Wednesday, March 26, 2014

The First Ever U.S-Africa Summit: A Chance to Improve U.S-Africa Trade and Investment Relations

An opportunity is presenting itself to improve U.S-Africa trade and investment relations.  President of the United States, H.E Barack Obama is scheduled to host the first ever U.S.-Africa Summit in Washington, DC on August 5 and 6, 2014. African leaders will therefore have an opportunity to identify and present their ideas to President Obama on what they believe should be done to improve to the U.S-Africa trade and investment relations. 

Africa is being seen as one of the world’s most dynamic and fastest-growing regions. According to the 2014 projections released by the Economist Intelligence Unit, four out of ten fast growing countries of the world are in Africa. These include Sierra Leone (11.2%), Libya (8.8%), Eritrea (8.0) and Zambia (7.9). Actually, Africa's growth is superseding the rates in Asia. The African Development Bank has projected that by 2030 much of Africa will graduate into middle class economies with the majority attaining consumer spending level of $2.2 trillion. These projections clearly show that the next lead destination continent for foreign direct investment will be Africa. 

It is not surprising therefore that the United States is hosting a U.S-Africa Summit which is expected to focus on trade and investment relations between the two parties. The Summit is also expected to discuss America’s involvement in ensuring Africa’s security and promoting democratic principles

The AGOA has not yet improved the US-Africa Trade and Investment Relations

African leaders however, need to take advantage of this first ever U-S-Africa Summit and use it to reverse the trade and investment trends which hitherto have been unfavorable to Africa. The U.S provides to Sub Saharan Africa duty free quota free market access to the America market under the AGOA arrangement. The objective of the AGOA is to enable Sub Saharan countries to integrate into global economy as competitive and meaningful trade and investment players. However, it does not seem that this noble objective is about to be achieved, even when AGOA has been in existence for over 13 years.
Data available from United States International Trade Commission (USITC) shows that over 32% of the exports to the US under the AGOA are contributed to by Nigeria. South Africa and Angola each contribute about 24% of the total exports from Sub Saharan Africa.  However, all LDCs in Sub Saharan Africa are contributing less than 1% to the exports under the AGOA. 

The above situation reveals that the objective of the AGOA has not been achieved. In spite of the dismal performance under the AGOA, Africa continues to import massively from the U.S a situation that is worsening the trade imbalance between the two parties and more specifically with those Africa countries whose export base does include minerals. It should be noted that oil and petroleum exports account for about 84% of the total exports under the AGOA. Apparel and textiles which supposedly are the mainstay of the AGOA, contribute about 17% of the total exports excluding oil and petroleum related exports.

Statistics can at times be misleading; the USITIC data shows that in 2013 the U.S recorded a trade imbalance with Africa to the tune of $15,286.2 million. This ordinarily implies that the U.S is importing more from Africa than it exports to the continent.  But a quick look at the data reveals that a few of the African countries are actually benefiting from this situation. These are mineral reach countries i.e. Nigeria-Oil, Angola-Diamond and South Africa-Gold. These are the main countries that have a trade balance with the U.S led by Angola which recorded $7,294.90 million in 2013 and flowed by Nigeria at $5,249.4 million. Actually Angola and Nigeria alone contribute over 70% of the total trade deficit the U.S is recording with Africa. The majority of the African countries and mainly LDCs are recording a trade deficit with America. 

The poor performances of the exports from African countries save for those that are endowed with rich mineral resource base are attributed to a number of factors which indicated below;

Factors affecting the growth the U-S-Africa Trade and Investment Relations
  1. Some of the agricultural products in which African countries have competitive advantage are not included  in the list of AGOA eligible products. These include coffee, tea and tested herbal medicines, among others. This has limited the scope of exportable products available to these countries. The majority of the provided would require African countries to begin, integrate and standards their production process. In other words agricultural based economies were not provided with an opportunity to start from the acquis (i.e. to start and build from the existing production systems in place), because the traditional products whose production system had already been developed are excluded from the AGOA.
  2. Africa has not been able to attract U.S citizens to invest in Africa which is one of the mechanism through which Africa was expected to uplift its production levels.
  3. The costs of doing business remain very high due to the supply side constraints.
  4. The value chain of the agricultural products are not integrated due to lack of mid-level value addition investments. As a result Africa continues to export sem-finished or raw products. This plays to the advantage of the U.S since it provides an avenue to access the much needed raw materials for U.S industries. 
  5. Trade infrastructure is inadequate to facilitate the production, value addition and transaction of the products. Africa still lacks transport inter-connectivity that can be used to facilitate not only the backward and forward follow of goods but also to enable value chain integration or cumulation   between African countries. In addition to transport infrastructure, Africa is yet to provide for adequate storage (include cold and warm chains stores) and warehousing facilities along the value chain of the targeted products.
  6. The rules of origin and the standards requirements by the U.S are not favorable for the improvement of the U.S-Africa trade and investment relations. The requirements remain so stringent and sometimes unnecessarily above the international standards in order to provide Americans with an effective competitive level.
  7. Predictability under the AGOA remains a very big hindrance to the attraction of targeted investments. The AGOA was first introduced for five years and later on extended for 8 years. But in both the first and the second AGOA the time has been so short for African countries to attract meaningful and targeted investments. An investment must be provided with an incubation period within which production will stablise and investment costs recovered before the returns to investment can be realized. The time allowed for this could be up to to ten years, a period longer than the duration of the AGOA itself. Therefore is therefore need for a more predictable and reliable regime within the U.S-Africa trade and investment relations will be improved. The AGOA should be extended for at least 15 years. Anything duration below, is simply not going to support Africa improve her trade relations with America but instead, it will only serve to provide a platform for the U.S to make propaganda of its efforts to uplift Africa.
  8.  Transaction costs are very high mainly because of the high transport costs. There are limited or no direct flights from Africa to U.S. These force exporters to go through Europe or Asia before delivering to the U.S. Exporters are made to pay unnecessary transport costs just because the U.S, accordingly for security reasons, has not accredited some of its airlines to fly directly to Africa. The persistent labeling of Africa as an insecure continent have continued to make direct roots as not worthwhile investment ventures.
  9. There is limited collaboration between trade facilitating institutions in Africa and their counterparts in the U.S. For example on issues of sanitary and phytosanitary standards, the U.S food and drugs must accredit related products before they are imported into the U.S. There is however not much collaboration with the equivalent institutions in Africa to ensure that the requirements are adhered to and that the accreditation process is fast-tracked. This is also true with customs agencies as far as issues of tariffs and rules of origin are concerned.     
  10. Immigration visas to the U.S remain to most costly and unfriendly for business. The requirements and procedures involved do not necessarily promote movement of business persons from Africa to the U.S. As long as business people are not allowed to easily move to the U.S, there is no way that U.S-Africa trade and investment will improve.
The need for Africa to maximize from the U-S-Africa Summit

In a nutshell, African leaders will need to reflect on these and others issues in their engagement with the United States during their first ever US-Africa Summit. Africa must rise up to the occasion and call for terms of engagement which will promote mutually beneficial US-Africa trade and investment relations. It is important for Africa to move to the Summit with one voice and position on their expected outcomes. The U.S should be made to understand that there are now many world trade and investment players and that if they, the U.S, do not provide favorable terms, then there will be options for Africa in promoting its trade and investment relations with third parties. Africa has showed that it can emerge and so, this should be the opportunity for the continent to influence global economics to its advantage.

Thursday, March 20, 2014

The U.S-Africa Summit: An New Effort to Keep Meaningful Trade and Investment Relations Between the Parties

The United States of America will host the first U.S-Africa Summit on 5-6 August 2014 in Washington DC. The U.S wishes to use the Summit to strengthen ties with Africa, the world’s most dynamic and fastest-growing continent. The Summit will build on Obama's trip to Africa last year and will focus on enhancing the U.S-Africa trade and investment relations, cooperation on security and ensuring democracy in the territories of the parties.

In hosting the Summit, the U.S joins regions the likes of EU and Japan which have held such high level meetings before with African leaders. As Obama's administration has observed, Africa is increasingly growing into economic power house and is attracting and shifting the focus of the hitherto global economic powers. China has also changed the landscape and lenses through which the west looks at Africa. China is currently the single largest bilateral source of annual foreign direct investment (FDI) in Africa’s 54 countries. China’s investment in Africa of various kinds exceeds $40 billion, among which $14.7 billion is direct investment. In addition to investments, China's aid to Africa is almost free of conditionalities and is directed mainly to physical and productive infrastructure. Africa is, therefore, slowly turning to China something that is, to the west, a worrying development.

The west had until now capitalized on its aid and unilateral offers for trade preferences (the likes of AGOA and EBA) in attracting loyalty from African countries. On the basis of the existing or prospected aid, Africa assured investment deals and exported raw materials to the west. With Africa growing out of this economic doldrums end now beginning to influence the global economics, the west is worried and is changing strategies to ensure that either the status quo is maintained or if the change is inevitable, then it should remain in their favour.

In light of the above, the U.S has embarked on the process of reviewing the AGOA in order to ascertain its relevance and possibly refocus and align it with the current dynamics in Africa. In this regard the United States Trade Representative (USTR) launched fours studies in 2013 aimed at informing the U.S on how to move forward with the AGOA come 2015 and generally in focusing the U.S-Africa Trade and investment relations.

The first study will assess the trade and investment performance of the AGOA and the impact it has had on the economies of sub-Saharan Africa. More importantly to the U.S, the study will review the the AGOA against the existing current or potential sub-Saharan African reciprocal trade agreements and the objectives of AGOA. This will certainly be a big factor in the reauthorization of the AGOA. What is clear here is that the study will asses the implications of the Economic Partnership Agreements the European Union has or is negotiating with Africa against the non reciprocal unilateral arrangements (such as the AGOA) which until now, has been the basis for U.S-Africa trade and investment relations.

The second investigation, will assess the economic effects of providing duty-free treatment for AGOA imports on U.S. industries and consumers. In other words, the study will asses whether the AGOA is enabling access to raw materials and or promoting industrialization in the US. The study may also assess whether the AGOA optimizes or undermines the welfare of the U.S consumer. If the reverse is true, that is, if the AGOA is making the U.S consumer worse off and is promoting competition with U.S industries thereby impacting on the employment capacity of the country, then its reauthorization might be brought into question.

The third investigation is aimed at identifying possible changes to the rules of origin under the AGOA with the potential to increase exports from Africa. The issue here to note is that the U.S will be looking at how the AGOA rules of origin are promoting increased exports from Africa. Looking closely at this study together with the first two, one begins noticing that interest of U.S will be at the forefront in the  reauthorization of the AGOA.

The fourth investigation will assess the impact of the EU-South Africa free trade agreement on U.S. exports to South Africa.This last study tells it all. The colonial masters are it again. The scramble for Africa has been relaunched to counteract the struggle for an economic independence which seems to be a new resolve by the African countries.

The dynamics in Africa have changed and the strategies of engagement are also changing. EU-Africa Summit will be held in April 2014. The first ever U.S-Africa Summit will be held in August 2014. China and Japan also began this kind of engagement with Africa in the last decade.

To understand what is behind the new economic and power strugles, one needs to read through the declaration of ministers in charge of foreign affairs, foreign trade and international co-operation at the end of their conference on China-Africa Cooperation held in 2000. One of the paragraphs reads "We reaffirm that the injustice and inequality in the current international system are incompatible with the trend of the times towards world peace and development, hinder the development of the countries of the South and pose threats to international peace and security. We stress that the establishment of a just and equitable new international political and economic order is indispensable for the democratisation of international relations and for the effective participation of developing countries in the international process of decision-making."

Okay, there you have it, Africa has come out of the political and economic doldrums and this is threatening the global stability. All the powers seem to me going back to the drawing board but this time round Africa is being invited to the table. The question remains, will Africa come out the winner?

Friday, February 28, 2014

EAC and U.S Experts Conclude Consultations on Trade and Investment Partnership in Burundi

The East African Community (EAC) and the United States of America (U.S) engaged in an exploratory meeting on the proposed EAC-U.S Trade and Investment Partnership from 12-15 February 2014 in Bujumbura, Burundi. The meeting discussed the draft text of proposed Investment Treaty and approaches to the cooperation under the Trade Facilitation, TBT and SPS, Capacity Building and Commercial dialogue components.

The technical experts engaged in the EAC-US exploratory meeting made comments and clarifications on the terminologies and derogatory provisions in the proposed text for negotiations. Accordingly, both Parties are still consulting on how to treat terminologies "like circumstances" as used in the National Treatment and MFN provisions; "Customary International law" as a minimum standard that the Parties should apply in ensuring fair and equitable treatment to the covered investment; "prompt" in relation to compensation of expropriated investments; "indirect expropriation" in relation to what would constitute actions of Government which in turn would result into in direct expropriation; and "Senior Management" in the context that Parties should not condition an investor to employ a person of a particular nationality in the senior management level.

The EAC-US meeting discussed examples of some of the non-conforming measures that can be derogation from the application of the provisions on National Treatment and Most Favored Nations, performance requirements and senior management obligations. The meeting looked at three areas as some of the possible categories in which such measures can be derogated: (i) Existing policies, laws and regulation that would contradict the Treaty, (ii) the sectors which either Party would want to protect for purposes of public interest and (iii) those relating to the promotion of financial prudence in the economy.

The parties continue to also consult on other provisions in the draft text for EAC-US Investment Treaty including: limitations on performance requirements; denial of benefits to shareholding investors originating from third parties, subjecting taxation to indirect expropriation provision and exit clauses on the duration and termination of the Treaty, and the dispute settlement mechanism, among others.
Regarding the partnership on Trade Facilitation, Sanitary and Phyto-sanitary Standards and Technical Barriers to Trade, the EAC-U.S consultative meeting observed that there are in place related agreements at the WTO which can be used sufficiently to promote the cooperation between the U.S and the EAC.

The Parties agreed to consult on using Action Plan approaches under which the U.S would extend capacity building support to the EAC Partner States to enable them comply with their obligations under the related WTO agreements. The EAC-U.S consultative meeting observed that capacity building support by the more developed countries to developing countries is envisaged by the WTO agreements. Both parties are to continue with internal consultations on the matter.

As part of the capacity building partnership, the EAC-U.S consultative meeting reflected on the Obama Trade Africa initiative, the East Africa Trade and Investment Centre (TIC) in Nairobi and USAID partnership with Trademark East Africa. The parties are however yet to harmonize position on specific outcome of the negotiations under the Capacity Building component. While the EAC seems to be insisting on an outcome that includes a mutually agreed mechanism of delivery of support under the capacity building component, the U.S which is the target donor does not seem to be taking the same direction.

Monday, December 30, 2013

The U.S. Lawmakers and Trade Policy Officials Launch Debate on the Extension of AGOA

The U.S lawmakers and trade policy officials have started debating the renewal of the African Growth and Opportunity Act ( AGOA) which is due to expire in 2015. The AGOA is a unilateral system of trade preferences that allows United States to import over 6500 different types of goods produced in Sub-Saharan Africa  on duty-free quota free basis. The AGOA was originally designed for eight years; from 2000-2008 but was later extended to 2015.  

A group of U.S. lawmakers and trade policy officials are examining the efficacy  of AGOA in increasing investment, trade and job growth between African countries and the United States. Among the group lawmakers and trade policy officials are; bipartisan legislators-House Foreign Affairs Committee, the Senate Foreign Relations Committee, the House Ways and Means Committee and the Senate Finance Committee.

Along the same lines, the U.S. Trade Representative Michael Froman has asked the U.S. International Trade Commission (US ITC) to conduct four studies related to AGOA to inform the policy debates on the renewal of the AGOA. The studies are examining the performance of the AGOA since its launch in 2000. Consistent with his views expressed at the 12th AGOA Forum held in Ethiopia, the USTR is specifically interested in the; impact of AGOA on the business and investment climate in sub-Saharan Africa, possible changes to the AGOA Rules of Origin to promote regional integration as well as the likely impact of the EU-Sub Saharan Africa Free Trade Agreement on U.S. exports to Africa. A public hearing is scheduled for 14th January 2014 at the US ITC in Washington, D.C. Interested parties are expected to submit comments by January 21, 2014.  

Meanwhile during the 12th AGOA Forum in Ethiopia, August 2013, the African Group called for extension of AGOA for not less than ten years. However history shows that the U.S has not operated the AGOA for a period of more than 8 years. Thus, extension of AGOA for more than 10 years seems to be far fetched.They also called for the revision of the AGOA rules of origin to reflect the development and capacity perspectives in Africa. The African group also called for extending the the third country fabric to run for the same period of the AGOA. But U.S is aware that that simpified rules of origin and a continued 3rd country fabric arrangement could provide an opportunity for the more advanced Asian economies to route their products to United States through Africa under the auspices of AGOA. 

At the same 12th AGOA Forum, the USTR  urged the parties to reflect on the benefits of a reciprocal relationship in form of a free trade agreement like the Economic Partnership Agreement between Sub Saharan Africa and the European Union or the form of a trading arrangement Africa is pursuing with China. The dynamic global forces seem to indicate that world economic powers are shifting their strategy of engagement with Africa. The gift or donor strategy is being refocused and increasingly, reciprocity is being seen as the way forward. Reading between the lines, the extension of AGOA seems to be in balance.

In a nutshell, although the U.S is not expected to drop a formal trading arrangement with Sub Saharan Africa, it remains to be seen, what the Super Power will decide come 2015. The less likely outcome is the extension of the AGOA in its current form. It is also not likely that the AGOA objectives will be dropped. But Africa should prepare for some surprises, the most likely outcome may be an an extension of AGOA characterized by a movement towards a more predictable arrangement and not necessary devoid of reciprocal pressures. The interest of the U.S. lawmakers and trade policy officials seem to say it all. They seem to be positioning to answer the question; what strategy can the U.S use to remain with a competitive space for trade and investment with or in Africa under the new global dynamics?

Friday, December 20, 2013

EAC Partner States to Align their Export Development Scheme with the EAC Custom Union Laws

This week experts from the EAC are meeting in Burundi to discuss ways of aligning Export Development Schemes of the Partner States with the EAC Custom Union Laws; both the Protocol and the Customs Management Act.

The meeting is reviewing the the different laws, regulations and incentives that Partner States are implementing for Export Development with a view to harmonizing or aligning them to the Customs laws. Most important areas under review include compliance with the laws and regulations governing; the Export Processing Zones, Duty Drawback Schemes, Duty and VAT Remission Schemes, Freed Trade Zones, Industrial Packs, Special Economic Zones and Manufacturing Under Bond, among others 

Going through the presentation of the Partner States it was noted that most of them are already complying with the provisions on export development as provided under the EAC Customs Union Protocol and the Customs Management Act. However, it has been observed that Uganda has not operationalized the establishment of the Export Processing Zones. It was also noted that Kenya is not complying with the EAC Customs Management Act as regards to the duty and taxes payable on compensating products at the of import duty appropriate on the manufacturing bond. They two countries have been urged to comply with their regional commitments on export development.

The meeting has also noted the need for the EAC region to combine efforts on export development in order to harness the economies of scale on the basis of which, among other reasons, the region is integrating.  Some of the areas recommended for joint include, marketing, transport, joint investments, production enhancement mechanism and linking the value chains, among others


Tuesday, November 12, 2013

Empowering Border Communities through Modernization of Locally Shared Markets

This week experts from the EAC Partner States are meeting in Kagali Rwanda to develop a project for empowering border communities through modernization of locally shared border markets. The concept includes development and modernizing a border market in such a manner that communities of both borders will utilize the facilities.

The Border Market is expected to position border communities to benefit more from the EAC regional integration. Under the locally shared border markets, Government of EAC Partner States will ensure that the markets are modernised and relevant infrastructure is established. Interventions will also include enhancement of the capacity of the producers and traders along the value chains of the products traded across the borders.

Some of the players expected to directly utilize the markets are; border institutions, cross border traders, communities living at the borders, providers of business support services such as hotels and banks,  investors in storage and warehousing services, value addition processors and investors in social development services such as schools, health centers and recreation facilities, among others.

It is hoped that once the border market program is successfully implemented, it will transform communities living into meaning players in the regional economy. The border markets will also enhance intra-regional trade and reduce on the problem of foreign traders who penetrate and get deeper inland into a Partner State thereby disadvantaging the locals involved in the middle value chain of exports.

The borders which are expected to become mini-cities will also create employment opportunities which in-turn will reduce the problem of rural-urban migration by redirecting the labor force from the main cities of the Partner States to the borders.

Tuesday, October 8, 2013

EAC-COMESA-SADC Tripartite Trade Negotiations Forum Meeting in Entebbe 4-8 October 2013

The EAC-COMESA-SADC Tripartite Trade Negotiations Forum  (TTNF) concludes its one of the many rounds in Entebbe Uganda, today 8th October 2013. The TTNF is a forum of experts and senior officials of the on going negotiations for establishing an EAC-COMESA-SADC Tripartite FTA.  

Negotiations under this Entebbe round covered SPS and TBT, trade remedies and dispute settlement, tariff liberalization and rules of origin. The TTNF meeting made progress on a number of other areas save for tariff liberalization where a number of countries were not ready with the offers.  Only EAC, SACCU, Egypt and Mauritius had their tariff liberalization offers ready. However, the others were not ready and this curtailed progress on exchange of offers.   Hon Amelia Kyambadde the Minister of Trade Industry and Cooperative of the Republic of Uganda who officiated the meeting emphasized the need for the Member States to finalize negotiations in time before end of April 2014 as per the Tripartite road. The Hon Minister called on Member States to finalize their offers in order to allow negotiations to start and conclude in time.

Regarding the rules of origin, COMESA and EAC maintained their stand on having a Tripartite regime whose thresholds cover products in a general manner. SACCU insists on the rules of origin which are product specific. This seems to be a thorny issues that will derail the progress under this component of the EAC-COMESA-SADCTripartite FTA negotiations.   SACCU also made a number of reservations on certain areas the negotiations under the Trade remedies and called for further consultations. 

In general, the Entebbe  EAC-COMESA-SADCTripartite FTA negotiations made progress but the call for extended country consultations mainly by SACCU countries spearheaded by South Africa will undoubtedly delay the process.

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