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Will Europe Underdevelop Africa Again?

Will Europe Underdevelop Africa Again?
  • PublishedApril 1, 2012

Africa is in trouble. Its future is once again on the table, and it is Europe that holds the aces. In this analysis,  by  Prof. Chukwuma Charles Soludo, he argues why Africa should rise to the occasion and stop the iniquitous EPAs that Europe is ramming down African throats.

Although it is not the Berlin Conference of 1884-85, which balkanised Africa among 13 European powers to guarantee a source of raw materials and markets, the current ambitions under the Economic Partnership Agreements (EPAs), spearheaded by the European Union (EU) from Brussels, are the modern-day equivalent.

Many scholars, statesmen/women, civil society organisations and the ordinary people of Africa are certainly not aware of what is going on – how behind the scenes Europe is tying the hands of Africa and condemning it to perpetual underdevelopment via the EPAs. Those who care must rise to the occasion now, not wait for years and then write post-mortem analyses of doom and gloom. At issue in both Berlin and Brussels is whether or not Africa can be allowed latitude to conduct trade, industrial and development policies for its own development or for the development of Europe. A major difference is that the Economic Partnership Agreements (EPAs), unlike the Berlin Conference of 1884-85, will now be signed by free African people, under supposedly democratic governments, and in contexts where the African people again have neither voice nor choice.

Currently only about 10 out of 47 Sub-Saharan African countries have either signed or initialled the EPAs. Trade ministers of the affected regions – the African, Caribbean and Pacific (ACP) countries as well as African trade ministers and the African Union – have largely rejected the EPAs. Despite all of these, and the reported public protests in 20 countries against the raw deal, it seems all but certain that the EPAs will be rammed through.

In private whisperings, not many Africans or policymakers are happy with the deal but there is a certain sense of helplessness. Since 2002, the EU has been negotiating the EPAs with the ACP countries as a fully reciprocal trade arrangement to replace the previous non-reciprocal, preferential trade access of ACP countries to EU markets under the various LomÈ Conventions and the Cotonou Agreement governing the relationship between the ACP countries and the EU.

The argument, according to the EU, is that such preferential access violated Article XXIV of GATT, and that a World Trade Organisation (WTO) waiver that allowed such preferences expired in December 2007. Consequently, the ACP countries are divided into seven regions (with five in Africa) for the purposes of the negotiations. As advertised, EPAs are “set out to help ACP countries integrate into the world economy and share in the opportunities offered by globalisation”. The EU points to the “failures” of the previous preferential arrangements to “boost local economies and stimulate growth in ACP countries”. Thus, the new reciprocal arrangement is expected to remedy the failures of the past and usher the El Dorado to Africa.

Specifically, EPAs are expected to be “tailor-made” to suit specific regional circumstances; go beyond conventional free-trade agreements, focusing on ACP development, taking account of their socio-economic circumstances; and include co-operation and assistance to help ACPs implement the agreements.

The EPAs are also expected to open up EU markets fully and immediately (unilaterally by the EU since 1 January 2008), but allow the ACP countries 15 (and up to 25) years to open up to EU imports while providing protection for the sensitive 20% of imports. The EPAs are also supposed to provide the scope for wide-ranging trade co-operation on areas such as services and standards; and are also designed to be drivers of change that will kick-start reform and help strengthen the rule of law in the economic field, thereby attracting foreign direct investment (FDI), so helping to create a “virtuous circle” of growth.

The above sounds quite familiar, and anyone conversant with the Structural Adjustment Programme (SAP) documents of the 1980s will recognise the language.

Consequently, countries were rushed to initial interim EPAs before the end of 2007, and some went on to sign them later. These have mainly been single countries. Most of the sub-regions, as groups of countries, are still negotiating the regional EPAs (e.g. West Africa, Central Africa, SADC, etc).

Put simply, in order to continue to have access to European markets (on the terms that it had enjoyed for more than three decades), Africa is now required to eliminate tariffs on at least 80% of imports from the EU; in some cases, abolish all export duties and taxes; in others, countries can retain existing export taxes but not increase them or introduce new taxes; eliminate all quantitative restrictions; and meet all kinds of other intrusive and destructive conditionalities that literally tie the hands of African governments to deploy the same kind of instruments that all countries that have industrialised applied to build competitive national economies.

Under the WTO, least developed countries (LDCs) are not required to further reduce their tariffs (at least they have the choice to decide whether and when to do so), but EPAs require at least 80% of them eliminated. Indeed, Africa is being asked to comply with more stringent conditions than Brazil, India and China are required to meet under the WTO.

Almost all the flexibilities in policy choice that Africa and other developing countries won under the WTO are lost under the EPAs. Hitherto, the EU had also (in addition to the Cotonou Agreement) granted a special concession to all African LDCs – the “Everything But Arms” (EBA) initiative – allowing them to export duty-free to the EU. This was the EU’s equivalent of the US African Growth and Opportunity Act (AGOA) and African LDCs were not expected to reciprocate. With EPA, it means that the EBA is effectively dead. LDCs would have to provide reciprocal market access opening.

In addition, what the EU has failed to get under the WTO or issues that developing countries have rejected under the WTO are being foisted on Africa under the EPA. For example, the so-called trade-related issues (the Singapore issues) such as investment, competition, and transparency in government procurement, which are dead under the WTO, are being smuggled into the EPA. There are all kinds of studies on the possible effects of the EPAs on African economies. While it is fair to acknowledge that some of the presumed impacts (positive and negative) may be exaggerated, there is abundant evidence that the EPAs would be damaging.  Africa’s nascent industrial sector and agriculture (which is the mainstay of the poor) would be damaged by the new import armada and dumping, thereby exacerbating unemployment and poverty. In some countries, imports of sugar, dairy, poultry, rice, vegetable oil, etc, have already increased four-fold. Tariff revenues will shrink; premature and permanent opening up of service sectors including financial services leaves them open to the full hazards of the perennial global financial bubbles; and it will badly hurt intra-African economic integration. Africa would almost be consigned to be specialists in the export of raw materials.

African countries cannot use government procurement and contracts to prop up and promote domestic companies as European companies would be required to be given equal treatment in competition for government contracts. The list of the damages is long and cannot be detailed here. Some independent studies by the EU admit these damages, and one such study predicts that EPA could accelerate the collapse of manufacturing in West Africa. Perhaps that is why the EU is promising “aid for trade” – to sooth and compensate for some of the damages.

What is worrying is that it is difficult to point to any significant net benefit of EPAs to Africa. Already 33 out of 47 African countries are considered as LDCs and therefore qualify to export “everything but arms” to the EU, 100% duty-free and quota-free. So, what is the additional benefit to these countries?

For the remaining 14 African non-LDC countries, it is curious why the EU cannot accede to the request by the African Union to treat Africa as the world’s archetypical LDC region and grant the same EBA to all of the countries. Or, alternatively there are several proposals about benchmarking and sequencing the conditionalities and liberalisation to synchronise with the economic advancement of these remaining 14 countries. So far, these proposals have not been accepted by the European Commission even for discussion.

In any case, the EU’s peculiar interpretation of Article XXIV of GATT is a convenient one. The EU relies on this Article to argue that the WTO outlaws non-reciprocal, preferential trade to Africa under the Cotonou Agreement. But the same Article refers to trade in goods, and so why has the EU brought up all kinds of issues – services, investment, and procurement – into the EPA? Second, it must be noted that this Article, crafted in 1947, is itself still a subject of the Doha trade negotiations. Third, and to be honest about it, the WTO does allow for non-reciprocal preferential trade arrangements if the motivation for the EU’s action is to assist Africa.

Currently there are more than seven active waivers in the WTO provided to the US, EU, and Canada for preferential trade schemes for developing countries and transition economies. For example, the US has a waiver concerning its AGOA for sub-Saharan Africa. Recently, the EU has obtained two waivers to grant non-reciprocal trade preferences to poorer European countries, such as Moldova, and another one to the Western Balkan transition economies (Albania, Bosnia & Herzegovina, Croatia, Macedonia, Serbia, Montenegro, and Kosovo).

It is remarkable to note the EU’s argument for applying for a waiver to the WTO in respect of Moldova. According to the EU: “Moldova is the poorest country on the European continentÖ and does not have the competitive strength to take reciprocal obligations of a free-trade agreement with the European Communities” [see WTO document of 29 February, 2008]. But Moldova (the poorest European country with per capita income of about $2,300; life expectancy of 71 years and an adult literacy rate of 99%) is far better than most sub-Saharan African countries, and not to talk of much richer ones like Croatia with about $10,000 per capita income.

Compare this to much of Africa and even the 14 African countries dubbed “non-LDC” (Nigeria has a per capita income of about $1,200; Ghana $1,475; Kenya $1,125; and in all of these countries poverty incidence is at least 50%). Something does not add up here. According to the EU, granting non-reciprocal preferential trade concessions to fellow European countries that are richer than most African countries does not violate WTO rules, but doing so for Africa does. Africa remains the world’s poorest region and perhaps the last development challenge.

The EU needs to come up with a credible explanation. It needs to come clean. It does not have to apologise for it because after all, it can argue that it is the way the world works. From the time of slavery to the Berlin Conference, Africa has either been a source of free labour and profit or a source of raw materials and market. Only the dynamics change but the substance has remained. After all, nation-states hardly act out of love but in pursuit of self-interest. Africans appreciate that the global economy today is rumbling with new tensions and challenges. As the old economic powers are largely broke, the emerging economies with cash are roaring. The BRICs (Brazil, Russia, India, and China) are seen as the “new threats”. The global economic landscape is unravelling and recoupling in such a manner that would likely alter the economic, military, and geopolitical power in the medium term.

With these new pressures have emerged a demand for exhaustible natural resources and markets to sustain national security and prosperity. Since the major powers are no longer able to make use of the WTO as they wish to impose new rules on developing countries, they are now resorting to bilateral and regional policies and agreements to try and get their way.

There is a subtle war for “territories”, and neo-mercantilism is the name of the game. The US is locking in its neighbours in Latin America into one form of free trade agreement (FTA) or another. Africa has once again attracted attention as a theatre of the new struggle. China is accused by the West of either “invading” or “exploiting” Africa with its peculiar brand of “aid”.

In this circumstance, it could only be expected that the EU would move quickly to secure its possession – Africa. In the European Commission’s 2008 document entitled “The Raw Materials Initiative – Meeting our Critical Needs for Growth and Jobs in Europe“, presented to the European Parliament and the Council, one can get a clearer glimpse of the real impetus for the EPA. Trust the sophistication of the negotiators, it is being branded as an initiative to “help” or “develop” Africa. History repeats itself in a funny way. Recall that the advertised “benefit” to Africa of the Berlin Conference in 1884-85 that cemented colonisation was to “help in suppressing slavery”. The rest is history!

In terms of the technique deployed to coerce compliance by Africa, it is the old classic: divide and rule, and carrot and stick. The EU negotiates as a bloc, but ACP countries are divided into seven regions, sometimes not exactly matching the regional integration arrangements.

Even within the negotiating regions, each country is literally on its own: that way, it is easy to pick them off one by one. If Africa negotiates as a bloc, it may be difficult for the EU to get its way easily. The principle of the early bird catching the worm is applied to create what economists call the prisoner’s dilemma and thus make collective action difficult. Countries that have “signed” are allowed to continue to enjoy their preferential access to the European market while those that have not signed are under all kinds of threats. Those already in the privileged club do not want to lose their privileges and see themselves as ìspecialî while those excluded struggle to sign on the dotted lines. Different EPAs signed by different countries contain significant differences in terms of tariff lines, sequencing, and speed of liberalisation, depending on the negotiating capacity of the country/region. In some cases, the advisers to the negotiators of some African countries are Europeans!

Most countries still resist and now export under the EU Generalised System of Preferences (GSP); there is EBA for the LDCs; and the standard GSP for Nigeria, Congo-Brazzaville, Gabon and some Pacific countries. South Africa continues with its old free trade arrangement with the EU.

Even the GSP for some countries is now under threat. Power is the issue here. Given the weaknesses of the states and structural vulnerabilities of most African countries, including dependence on aid and trade with Europe for many, it is evident that what is going on is not negotiation but dictation.

The apparent sweetener to the bitter pill is the EU’s “promise” of “EU Aid for Trade” by which the EU is to provide financial assistance to EPA countries to enable them to build capacity, including infrastructure, and facilitate their implementation of the new agreement. This new “promise” for aid is indeed funny, and raises important questions. Is this going to be an “additional aid” or a rebranding of existing but unmet commitments?

Under the auspices of the United Nations, the rich industrial countries in 1970 committed to devote 0.7% of their Gross National Income (GNI) to aid. For 42 years now, it remains an unkept promise. Only 5 countries – Sweden, Norway, Denmark, Netherlands, and Luxembourg have met the 0.7% of GNI in aid.

One has lost count of the numerous conferences and summits for mobilising resources for development and the numerous “promises” of increased aid. None of the previous “promises” of funding for Africa’s development has been met. Neither the Lagos Plan of Action nor the African Alternative Framework to Structural Adjustment Programme (AAF-SAP) which was approved by the UN’s General Assembly received any support.

The UN New Agenda for the Development of Africa in the 1990s did not receive the promised financial assistance. By 2001, the African Union in Zambia launched its New Partnership for African Development (NEPAD), and at the 2002 G-8 Summit in Kananaskis, Canada, NEPAD was adopted by the G-8 leaders as “a bold and clear-sighted vision” for Africa and pledged financial assistance to ensure that NEPAD did not go the way of previous efforts.

At the UN Conference on “Financing for Development” (held in Monterrey, Mexico), more pledges were made. The result of all of these “pledges” is that aid to Africa has fallen since the mid-1990s in nominal and real terms.

A recent “promise” was the EU saying it would increase aid to 0.56% of GNI by 2010 (aid to all countries, not just Africa). The question is whether the “aid for trade” will be additional to the yet-to-be-met 0.7% or is a new benchmark being “promised”?

Without doubt Africa needs huge resources to develop intra- and inter-regional transportation networks to integrate the national markets as well as to address the myriad of critical supply bottlenecks that were decisive in preventing Africa from fully taking advantage of previous preferential trade arrangements. However, anyone following the developments in the EU as well as its history of delivering on previous “promises” can make some judgements as to the credibility of a new “promise”.

Beside the quantum of aid, the quality of its delivery is critical. The kind of “aid for trade” that Africa needs should be in the quantum and delivery mechanism that should build the infrastructure to integrate the fragmented African markets into a common market.

Currently, it is more expensive for many African countries to trade with fellow African countries than with Europe. But aid to Africa is largely country-specific and neither the EU nor the World Bank has a robust framework for regional aid or lending.

Country-based “aid for trade” even when it is of any significant quantity and quality merely reinforces existing fragmentation, creating a hub and spoke framework whereby Europe is the hub and individual African countries constitute the spokes.

The EU’s agricultural subsidy

On a related subject, is EPA going to happen in the context of the continued existence of the EU’s Common Agricultural Policy (CAP) with its harmful subsidy regime? In 2006, a leading UK newspaper, The Independent, succinctly captured the travesty. According to the newspaper, the EU Common Agricultural Policy “lavishes subsidies on the UK’s wealthiest farmers and biggest landowners at the expense of millions of the poorest farmers in the developing world. The UK government must lobby hard within the EU to agree an overhaul of the CAP by 2008 to put an end to the vicious cycle of overproduction and dumping.

“The £30bn-a-year EU agricultural subsidy regime is one of the biggest iniquities facing farmers in Africa and other developing countries. They cannot export their products because they compete with the lower prices made possible by payments.

“In addition, European countries dump thousands of tons of subsidised exports in Africa every year so that local producers cannot even compete on a level playing field in their own land. Meanwhile, governments of developing countries come under intense pressure from the World Bank and the International Monetary Fund to scrap their own tariffs and subsidies as part of free trade rules”.

How apt! As at 2011, the subsidy totalled about £48bn (about US$75bn) per year and it is expected to stay at this level until at least 2020. Yet African countries are expected to liberalise NOW. Some analysts have opined that the huge subsidy in Europe is an implicit tariff of hundreds of per cent on agricultural imports. Alternatively, some believe such subsidy amounts to banning imports of agricultural goods and promoting dumping in other countries – especially Africa.

Agriculture is the sector where Africa has comparative advantage and with the right policies and incentives, can feed Europe cheaply. A regime that keeps the status quo of harmful agricultural subsidy and the pittance of misguided and largely consumption-oriented aid, and hopes to “develop” Africa is, to put it mildly, suspect. The EU refuses to put the reduction or elimination of their agricultural subsidy on the EPA agenda. A clear signal from the EU here is that whenever its own interests are affected it is unwilling to make any concession. To make EPA a development agenda, agriculture must take centre stage.

But humanity has experience in delivering aid that works. We can replicate it for an effective and truly development-oriented EPA. The most effective aid in human history was the US aid to Europe after the Second World War – the Marshall Plan to rebuild the European infrastructure. The US felt a sense of obligation (given the historical ties with Europe) to provide a “big push” to lift Europe up after devastation by the war. One is not sure if the EU feels the same sense of obligation to Africa (given the history we all know too well).

But just imagine for a second that the EU feels a need to support Africa through a Marshall Plan kind of aid. Imagine that the EU were to stop its subsidy to agriculture and divert just three years’ subsidy fund to create an African Fund for Transformation – call it the “Brussels Plan for Africa” – and this would come to about $225bn.

Alternatively, instead of stopping the agricultural subsidy abruptly, the EU could go for a phased process, diverting just 50% of the subsidy fund into the Africa Fund over the first six years before finally phasing the subsidy out. If this Fund (akin to a sovereign wealth fund) was invested and the annual income proceeded (estimated at about $20bn per annum in perpetuity), you could over time build highways and train networks linking all of Africa, and increase the irrigation of its arable agricultural land from the current less-than-5% to more than 50%.

The point of the foregoing is that an alternative future between Africa and Europe is possible. Pervasive leadership failures have been at the heart of African underdevelopment in the last 50 years. Finally, there seem to be some flickers of light, and Africa is gradually pulling itself up by its own bootstraps. Africa has never had it better than in the last one decade, and compared to the lost decades it has begun to at least crawl. If the EU cannot assist Africa to walk and run, the least it should do is not to hinder the nascent progress.

The aggregate African economy is less than 2% of global GDP, and thus as a small open economy, it needs to integrate within and without. Africa needs the global market. But the lessons of the last two decades have reconfirmed that there are right and wrong ways to integrate into the global market, especially for poor and fragile economies.

While the world is yet to invent anything better than a market economy, it is also true that extreme market fundamentalism – that denies the existence of market failures and missing institutions – has brought more ruin than remedy.

A more balanced approach has been the winning strategy for all countries that have developed in the last century. But EPA, as currently designed, is a poisoned chalice. Fragmenting Africa and ramming through deadly trade arrangements in a manner that undermines internal African integration, ties the hands of policymakers and circumscribes the policy space, and literally enslaves the African economy. This may be smart for Europe in the short run but not wise in the long term.

If EPA is meant to develop Africa, it needs to be owned by Africans. Currently, even in countries that have “signed” or “initialled” the document, there is little or no public discussion by the private sector, parliaments, and civil societies. One hopes that if EPAs are to be domesticated, it will not be the kind of charade of “rent a crowd” consultations that were designed to rubber stamp the Poverty Reduction Strategy Papers (PRSPs). We now know better and must therefore do better.

Learning from history

Africa and Europe need a “Development Summit”: we need to talk to each other frankly and directly. If the issue is ìdevelopmentî of Africa, there are certainly superior alternative proposals for a more beneficial relationship between Europe and Africa. The African Union, various sub-regional groupings, and even the ACP ministers of trade have canvassed alternatives to EPA. History should not repeat itself.

In the mid 1980s, Africa came up with the African Alternative Framework to Structural Adjustment Programmes (AAF-SAP). All African governments endorsed it; the United Nations General Assembly endorsed it, but the conventional SAPs were rammed through by the donor agencies which had the power of the purse. It took almost two decades of destruction for most development partners to admit that “mistakes were made” and that “no one had all the answers”, and before the major elements of AAF-SAP became part of the Washington orthodoxy. This kind of costly experiment must be avoided. It is the lives of hundreds of millions of Africans that are at stake again. It is time to sit down and talk.

Other partners, such as China, India, and the US can join the Summit. So far, the EPA process and outcomes have more of the characteristics of a second Scramble for Africa (that is, a second Berlin Conference) than a development (Brussels’) initiative. That may not be what many stakeholders thought it was, but de facto, that is what is being delivered. We believe there is sufficient goodwill and technical capacity on both sides to craft a new rather than a raw deal.

Many scholars, statesmen and women, civil society organisations, etc, may certainly not be fully aware of what is going on. Frankly, as Africans, we do not believe that the UK, France, and the Nordic countries in particular, can, with all the recent talk about a new century for Africa, be part of this set-up. Those who care must rise to the occasion NOW, and not wait for years and then write post-mortem analyses of doom and gloom.

Some 30 years ago, Walter Rodney published his book entitled How Europe Underdeveloped Africa. At the turn of the 21st century, we must sing a new song. With sufficient will on both sides, one prays that our grandchildren will in the next few decades read a response to Rodney in a book to be entitled How Europe Developed Africa.

(Chukwuma Charles Soludo is a professor of economics who has served as the governor of the Central Bank of Nigeria, and chief economic advisor to the President of Nigeria. He is currently on the board of the South Centre, Geneva; chairman of the board of the African Institute for Applied Economics; and a member of the Chief Economist’s Advisory Council, World Bank.)

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New African

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