EAC-US Begin Discussion on Trade and Investment Partnership, 26th July 2012, Arusha, Tanzania

The East African Community has begun consultations with the United States Government with a view to starting negotiations on the Trade and Investment Agreement (TIP). The negotiations of the EAC-US Trade and Investment Agreement are based on the Policy Strategy of Presidents Obama's Administration’s on Sub-Saharan Africa which was released on June 14 2012, The Strategy outlines four main pillars which include.

1. Strengthening democratic institutions,
2. Promoting economic development,
3.  Ensuring regional security, and
4. Continuing to improve development assistance initiatives. The strategy makes clear that the focus of Obama’s plan lies in the first two pillars.

The EAC-US Trade and Investment consultation meeting which began on 26th July 2012 in Arusha, Tanzania is in response to the directive of EAC Ministers responsible for trade and the United States Trade Representative in a Joint Statement released on June 14, 2012 on the sidelines of the AGOA Forum between the United States and the East African Community (EAC) Partner States, in Washington, D.C. The Statement recognizes the importance of strengthening the economic links between the United States and East Africa, by pursuing a new Trade and Investment Partnership between the United States and the East African Community. 

Through the EAC-US Trade and Investment Partnership the parties will build on the foundations of our existing trade and investment relationship, including the African Growth and Opportunity Act (AGOA), and the U.S-EAC Trade and Investment Framework Agreement (TIFA) to provide new business opportunities to U.S. and EAC firms by reducing trade barriers, improving the business environment, encouraging open investment regimes, and enhancing our two-way trade.

In the Joint Statement the parties agreed to explore under the new umbrella partnership; a regional investment treaty, a trade facilitation agreement, continued trade capacity building assistance, and a commercial dialogue. It hoped that these agreements and other activities that they will pursue will help to promote EAC regional integration, economic growth, and expand and diversify EAC-US Trade and Investment. They could also serve as building blocks towards a more comprehensive trade agreement over the long term. The Joint Statement directs the respective technical teams to begin consultations on each of the agreed areas of the EAC-US Trade and Investment Partnership.

In the meeting, the parties proposed an ambitious timeframe for regular engagements at all levels which will include Experts, Senior Officer and Ministerial levels as indicated in the table below.

	EAC Side	US Side
1.	EAC Ministers led by Trade Ministers	USTR
2.	Permanent Secretaries (Senior Officer)	Assistant STR Africa Affairs
3.	EAC Experts Officials	US Expert officials

The US team expressed interest in understanding the state of play on the trade and investment regimes in the EAC Community. A number of areas were highlighted for consideration in the development of the Investment Treaty whose main objective is to increase FID to the EAC region. They include provisions on;

1. National Treatment and Most Favoured National principals as applied at the WTO
2. Fair and Equitable treatment
3. Free transfer of capital
4. Obligation on compensation in cases of expropriation
5. Transparency especially on publication of policies
6. Allowing advance comments on new policies
7. Rights of investors on recruitment of personnel
8. Performance Requirements, and
9. Dispute settlement mechanism

The Investment Treaty will allow policy space for either party to act in a manner that contravenes the agreed terms for example in situations where there is a security or a balance of payments issue. It will not necessary include sector specific provisions. Negotiations will follow after initial consultations on the investment regimes operations in the jurisdictions of the two parties. The consultations will then highlight the areas for negotiations as part of the process to developing the Treaty. The meeting agreed to hold regular technical committees meetings in order to generate enough workload for the Ministers.

On Trade Facilitation the US indicated that they are interested in improved customs processes and procedures. They listed the following areas as the areas to be negotiated

1. Publication and Transparency
2. Simplified procedures and faster release of goods
3. Expedited Shipments
4. Appeals
5. Advance rulings
6. Simplified procedures and guarantees on transit goods
7. Implementing a Leniency system on the Penalty regime
8. Exchange of information on customs procedures
9. Elimination of consular fees and formalities

The EAC on its part expressed interest in negotiating additional areas such as;

1. The simplification of SPS and Rules of Origin to exporting to the US,
2. Removal other non-tariff barriers to exporting to the US
3. Cooperation on development and implementing IPR regime within the EAC
4. Trade infrastructure development 

Regarding Capacity Building, the US shared with the EAC the areas the possible areas support relating to trade and investment. These include;

• Customs Union: Harmonizing Customs Regulations, evaluations, clearance audit and customs interconnectivity, harmonizing standards on staple foods, and supporting to member states on harmonizing SPS
• Common Market: development of efficient payment systems including electronic cross border payments, integrated border management, implementation of the simplified certificate of origin, development of a web based trade statistical data base( www.rfbs.in ), and financial market integration 
• Regional Infrastructure: development of financial regional infrastructure, ICT development, technology transfer and infrastructure investment as a whole
• Regional Productive Structure:  Integrating staple foods into the regional markets through improved technology, provision of inputs and increasing private sector investment in the region. Support is also directed to cleaner energy and global climate change as part of the effort to promote sustainable natural resource management
• Support to EAC Institutions: Support has been support to Lake Victoria Basin Commission on the water trans-boundary water for biodiversity in the Mara-River Basin Initiative. The US Government also supports the safe skies for Africa including the EAC on establishing Civil Aviation Safety and Security Oversight Organization
• Training on policy development, SPS, codex etc

On Commercial dialogue, the meeting noted that the proposed consultations process will serve as a cornerstone of linking, informing Governments on private sector priorities. The forum will help in linking the private sector agenda to Government programs. It is proposed that the dialogue should focus on promoting effective public-private partnership (PPPs), which are a critical mechanism for attracting greater U.S. investment, to the EAC region, especially for infrastructure projects. The dialogue will implement its activities through: targeted sector trade missions; coordinated programs between U.S. agencies and their EAC counterparts in conjunction with trade associations, regional and diaspora chamber activities and events.

African Union Summit Concluded With Commitment on Increasing Intra-Africa Trade, Addis, 16 July 2012

African Union Summit concluded in Addis Ethiopia on 16 July 2012, with African Leaders committing on the theme of the Summit “boosting intra-Africa trade”. The Summit which elected Ms Nkosazana Dlamini-Zuma of South Africa as Chairperson of the African Union Commission Mr. Erastus Mwencha of Kenya to be the Deputy, noted the need infrastructure development with a view to linking up the continent. The Summit also emphasized the principal of progressive integration and allowing the regional blocs to consolidate their integration goals as part of the process promoting intra-Africa trade. 

One speech was particularly spot on. This was the speech by the President of Uganda, H.E Yoweri Kaguta Museveni. The President noted that intra-Africa trade is low because the continent is not linked. He noted that the construction of the hardcore surface roads and railways which link the East Africa region to Kisangani, Juba and Addis Ababa is must. 

On energy, President Museveni reminded his counterparts that Africa generates very little energy which cannot enable the continent improve intra-Africa Trade not even meeting its minimum industrial development goals . He noted that the sub-Saharan countries excluding South Africa produce only 28 GW of electricity equivalent to the output capacity of Argentina or just 2 more GW of what is produced by Norway. President Museveni said that whereas countries like the US have a Kilowatt Hour (KWH) Per Capita of about 13000, some countries in Africa only have a KWH per capita of 12. He also compared Africa with some of the emerging economies such as Singapore whose KWH per capita is 7948, South Africa 4532 and Libya 4170. The President noted that although Uganda has achieved the KWH per capita of 200 up from 28, this is not yet enough to enabling the country attain industrial development.

President Museveni called on Africa to wakeup and address infrastructural constraints which he said are hindering intra-Africa trade development. The President called on the friends of Africa to support the continent in building and enhancing infrastructure rather than just talking about other small things such as homosexuals noting that “even the homosexuals need electricity”. The President also highlighted the need for African Governments to improve on connectivity especially in the area of air and maritime transport which he said that their contribution to intra-Africa trade has been insignificant. He also observed that deficiencies in the communication sector are also hindering intra-Africa trade development noting that currently it easier and cheaper for business persons to call their European counterparts than those in Africa, a situation he said deos not facilitate intra-Africa trade.

The meeting also reviewed the progress in achieving the Millennium Development Goals noting that although some progress has been made especially in regard to poverty reduction, education and emancipation of women and youth, the continent has not done well in other areas.

On the conflict situation in Africa, the African Leaders condemned the acts of Al-Shabab in Somalia, the LRA in East and Central Africa, the rebels in DRC and Mali. The leaders resolved to take action on the rebels in Mali. The Summit recognized the efforts of the AMISON, the African Union Mission in Somalia. Countries such as Uganda, Kenya, Burundi and Ethiopia were particularly appreciated for their efforts in ensuring peace and security in Somalia. The leaders also called on Sudan and South Sudan to observe peace and cease hostilities. 

G-20 Governments Demonstrate Leadership-A call in the Interagency Report

Formed in 1999, the G-20 represents 85% of the world’s economy and two-thirds of world’s population. The G-20 aims at providing developing countries with a better position to influence the dynamics of the global economy. Now, the Interagency Report on “Sustainable Agricultural Productivity Growth And Bridging The Gap For Small-Family Farms” recommends that G20 Governments should “demonstrate leadership in multilateral negotiations. The  Interagency Report which was published on 12 June 2012 by a group of multilateral organization (Bioversity, CGIAR Consortium, FAO, IFAD, IFPRI, IICA, OECD, UNCTAD, Coordination team of UN High Level Task Force on the Food Security Crisis, WFP, World Bank, and WTO), emphasizes the need for G-20 need to demonstrate leadership in order to strengthen international disciplines on all forms of import and export restrictions, as well as on domestic support schemes that distort production incentives”.  

The  Interagency Report, which was used as a key input in the discussions of the G20 Agricultural Group, was compiled in response to the request to international organization by the G20 President early 2012 in Mexico to examine practical actions that could be undertaken to sustainably improve agricultural productivity growth, in particular on small family farms. The  Interagency Report states that “substantially reducing trade and production distorting domestic support, improving market access opportunities, eliminating export subsidies and strengthening the disciplines on export restrictions will improve the enabling environment for investment and productivity growth”.

The Interagency Report also notes the critical role played by the WTO’s Sanitary and Phytosanitary Agreement in contributing to the reduction of production losses due to pests and diseases, and the need to support capacity building in this field, including through the Standards and Trade Development Facility.

Africa Needs Development Infrastructure Rather than Transit ones

African countries do not lack infrastructure, rather they lack what  i refer  as targeted production and trade development infrastructure. I know this might seem confusing but come to think of it, is there  any country without basic roads or without airports? I am yet to find one. All the countries i have visited do have at least basic infrastructure.

So then what is the problem? why is it that infrastructure remains part of the supply side constraints to most of the African countries. The problem is in the purpose and why the existing infrastructure was established in the first place.   Actually most of the roads are used for transit of persons from one end to another. They are not used as development infrastructure.

A development infrastructure to me, as that one which harnesses forward and backward linkages in the production process. In other-words, the roads should actually carry consignments of course together with the people. But the case in most of the African countries is a reverse. Most roads carry people without consignments. Where they carry consignments, it is one way, no return journeys are made with goods. To me such a road is not a development road, it is just a transit road.

A similar scenario pertains to other modes of transport, the rails, air and water transport. They are simply used for transit but not for development.

My call to all African Government is to think of utilizing infrastructure for development rather continuing to think we do not have relevant infrastructure. Just anchor at one end of the road a value addition project and at on other end a project that provides inputs to the one of value addition. Make sure that in between the road, there are other investment that enhances the projects either by supplying to them or by utilizing their outputs. This way the concept of development infrastructure will be meaningful. This way we will even be able to estimate the benefits of the road we intend to construct. By the way, how do the planners estimate the benefits of the roads constructed due to political pressures rather than an economic demand ?

Exports of Commercial Services from Africa Remain far Below that of Other Economies

Exports of Commercial Services from Africa have grown at an average of 9% from 2007 to the third quarter of 2011. However, Africa’s exports of commercial services remain far behind that of other economies. An analysis of the latest data from the WTO, shows that world exports in commercial services increased by 12.9% in the third quarter of 2011 compared to 10.9% in 2010 (balance-of-payments basis, current price, not seasonally adjusted). On average the growth in Africa was 7.8% by the third quarterof 2011 from 10.9 of the year 2010. The highest growth on exports of commercial services was recorded in Europe at an average of 15% by end of the third quarter of 2011 down from 2.7% in 2010. In absolute terms exports of commercial services from Africa were $45,835 million by end of the third quarter of 2011 compared to $67,459 million which was recorded for the whole year of 2010.  

Please read more on Exports of Commercial Services from Africa

Liberalization of Trade in Services without Effective Regulations Could Increase Capital Flight in Africa

Liberalization of trade in services could lead to increased capital flight in African which in-turn could curtail the developments efforts. Capital flight I am addressing here is the movement of money from investments in one country to another in search of better returns or as a way of avoiding country’s risks such as high inflation, overvaluing or undervaluing of exchange rates, political turmoil, very low or very high interest rates. Unlike investments in the production of goods, trade in services does not require capital intensive investments. Because trade in services includes transaction with a large cross section of society, if the capital account is not well managed, the resulting capital flight could lead to loss of investments especially in infrastructure, plant and equipment, and human capital. Given that capital is so scarce in Africa than in developed countries, the impact of capital flight is likely to be higher in Africa than in the West.

Taking an example of my country in as far liberalisation of trade in services is concerned, out of 23 commercial banks, only one is indigenous and 50% of market share is in the hands of the three foreign banks.  In the insurance sector, three foreign companies out of more than 27 in the country control the market.  The airline industry is fully liberalized with more than 23 airlines serving both the domestic and international routes and out of this only 3 of are indigenous.  All the five main telecommunication companies serving 8.555 million are not indigenous.   A similar situation exists in the other sectors such the retail chains, construction services, foreign exchange bureaus and in hotel and tourism sectors.     

The above situation presupposes that my country is doing well on foreign direct investments in the area of trade in services.  But we also run an open capital account implying that investor are free to transfer their returns to investment back to their countries or to other countries where they feel that they can fetch more. Although an open capital account is favoured because it incentivizes and attracts foreign direct investment, in the absence of an effective regulation on how much should be repatriated, my country may find itself being used just as a market and a center for accessing inputs. It could end up being used to provide labour, utilities and market to the service providers but without them contributing much to growth and development of the country. An open capital account along with liberalization of trade in services could increase capital flight and create a situation where the returns to investment benefit other countries which are the source of the investment, that is, the developed or more developed developing countries. 

Like the name presupposes, people require services in their day-to-day lives and therefore trade in services is a process of satisfying that need.  But unlike trade in goods, trade in services tends to involve a clientele of a bigger portion of society. In a situation where the majority people are clients to a service provider, failure to plough back returns to investment can result into disenfranchising the population and thus derailing poverty reduction efforts.  

Africa is already in worse situation in as far as capital flight is concerned and therefore there is need to curtail this practice.  James K. Boyce and Léonce Ndikumana estimated that between 1996 capital flight from Africa totaled more than $193 billion . Dev Kar and Sarah Freitas in their report on “Illicit Financial Flows from developing countries” indicate that over the decade ending 2009 capital outflows increased at least by 10.2% over the decade with Africa’s rate growing the fastest at 22.3%. Dev Kar and Devon Cartwright-Smith  in their report on “Illicit Financial Flows from Africa: Hidden Resource for Development” show  that  over  the  39-year period Africa lost an astonishing  US$854 billion  in cumulative capital flight—enough  to not only wipe out the region’s total  external  debt  outstanding  of  around  US$250  billion  (at end-December,  2008)  but potentially  leave  US$600 billion  for  poverty  alleviation  and economic growth. Instead, cumulative illicit flows from the continent increased from about US$57 billion in the decade of the 1970s to US$437 billion over the nine years 2000-2008. In other words, Africa is a net creditor and not a debtor of the rest of the world as we are made to believe.  

But being a net creditor does not help because the debt is never going to be paid back. The solution therefore is to apply prudential measures and effective controls over the capital account. There is need for effective capital management techniques to help stop capital flight. In the face of liberalization of trade in services capital flight seem to be increasing instead of reducing.  According to Kari Heggstad and Odd Helge Fjeldstad capital flight in Africa is mainly done through methods such as; carrying-cash-out of the country and change it into other currencies abroad,  smuggling of money through easily convertible valuables across borders such as precious items (like gold, silver, art and jewellery), transfer pricing where the foreign buyer puts the difference in the price which is then put on foreign bank account in the exporter’s name, transferring money overseas through commissions and agent fees paid by foreign contractors into foreign bank accounts of residents and bank transfers from a local affiliate of a foreign institution to a designated recipient abroad . All these are trade in services related activities and so there is need to regulate against these methods with the aim of reducing capital flight and its effect. Africa must fight capital flight if the continent it to attain the desired economic development.

An African Country needs an Economic or Commercial Diplomacy Strategy

Pursuant to the Policy guidelines a country needs to establish a strategy on economic diplomacy that will help it to optimally harness available international market opportunities. A number of countries in Africa are signatories to a number of trade and trade-related agreements and are also beneficiaries of non-reciprocal unilateral trade preferences which provide the country with varying levels of improved market access opportunities into the respective markets. These include the East African Community Customs Union, the COMESA, ECOWAS, SADC, IGAD ACP/EU, EPA Frameowrk Agreements, WTO, and the AU. The non-reciprocal unilateral trade preferences are Everything But Arms (EBA) by the European Union, the African Growth and Opportunity Act (AGOA) of the United States and offers by Canada, Japan and China under the Generalized System of Preferences (GSP).

The Economic or Commercial Diplomacy Strategy involves activities designed to influence foreign government policies and regulatory policies that affect global trade and investment (through, multilateral trade negotiations, trade consultations and dispute settlement). Activities also involve Missions rendering government services to the business community which are aimed at developing beneficial international business ventures[1].

Government through the Ministry responsible for Trade in close collaboration with the Ministry of Foreign Affairs through the Economic or Commercial Diplomacy strategy should ensure effective management of the country’s external trade relations with foreign authorities and publics, as well as the process of negotiations and networking. Economic diplomatic activities should take place at both international level (bilateral, regional or multilateral) or within the country by enhancing with government engagements with the diplomatic missions accredited to the home country. Read more on why an African Country needs an Economic or Commercial Diplomacy Strategy