Africa is not yet ready for free trade #EUAfrica Summit

A lot has been written on why the EU’s open regionalism is really another scramble for Africa. It is curious that none of the stated objectives of the Cotonou Agreement mentions explicitly how the EU would provide assistance to help resolve the supply-side constraints that Africa faces. Especially as it helped former Soviet countries in this regard. These constraints (rules of origin, sanitory and phyto-sanitary standards, poor transport, lack of access to telecommunication infrastructure, low labour productivity, lack of economies of scale, absence of functioning capital markets) make it premature for full trade liberalization in Africa. African countries were and still remain largely unable to benefit from free trade and would probably remain so for a while. The EU and Africa are unequal partners. That is a fact. However, what is heartbreaking is how much African leaders underestimate the amount of leverage they have (and in fact, some are complicit in the distorted arrangement). The EU, albeit a superior negotiating party, needs Africa. It needs Africa’s markets for its goods and services. But it seems some African leaders just find EU aid (and market access for some) so irresistible. Of course, there have been suggestions in the literature that some of them were essentially “persuaded” to accede to EPAs. The literature is awash with examples of the devastating consequences of EU and US dumping on numerous African economies. So, there is no point stressing that angle of the argument.

Although the Cotonou Agreement is a marked improvement from the Lome and Yaounde Conventions {exports to the EU from African, Carribean and Pacific Countries (ACP) actually declined from c. 7% to c. 3% during the period (1978-2002) of the Lome Conventions (1975-2000)}, it is a sub-optimal deal for Africa. The stated objectives (poverty reduction, institutionalisation of democratic principles, respect for the rule of law and human rights, good governance, peace building, conflict prevention and regional integration) are all very well. They, however, pale in comparison to what Africa really needs: Industrialization. African countries need to move up the value chain of industries where their resources are major inputs. Job creation is what would accelerate poverty reduction in Africa. By one’s reckoning, labour-intensive manufacturing offers the best chance of achieving this; at least for now. Not cash transfers or dividend payments like some very admirable and well-intentioned economists at the World Bank/IMF are considering.

Historically, countries that have succeeded in achieving industrialization have tended not to abide by the stated objectives of the Cotonou Agreement; at least during the early stages of their evolution. These countries had commonalities of either war, strong single-party or monarchical/military rulership during the early stages of their industrial evolution. There are a few exceptions, of course. Also, it turns out the African countries that have made some (albeit very little) effort at pushing for more value addition of their resources before exports turn out to be longstanding rulers. The irony is that although they likely made these policy moves for political gain, they were able to do it (in spite of the potential backlash from developed nations) largely because they were African big men.

Truth be said, it is not the responsibility of the EU, US or other developed countries to watch out for the interests of African countries. Leaders of African countries must be butts of jokes in Paris, Brussels, London, and Washington when they visit these capitals with all the pomp and ceremony walking with puffed up pride just to show how independent they really are. Well, if you are really independent, don’t ask me not to negotiate to maximize my interests. I mean, it’s silly. It must be said, however, that there are lots of people in these capitals who are genuinely eager and desirous to see Africa develop. They wear their frustrations on the grey hair that some have developed through decades of hard work fighting and campaigning on African issues. Progress has been slow.

If the EU really wants to help Africa, it should make tangible commitments towards helping these countries resolve the supply constraints that hold them back from enjoying the benefits of free trade. That is an irrational request, however. It is foolhardy to expect the EU to diminish the advantage it has. Trade with Africa may not be attractive otherwise. The task thus falls on African leaders. The beginning of the solution lies not with boycotts and posturing; but to protect selected industries and insist on minimum value addition to minerals and other natural resources before exports. If a country has crude oil, it should insist that the MNOCs build refineries (Uganda’s policy in this regard is exemplary). If you produce copper; well there are many uses for copper. How about producing some of the finished goods in situ. The list is endless; iron-ore, coffee, diamonds, gold, cocoa, etc. But of course, these policies should be backed by resolving the logistics nightmare (and numerous other issues) on the continent.

Thus, as African and EU leaders start their two-day trade summit today in Brussels, let our big men and women bear at the back of their minds that it is not too late to re-negotiate. The solution does not require any complicated legalese. It is simple. Import liberalisation for African countries (as early as 2015) is premature. African countries should protect selected markets and ensure that trade and FDI revolves around value-addition. The postponement of the signing of EPAs by some African regional blocs (and the outright refusal of some African countries to accede to one) should be used as an opportunity to revisit some of the terms in the Cotonou Agreement. Every and any Agreement, no matter how strong or binding, can be renegotiated. African countries should see this Summit as an opportunity to start the process of reviewing the EPAs and in fact every facet of the EU-Africa economic arrangement. If none of the EPAs are signed and no African (or ACP) country makes any unilateral arrangement, the EU would have no choice but to re-negotiate. African (or ACP) leaders have more leverage than they realise. They should use it!

 

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