Africa should renegotiate EPAs for manufactures’ trade parity (2)

By Rafiq Raji, PhD

Published by BusinessDay Nigeria Newspaper on 16 Feb 2016. See link viz.

Foremost Oxford economists, Paul Collier and Anthony Venables, argue – in their 2007 paper, “Rethinking trade preferences: how Africa can diversify its exports” – that protectionism by African countries has thus far failed to boost manufacturing exports. They also show how trade preference schemes – if properly designed and under the right conditions – could aid industrialization. Their main idea revolves around the need for a change from the finished goods mindset that currently underpins most African industrial policies to that of being part of global value chains. Even then, they argue such schemes only accelerate growth when relevant skills and infrastructure are available. They probably have a point. One wonders though if protectionism would not have worked if the dearth of needed skills and infrastructure was not a constraint. It seems to me that it may be better for African countries to protect their markets pending when they do acquire these requisite complements for industrialization. In any case, one is generally weary of western economists; albeit this pair is quite respectable. Some of that distrust is due to Africa’s history with westerners, mostly dreadful – currently reading Martin Meredith’s recent book: “The Fortunes of Africa.” To be fair, Africans have also been complicit in what is still a lagging continent. Still, my personal experience makes me convinced only Africans can lift their continent from its perennial inertia. If you have worked or lived in London, New York, or any of the other major financial centres, you know ‘Africa’ is an exclusive, niche club. Outsiders – mostly Africans – face high barriers to entry. Africans who try to be ‘AfricaN’ in these places are reminded they could simply board a plane back home. So, worried I might be biased on the revised Economic Partnership Agreements (EPAs) not being in the long-term industrial development interests of African – or African, Caribbean and Pacific (ACP) – countries, I aimed to seek the views of ‘AfricaN’ economists. I got the opportunity on 24 September 2014 at Chatham House in London. Dr. Adam Elhiraika of the United Nations Economic Commission for Africa (UNECA) had come for the launch of UNECA’s 2014 Economic Report on Africa aptly titled: “Dynamic Industrial Policy in Africa.” During the Q&A session after his presentation, I put the question on my concerns (or biases) about the EPA. I got the sense he believed the EPAs in their current form may weigh on Africa’s industrial progress and should be re-negotiated. Some African authorities probably think re-negotiating these revised EPAs would be a daunting task. I beg to differ. Europe needs new markets. With low population growth, it could not possibly sell all the goods it could manufacture in its own market. Europe needs the raw materials that Africa has in abundance – always has. Europe needs the EPA.

Africa’s wealth can only be an advantage if the raw materials it possesses in abundance are available primarily for its own industries and only sold to foreign partners after local industrial requirements have been fulfilled. And even then, only as finished products and at such prices that the destined country’s manufactured goods would never be as competitive. This is the ideal but unrealistic scenario. Were Africa to industrialize and produce goods with the same efficiency and of similar quality as its European counterparts, free movement of goods may not be so attractive – it probably motivates the advocacy for the global value-chain plug-in concept. There would simply be no space for African goods in that saturated market. Incremental demand for European goods is to be found in the still relatively virgin markets of Africa. Simply put, Africa needs to manufacture goods for Africa. However, it could not possibly compete with other countries’ manufactured goods in its own backyard if it gives up its coercive power to impose punitive import bans and tariffs. In my view, this revised EPA – albeit better than past ones – would serve to ensure a constant lag in relative competitiveness for African goods. One of the most effective ways of gauging trade between countries is to visit the local supermarket. In South Africa, most of the consumables on the shelves are made locally. Even when there are foreign brands, they would typically be produced locally. In Nigeria, supermarkets stock mostly foreign brands. The data supports these observations. Whereas manufactures accounted for just 3.3 percent of EU imports from the Economic Community of West African States (ECOWAS) region in 2014, they constituted 28 percent of total exports of the Southern African Development Community (SADC) to the EU in the same year. The SADC region has always had – and still has – a relatively stronger industrial base. Outside of commodities, most of the goods – semi-processed or processed – that Africa sells to Europe are bought by Africans in the diaspora or adventurous Europeans nostalgic about their experiences on the continent. As I recall – when seeking the ‘African’ food products on those shelves – during my weekly grocery shopping trips to a major UK supermarket chain, it was usually sobering upon reflection that they were ‘African’ only to the extent that they were popular European-owned brands one was used to back home.

Should Africa opt out of the EPA? No. If well negotiated, it could be a catalyst for Africa’s industrial development. Ideally, duty-free access for Africa’s exports to the European Union via the EPA should supposedly make its goods cost competitive relative to say, Asian ones who pay duty. Tariffs and duties that would have been paid by African exporters had there been no trade preferences also add to capital for incremental investment. With predictable demand for its exports consequently, these schemes are expected to help generate employment and contribute to growth. Ironically, the component of the EPA – quality specifications – that may really aid Africa’s industrial development has hitherto been a major constraint. African exports to Europe cannot be of lesser quality. Quality specifications in earlier versions of the EPA were beyond the technological reach of most African countries. The still contentious but revised EPA is more flexible in this regard. Subject countries would now be allowed to import intermediate inputs without losing their preferential market access. For instance, the EU-West Africa EPA will allow subject countries “produce goods for exports to Europe using materials sourced from other countries without losing the benefit of the free access to the EU market.” In the long run, this flexibility may allow for some technology and skills transfer. So even if Africans would ultimately be the dominant consumers of relatively cheaper goods manufactured on the continent, they would be assured the quality would be no different from the European ones they are used to. Thus, there is a delicate balance that African authorities need to strike with their European counterparts.

Also published on my company’s website on 17 Feb 2016. See link viz.

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