Africa should renegotiate EPAs for manufactures’ trade parity (1)

By Rafiq Raji, PhD

Published by BusinessDay Nigeria Newspaper on 09 Feb 2016. See link viz. http://businessdayonline.com/2016/02/africa-should-renegotiate-epas-for-manufactures-trade-parity-1/

African countries should only allow duty-free manufactured goods’ imports for the same amount of manufactured goods that they export. Customs duties should apply to trade in excess of this threshold. Reciprocity by Africa’s trading partners would be just as well. Ultimately, this would incentivize local production as Africa’s more industrialized trading partners realize the exports market for their manufactured goods would be dependent on the destined African country’s industrial progress. In tandem, African authorities would also need to ensure that local alternatives are cheaper and readily available. In my view, this is the simple but necessary change that African, Caribbean and Pacific (ACP) countries must insist be made to the Economic Partnership Agreements (EPAs) between them and the European Union (EU). My focus would be on the EPA between the EU and the West African regional bloc. Nigeria is yet to sign the most recently revised EPA. So, it still has a chance to secure concessions from the EU. In his speech to the EU parliament on 3 February 2016, Nigeria’s President Muhammadu Buhari highlighted concerns of local manufacturers about the agreement. These concerns were initially raised during the administration of President Goodluck Jonathan. On 23 June 2014, I attended an event in London hosted by the Financial Times and the Nigerian Customs Service themed “Business in Nigeria: Trade facilitation for Africa’s business hub.” When asked about the status of the EPA negotiations at the event, the then Nigerian trade and industry minister, Mr Olusegun Aganga, said Nigeria would not sign an EPA that potentially harms its industrial development. More than two weeks after, Heads of State of member countries of the Economic Community of West African States (ECOWAS) endorsed the revised EPA that – in the words of the communiqué issued – “has taken due account of the technical concerns raised.” Although the language of the communiqué was somewhat vague, I assumed that perhaps ECOWAS had succeeded in securing concessions on the concerns of its member countries. Not until the Nigerian legislature brought the matter to fore in January 2016 did I realize Nigeria’s concerns had not been addressed. At this time, a committee of Nigeria’s lower house of parliament is reviewing the EPA and should present its findings before the end of February. There is tremendous pressure on Nigerian authorities to sign the EPA. They should not. Not yet.

The Cotonou Agreement reached in February 2000 is actually a marked improvement from the earlier Lome and Yaounde Conventions. The EPA in question is the third revision of the Cotonou Agreement. Earlier revisions were in 2005 and 2010. There is a consensus about the failure of these agreements to achieve their development objectives. The European Commission admitted as much, saying EPAs “failed to boost local economies and stimulate growth in African, Caribbean and Pacific (ACP) countries.” During the period of the four Lome Conventions – which subsisted between 1975 and 2000, exports to the EU from ACP countries actually declined. Between 1978-2002, ACP exports to the EU declined from 7 percent to 3 percent. There has not been much improvement since the Cotonou Agreement either, as trade in manufactures remains significantly tilted in favour of the EU. Not that this is entirely surprising. Fifteen years after the Cotonou Agreement, only 15.5 percent of total ACP exports to the EU were manufactured goods. In the same year, 69 percent of total EU exports to ACP countries were manufactures. The manufactures’ trade deficit is much more staggering for the ECOWAS region. In 2014, manufactures accounted for 3.3 percent of total exports to the EU by the ECOWAS region. Goods manufactured in the EU were almost 50% of its total exports to West Africa in the same year. The revised EPAs – that would subsist for at least another 5 years (2015-19) before they can be revised again – are supposedly aimed at reversing this trend. Still, reservations that these new EPAs would achieve their stated goals of trade development, sustainable growth and poverty reduction remain. This is because the revised EPAs still have provisions that are potentially harmful to local industries in ACP countries. A major issue is the very short transitional period – five years in the West African case – before European goods would enjoy free movement in subject countries. It does not require a stroke of genius to know that these arrangements would be detrimental to Africa’s industrialization.

Why did Nigerian authorities wait till after the negotiations to raise their concerns about the revised EPA? Negotiations between the EU and the West African regional bloc were closed on 6 February 2014 and ECOWAS Heads of State endorsed it on 10 July 2014. I have always wondered about the recurring incidence of sub-optimal negotiation outcomes by African countries. At the Financial Times Africa Summit in October 2014, I put these concerns to Dr. Donald Kabureka – who was then the President of the African Development Bank (AfDB) and keynote speaker at the event – wondering if he thought for instance that Ghana’s petroleum fiscal regime was optimal. My question was more pointed. Did it make sense that Ghana was borrowing money abroad at about the same time that it was already producing crude oil? Ghana’s Jubilee oil field started production in late 2010. Unlike most crude oil producers who have Production Sharing Agreements (PSAs) with their partners, Ghana opted for the less lucrative Royalty Tax System (RTS) for its Jubilee oil field. Much more worrying is the fact that the Ghana National Petroleum Corporation has only 13.64 percent equity in the Jubilee oil field – the Nigerian National Petroleum Corporation has a 60 percent ownership in five of its six joint ventures with foreign oil companies. After much criticism, however, Ghanaian authorities sought better terms in subsequent contracts. A paper published in the Ghana Policy Journal in December 2010 – “An evaluation of Ghana’s petroleum fiscal regime” – authored by Joe Amoako-Tuffour and Joyce Owusu-Ayim, shows only 38-50 percent of crude oil revenue accrued to the Ghanaian government, calculated based on $65 per barrel of oil – the average brent crude oil price in 2011-14 was $108. When compared with Nigeria’s 64-70 percent, Angola’s 64 percent and Cameroon’s 74-78 percent, it is sub-optimal. Not surprisingly, Dr. Kabureka tactfully avoided taking on Ghana specifically but highlighted how through the African Legal Support Facility (ALSF), the AfDB assists African governments to secure optimal outcomes from negotiations with partners. I do not know if the ALSF was involved in the Ghanaian oil negotiations. However, trade negotiations do not seem to be a priority area for the ALSF, based on its literature. As most trade-related technical assistance (TRTA) is sponsored by developed countries whose interests it serve that such capacity remain limited in the subject countries, the ALSF should probably prioritize trade-related capacity building (TRCB) and TRTA as well. The concerns raised by the Nigerian government on the EPA – and some ACP countries hitherto – is evidence of limited negotiating capacity. Still, even when a government fails to negotiate properly, it should not sign a document if it later realizes its error. It would be most unfortunate if the Nigerian government signs the EPA in its current form.

Also published on my company’s website on 10 Feb 2016. See link viz. http://macroafricaintelligence.com/2016/02/10/thematic-africa-should-renegotiate-epas-for-manufactures-trade-parity-1/ 

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