented colonization was to 'help in suppressing slavery'. The rest is history!

In terms of the technique deployed to coerce compliance by Africa, it is the old classic: divide and rule, and carrot and stick. EU negotiates as a bloc, but ACP countries are divided into seven regions, sometimes not exactly matching the regional integration arrangements. Even within the negotiating regions, each country is literally on its own: that way, it is easy to pick them off one by one. If Africa negotiates as a bloc, it may be difficult for EU to get its way easily. The principle of the early bird is applied to create what economists call the prisoner's dilemma and thus making collective action difficult. Countries that have 'signed' are allowed to continue to enjoy their preferential access to European market while those that have not signed are under all kinds of threats.

Those already in the privileged club do not want to lose their privileges and see themselves as 'special' while those excluded struggle to sign on the dotted lines. Different EPAs signed by different countries contain significant differences in terms of tariff lines, sequencing and speed of liberalization, depending on the negotiating capacity of the country/region. We understand that in some cases, the advisers to some countries' negotiators are Europeans. Most countries still resist and now export under the EU Generalized System of Preferences (GSP); EBA for the LDCs; and the standard GSP for Nigeria, Republic of Congo, Gabon and some Pacific countries. South Africa continues with its old free trade arrangement with EU. Even the GSP for some countries is now under threat. Power is the issue here. Given the weaknesses of the states and structural vulnerabilities of most African countries, including dependence on aid and trade with Europe for many, it is evident that what is going on is not negotiation but dictation.

The apparent sweetener to the bitter pill is the EU's 'promise' of 'EU Aid for Trade' by which EU is to provide financial assistance to EPA countries to enable them to build capacity, including infrastructure, and facilitate their implementation of the new agreement. This new 'promise' for aid is indeed funny, and raises important questions. Is this going to be an 'additional aid' or a rebranding of existing but unmet commitments? Under the auspices of the United Nations, the rich industrial countries in 1970 committed to devote 0.7% of their Gross National Income to aid. Some 42 years now, it remains a promise not kept. Only five countries- Sweden, Norway, Denmark, Netherlands, and Luxemburg - have met the 0.7% of GNI in aid.

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A recent one was the EU's 'promise' to increase aid to 0.56% of GNI by 2010 (aid to all countries not just Africa). Our question is whether the 'aid for trade' will be additional to the yet to be met 0.7% or is a new benchmark being 'promised'? Without doubt Africa needs huge resources to develop intra and inter regional transportation networks to integrate the national markets as well as to address the myriad of critical supply bottlenecks that were decisive in preventing Africa from fully taking advantages of previous preferential trade arrangements. However, anyone following the developments in the EU as well as its history of delivering on previous 'promises' can make some judgements as to the credibility of a new 'promise'.

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But humanity has experience in delivering aid that works. We can replicate it for an effective and truly developmentoriented EPA. The most effective aid in human history was the US aid to Europe after the Second World War--- the Marshall Plan to rebuild the European infrastructure. The US felt a sense of obligation (given the historical ties with Europe) to provide a 'big push' to lift Europe up after devastation by the war. We are not sure if EU feels the same sense of obligation to Africa (given the history we all know too well). But just imagine for a second that EU feels a need to support Africa through a Marshall Plan kind of aid. Imagine that the EU were to stop its subsidy to agriculture and divert just three years' subsidy fund to create African Fund for Transformation--- call it the 'Brussels Plan for Africa'---and this will come to about $225billion.

Alternatively, instead of stopping the subsidy abruptly, EU could go for a phased process, diverting just 50% of the subsidy fund into the Africa Fund over the first six years before finally phasing the subsidy out. If this Fund (akin to a sovereign wealth fund) is invested and the annual income proceeds invested (estimated at about $20 billion per annum in perpetuity), you could over time build highways and train networks linking all of Africa, and increasing the irrigation of its arable agricultural land from the current less than 5% to more than 50%. Let EU bring its own contractors-since it cares much about procurement, but let's get this done. That way Africa can feed itself, Europe, and the world cheaply; lift hundreds of millions out of poverty, and you can create an environment for a truly 'virtuous circle' of growth and transformation. With a truly integrated African market, a new dynamism for quantum leap will have been created, and no one will be surprised that the combined African economy might become the next China or India. This is when the kind of FDI inflows romanticised about in EPA documents can be expected to kick-in.

The point of the foregoing is that an alternative future between Africa and Europe is possible. Pervasive leadership failures have been at the heart of African underdevelopment in the last 50 years. Finally, there seem to be some flickers of light, and Africa is gradually pulling itself up by its own bootstraps. Africa has never had it better than in the last one decade, and compared to the lost decades it has begun to at least crawl. If EU cannot assist Africa to walk and run, the least it should do is not to hinder the nascent progress.

Aggregate African economy is less than 2% of global GDP, and thus as a small open economy, it needs to integrate within and without: Africa needs the global market. But lessons of the last two decades have reconfirmed that there are right and wrong ways to integrate into the global market, especially for poor and fragile economies. While the world is yet to invent anything better than a market economy, it is also true that extreme market fundamentalism-that denies the existence of market failures and missing institutionshas brought more ruin than remedy. A more balanced approach has been the winning strategy for all countries that have developed in the last century. But EPA, as currently designed, is a poison chalice. Fragmenting Africa and ramming through deadly trade arrangements in a manner that undermines internal African integration, ties the hands of policymakers and circumscribes the policy space, and literally enslaves the African economy may be smart for Europe in the short-run but not wise in the long term.

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Africa and Europe need a "Development Summit": we need to talk to each other frankly and directly. If the issue is 'development' of Africa, there are certainly superior alternative proposals for a more beneficial relationship between Europe and Africa. The African Union, various subregional groupings, and even the ACP ministers of trade have canvassed alternatives to EPA. History should not repeat itself. In the mid 1980s, Africa came up with the Africa's Alternative Framework to Structural Adjustment Programme (AAF-SAP). All African governments endorsed it; the United Nations General Assembly endorsed it, but the conventional SAPs were rammed through by the donor agencies which had the power of the purse. It took almost two decades of destruction for most development partners to admit that 'mistakes were made' and that 'no one had all the answers', and before major elements of AAF-SAP became part of the Washington orthodoxy. This kind of costly experiment must be avoided. It is the lives of hundreds of millions of Africans that are at stake again. It is time to sit down and talk. Other partners, such as China, India, and the US can join the Summit.

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