BIZweek n°216 2 nov 2018
BIZweek n°216 2 nov 2018
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  • Parution : n°216 de 2 nov 2018

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  • Editeur : Capital Publications Ltd

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VENDREDI 02 NOVEMBRE 2018 BIZWEEK ÉDITION 216 The economic benefits of integration must trickle down to the masses and not be concentrated among a few countries, a few big firms and a few population groups. The continent needs social redistributive policies and effective competition policy frameworks to ensure this. But for African enterprises to benefit from the integration process, they must first build competitiveness relative to non- African imports to be able to survive and expand on the regional markets. African enterprises must overcome their « missing middle » dilemma that is address the constraints that prevent them from surviving and growing into more productive firms. Competitiveness challenges of enterprises in Africa range from the basic such as improved access to modern, reliable and affordable energy, access to improved road and transport infrastructure, to access to long-termcredit, access to latest technologies including digital and access to efficient government support services in the formof business facilitation and institutional support. The AU Action Plan for boosting Intra-African Trade (BIAT) has already diagnosed the factors that inhibit competitiveness and trade among African firms. It is built around 7 clusters  : trade facilitation, trade policy, productive capacities, traderelated infrastructure, trade finance, trade information and factor market integration. The viability of the AfCFTA necessitates a range of strategic, complementary policy actions in multiple areas, and the accelerated implementation of several AU initiatives such as the Accelerated Industrial Development of Africa (AIDA), the Program Infrastructure Development for Africa (PIDA) and the BIAT. » Do existing agreements, such as the Economic Partnership Agreements (EPAs), jeopardize development in this area ? The Most-Favored-Nation (MFN) clause in Economic Partnership Agreements (EPAs) require African countries to extend to the EU the same preferential treatment they give LA TOUR to any other major developed or developing economy other than the EU. The MFN clause has become a contentious issue in EPA negotiations, with some African countries or RECs objecting to its inclusion. The MFN clause restricts the preferential treatment that African countries may give to strategic non-African trading partners outside the EU. A potential benefit of this is that it can help to avoid a « race to the bottom » in terms of preferential treatment granted by African countries to non-African trading partners and, by so doing, avoid undermining the AfCFTA. For the larger the market concessions granted by African countries to the EU and non- African trading partners during negotiations, the smaller the preferential margin that African countries can bestow on each other. For example, goods imported from the EU that are subject to tariff liberalization in the EPA will compete with imports from the rest of the continent, subject to the same liberalization. The range of goods subject to liberalization in the EPA and the magnitude of tariff liberalization therefore matter for the AfCFTA as it determines the preferential margins African countries can grant to each other in those same tariff lines. Negotiations as to what constitute sensitive products exempt from tariff liberalization in EPAs matters for the policy space that African countries have to pursue their local agricultural and industrial development, without which benefits from the AfCFTA may be slim. A crucial factor relates to how rules of origin are framedwithin the AfCFTA as opposed to the EPA. Rules of origin basically determine the conditions under which importing goods qualify for preferential treatment. African countries need to ensure that the Rules of Origins that their African trading partners are subject to are no more restrictive than those that their EU trading partners are subject to. On another note, a usual claim of the EU is that the EPAs are meant to serve as building blocks for the AfCFTA. Development packages negotiated under the EPAs could indeed support the regional integration processin Africa, to the extent that these packages provide technical assistance to build capacities among African trade policy makers and contribute to relieving some of the binding constraints hindering intra-regional trade in Africa such as issues related to trade facilitation, trade logistics, access to energy, informal economy, home-grown innovation and technology transfer among others. » Some countries have not yet signedup to join the AfCFTA, or they have done so after much hesitation - this can be attributed to the fact that African countries are experiencing different levels of economic development, or that they depend on tariffs to increase their national revenues. What impact will the liberalization of their businesses have on the national income ? Increased trade liberalization caneither raise or reduce their national incomes depending on two effects (price and quantity) ; on how the gains from the regional integration process are shared ; and whether mechanisms exist to redistribute such gains across countries. On one hand, lower import tariff rates have a negative price effect in the sense that lower tariffs will reduce tariff revenues for the same quantity of imports but on the other hand, if more trade is created, the overall result could be higher tariff revenues due to a positive quantity effect. The more successful African countries are at creating trade through the AfCFTA, the lesser will be the impact of the AfCFTA on their domestic revenue base. However, regional integration is likely to create winners and losers and appropriate compensatory mechanisms, akin to those that exist in the EU, need to be designed and implemented to ensure a more equitable distribution of gains and benefits among countries. The UNCTAD Economic Development in Africa Report (2013), for instance, recommends the creation of a Regional Integration Fund, financed in part by large resourcerich countries to support the development of productive capacities in low-income countries such that the latter can benefit from the regional integration process by exporting more to their African neighbors. While it is true that intra-African trade liberalization can erode the domestic revenue base of low-income countries, nevertheless there is also the other side of the coin to consider, which is that intra-African trade liberalization opensup new markets for low income countries to tap into and increase their export revenues. It is crucially important in that respect for low income countries to accelerate efforts at economic diversification and structural transformation (shifting towards higher value-added activities and sectors) and implement their national industrial and agricultural development policies. » Should some countries expect further impacts, due to the establishment of AfCFTA, on economic disparity, industrialization or agriculture ? Agriculture is probably the largest untapped trade and development potential of the continent. Intra-African trade in agriculture is currently low and poorly diversified. There is significant scope for the region to develop agriculture and agro-processing and intensify intra-regional trade in this area. The AU Comprehensive Africa Agriculture Development Framework (CAADP) is a NEPAD programme that attempts to give greater policy attention and resources to the sector. Personally, I strongly believethat this is the sector where the greatest gains from intra-African trade can arise, that is trade in agricultural products and agro-processed foods. The development of agriculture through regional integration can lift many out of poverty especially in rural areas, where the majority of the poor live and allow low-income countries to benefit from the AfCFTA. There are significant linkages between agriculture, on the one hand and other sectors with trade and growth potential in Africa such as manufacturing and tourism. Recently, the President of the African Development Bank (AfDB), Akinwumi Adesina, a former Minister of Agriculture from Nigeria, recalled the strategic importance of agriculture in Africa’s overall development. Under a new initiative called « Technologies for African Agricultural Transformation (TAAT) », the African Development Bank is currently partnering, with the World Bank, the Alliance for a Green Revolution in Africa (AGRA), and the Billand Melinda Gates Foundation to mobilize US$ 1 billion to scaleup agricultural technologies 6 Suite en page 7
VENDREDI 02 NOVEMBRE 2018 BIZWEEK ÉDITION 216 across Africa. African countries must not neglect agriculture as a trade sector to develop, but the sector needs targeted public support such as investments in agriculture research, innovation, technologies and extension services to raise productivity in the sector. Small-scale farmers need public support. Industrialization has been identified as a priority for the continent. There is scope for boosting intra-African trade not only in final processed goods but also in intermediate goods as part of developing regional value-chains. Trade is becoming increasingly trade in value-added as opposed to final goods. However, building competitivenessin manufacturing is a big challenge for African firms, especially with the advance of the Fourth Industrial Revolution. Not all African countries will be able to penetrate the regional and global manufacturing market. To benefit from the AfCFTA, countries must pursue accrued economic diversification and economic transformation, including generating higher value-added from their services sectors (shipping, transport, financial, tourism, ICT etc). The UNCTAD Economic Development in Africa Report 2015 « Unlocking the potential of Africa’s services trade for Growth and development » contains policy recommendations in that area. One can imagine a few African countries positioning themselves as logistics and services hubs for other countries that specialize and trade more intensively in manufactures. It is critically important for African Least Developed Countries to participate and benefit from the AfCFTA. Free movement in goods and services has to be accompanied by freer movement of capital and persons. Intra-African trade has to be fed by increased intra-African investment and intra-African labor mobility. Regional leaders such as the largest African economies such as Algeria, Nigeria, Egypt, South Africa and Angola have to « pull » the bandwagon of economic integration forward, and create development opportunities for their neighbors, in terms of participating in regional value-chains and developing jointly spatial development initiatives as part of the developmental regionalism paradigm I referred to earlier. This will require coordination across countries in the formulation and implementation of development strategies and genuine political will for development solidarity across the continent. Economic disparities if accrued among countries as a result of the AfCFTA could bring political tensions to bear on the whole process. Compensatory mechanisms and aid packages from wealthier countries to LDCs may be necessary. However, such issues are not yet on the agenda. » In September, President Jean-Claude Juncker spoke about Africa’s needs, not charity, but a real and equitable partnership. Would it be an EU-Africa partnership for AfCFTA ? Figures compiled by the Financial Services Commission demonstrate that direct investment into Africa from Mauritius amounts to 31.8 bn USD as at 31 December 2017. This represents a significant increase from 15.5 bn USD as at 31 December 2012. By facilitating these investments, the Mauritius International Financial Centre (MIFC) has fostered economic growth leading to employment creation and poverty alleviation across the Continent. Key sectors attracting these investments include agriculture, fishing, information and communications technology, financial services and banking. The top 10 African countries which benefitted with the highest investment flows from the Mauritius IFC include South Africa, Nigeria, Democratic Republic of Congo, Mozambique, Kenya, Zambia, Côte d’Ivoire, Uganda, Tanzania and Namibia (representing more than 75% of total investment through Global Business Category 1 Companies into Africa). LA TOUR Mr Jean Claude Juncker, President of the European Commission, on 12 September 2018, on the occasion of his State of the Union Address, indeed declared  : « Africa does not need charity, it needs true and fair partnership. And we, Europeans need this partnership just as much. Today, we are proposing a new Alliance for Sustainable Investment and Jobs between Europe and Africa. This Alliance, as we envision it, would help createup to 10 million jobs in Africa in the next 5 years alone. I believewe should develop the numerous EU-African trade agreements into a continent-to-continent free trade agreement, as an economic partnership between equals. » This was a rather bold vision in terms of an EU-Africa partnership. But before putting the « equal partnership » cart before the « African development » ox, I think the EU should, in a first instance and over a long period, significantlyupscale its aid and technical assistance package to Africa to help the continent build the productive capacities it needs to be able to trade on « equal terms » with the EU, strengthen its private sector and enterprises, and foster national endogenous innovation systems. There can be no economic partnership among equals between two continents with such wide disparities in levels of development. What Africa needs is Special and Differential Treatment from the EU on the trade side matched byupscaled development assistance as wellas opportunities for Africans to study and train in the EU as part of human resource capacity building. » At one point of time, the creation of a Customs Union was raised. Is it still ongoing ? A free-trade area is a region encompassing a trade bloc whose member countries have signed a free-trade agreement (FTA). An FTA is a preferential arrangement in which tariffs among members are zero, and there are no quotas on goods traded among members, however each member state is free to set its own tariff rate relative to non-members. A customs union (CU) is an FTA but one in which all members set the same tariff rate on non-members, that is there is a common external tariff (CET). [CU = FTA + CET] A customs union therefore ensures that all African countries provide the same preference trade margins to non-African countries and usually represents a higher level of economic integration than an FTA. Trade economists have demonstrated that customs unions usually lead to higher levels of welfare than FTAs. The Abuja Treaty and the AfCFTA (Article 3d) does plan for the creation of a continental customs union in later stages ahead of the creation of a common market. A Customs union will ensure that there is a level playing field MAURITIUS INTERNATIONAL FINANCIAL CENTRE FDI into Africa doubles to USD 31.8 billion in five years « The Most-Favored-Nation (MFN) clause in Economic Partnership Agreements (EPAs) require African countries to extend to the EU the same preferential treatment they give to any other major developed or developing economy other than the EU. The MFN clause has become a contentious issue in EPA negotiations, with some African countries or RECs objecting to its inclusion. The MFN clause restricts the preferential treatment that African countries may give to strategic non-African trading partners outside the EU » when it comes to third parties exporting to African countries and that there is no race to the bottom among African countries in terms of say lowering import tariffs on a non -member in exchange for preferential benefits in some area. It also prevents strategic « game playing » by external partners. At a political level the absence of a « divide and rule » strategy on the continent on the part of external partners, encourages greater political cohesion within the continent. For example, if an African country were to lower its tariffs, on say Chinese manufactured imports by more than other African countries, this can undermine the regional goals of supporting local infant industry protection across Africa in manufactures. Customs unions imply greater cohesion among its members than an FTA. CUs also generate a higher level of intra-regional trade than FTAs. The AfCFTA is meant to lay the foundations for a Continental Customs union. Disclaimer  : Views and opinions expressed are the interviewee’s own and do not necessarily reflect the official position of the institution she is affiliated to. The Mauritius International Financial Centre (IFC), as an investment centre of choice, has been instrumental in driving quality investment in Africa, leading to sustained growth and prosperity across the Continent 7

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