Arab investors see golden opportunities in Africa

Centuries before European colonialists carved up Africa, Arab traders marveled at the profits to be reaped in the fabled lands south of the Sahara.

"In the country of Ghana, gold grows in the sand as carrots do and is plucked at sunrise," wrote Ibn al-Faqih, a 9th-century chronicler.

Arab investors, flush with revenue from record oil prices, once again see golden opportunities in Africa. From waterfront resorts in Cape Town to phone networks in Democratic Republic of Congo, they are pouring in billions of dollars.

"The opportunities which you see in Africa, you don't see them anywhere else in the world," said Sultan Ahmed bin Sulayem, head of the Dubai World conglomerate, after signing a $800 million deal this year for a free trade zone in Senegal.

Lebanese merchants have been a familiar sight along Africa's western coast for more than a century, earning a living as middle-men trading everything from diamonds to cloth.

But the new wave of Arab investment is by big companies from the Middle East and North Africa, well equipped to challenge European rivals that thrived in sheltered post-colonial markets.

Decades of corruption and conflict in Africa have deterred many investors from anything but the easy profits of oil and minerals. But the continent is now enjoying its strongest growth since independence and more than a billion consumers are thirsting for goods and services.

Africa has become the arena for the world's emerging economic powers to flex their muscles. The West has fretted as a phalanx of Chinese and Indian firms sealed multi-billion-dollar trade and investment deals. Now Arab firms are joining them.

Senegal, a former French colony on Africa's western tip, hosts a summit of the 57-nation Organisation of the Islamic Conference in mid-March aimed at boosting ties in the world's Muslim community, which brings together Arab and African states.

"The Arab emirates, particularly Dubai, consider Africa as the future repository of world growth," said Karim Wade, the summit organizer and son of Senegalese President Abdoulaye Wade. We need to develop economic and cultural exchange and ... the Dakar summit will be a major step," he said.

Senegal's President Wade has already capitalized on Islamic religious ties to attract investment, easing his country's reliance on Western donors. Saudi loans have rebuilt the roads of the capital Dakar, Iran plans an oil refinery and car plant, and Kuwaiti investors are building luxury hotels.

In a symbolic shift, Dubai World wrestled a $455 million contract to expand Dakar port from France's Bollore, a conglomerate which has flourished under the opaque network known as "Francafrique" linking Paris and its former colonies. The French company criticized a "lack of transparency" in the tender, but Wade said Bollore's plans were too slow and bureaucratic compared with the dynamic Arabs.

"African governments are keen to have a different kind of relationship, something less patronizing," said Patrick Smith, editor of Africa Confidential. "The Chinese and Indians have exploited this, and now perhaps the Arabs can too."

Foreign direct investment in Africa doubled between 2004 and 2006 to a record $36 billion. Half of the $18 billion for mergers and acquisitions came from developing Asian countries, but Arab investors have been increasing their share, focusing mainly on services, from telecoms to banking and transport.

While Europe suffers an economic slowdown and the United States teeters on the edge of recession with the dollar at record lows, sub-Saharan Africa's economy will power ahead by 6.5 percent this year, according to the IMF.

"With the U.S. and Europe slowing, it's a chance for emerging countries to increase their presence in Africa," said Smith. "2008 will be a very interesting year."

Arab companies have already shown they are more risk- tolerant than their European counterparts. When British phone giant Vodafone slowed its expansion into Africa after acquiring South Africa's Vodacom, Arabs stepped in.

Since 2005, Kuwait's Zain has spent over $10 billion to quickly become Africa's third-largest mobile phone company with operations in 15 countries, attracted by penetration rates of just 30 percent in Africa.

"Faced with competition from the Gulf, European operators like Vodafone and France Telecom have now realized they need to become more aggressive in Africa," said Thecla Mbongue of analysts Informa Telecoms and Media.

Until Portuguese caravels sailed down Africa's west coast in the 15th century, Arabs were virtually the only influence on sub-Saharan Africa for some 700 years as their camel trains crossed the desert to bring back gold and slaves. The 7th-century Islamic jihad into North Africa formed a lasting bond between Africa and the Middle East, but cultural and racial tensions persist and have flared into conflict.

In Sudan's Darfur region, more than 200,000 people have been killed in ethnic fighting between Black and Arab Africans, while Arab-dominated Mauritania has only just begun to repatriate thousands of black refugees expelled 18 years ago. Slavery still persists there and in parts of the arid Sahel belt.

In one visible sign of Arab influence, service stations across Africa once run by Mobil now have OiLibya signs outside them, after a Libyan company bought out the U.S. oil major's African distribution network last year. But the investment has strings attached. Libyan leader Muammar Gaddafi threatened in January to divert $5 billion in state investment to the Mediterranean if Africa turned its back on his plans for a continental government.

The head of the 53-nation African Union, Jean Ping, said recently that Arab investment to alleviate poverty throughout the continent was the best means of easing tensions between Arabs and black Africans in Sudan and the Horn of Africa.

But many are skeptical, citing differences between Africa's moderate Islam and the more doctrinal Middle Eastern versions. "Arab and Black African culture are in stark contrast, and a growing Arab presence could feed resentment in many parts of Africa," said Alex Vines, head of the Africa department at London think-tank Chatham House.

In Senegal, some are apprehensive at rising Arab influence.

"Goodbye French colonization. Long live Arab colonization!," wrote one contributor, named Bouki Sine, on seneweb.com, a news Web site. "As regards us Senegalese, I hope we have not also been sold: black slaves have always been popular in Arab countries."

Reuters

1. Chinese companies boosting African investments

2. No end in sight to strongly divergent views on ACP-EU EPAs

3. Ethiopian AGOA exports double since 2005

4. EPAs:'EU has suddenly discovered Africa has other partners'

5. Fairtrade comes down to hand-outs

6. Southern African Customs Union split over EPAs

7. Africa must speed up signing EPAs or face the consequences: EU

8. EU piles on the pressure for EPAs

9. Little progress made towards African regional integration

Chinese companies boosting African investments

The record-setting deal has since been eclipsed, but Industrial & Commercial Bank of China's purchase of a 20% stake in South Africa's Standard Bank for $5.5 billion is still cause for celebration.

It took less than three years after a chance encounter in Shanghai for China’s largest bank to make what was then the largest-ever foreign investment by a Chinese company.

Industrial and Commercial Bank of China (ICBC) has since been replaced at the top of that list by Aluminum Corp of China, which bought into mining giant Rio Tinto in January. But this won’t undermine the sense of occasion when shareholders in South Africa’s Standard Bank approve the sale of a 20% stake to the Chinese lender in early March. The price tag is US$5.5 billion.

The recent global share slump – which began after the deal was agreed on – is not ideal for ICBC. However, the true value and significance of its investment in a bank with a pan-African network will only be realized in the long term.

“There was unbelievable symbolism to me … that the biggest transaction ever done by a Chinese company at the time should be in Africa. It says something about the geopolitical landscape,” said Standard Bank CEO Jacko Maree. “It tells you that China is thinking differently about the world. It also tells you something about Africa: It’s not the sort of lost and dark continent that is often portrayed ... It is on the move in its own way, admittedly from a low base.”

The deal emerged as a result of the talks between Maree and ICBC chairman Jiang Jianqing. The two first met in 2005 when China hosted the annual meeting of the International Monetary Conference (IMC). They crossed paths again during the China-Africa Cooperation Summit in Beijing a year later and were united for a third time when South Africa hosted the IMC in 2007.

Over the course of two years, the focus of Jiang and Maree’s discussions expanded from cooperation to strategic relations. ICBC deciding to invest in Standard was the logical final step. The deal was something of a departure for a country that, if the international media is to be believed, cares only about African oil and other natural resources.

Exact numbers are difficult to determine, but the growth of two-way China-Africa trade is undeniable. Between 2001 and 2006 trade grew at an annual rate of about 40%. It would be easy to attribute the growth to Beijing’s need for natural resources but the reality is more complex. In that same 2001-2006 period, for example, Chinese exports to Africa quadrupled.

By 2010, China wants trade with the continent to top US$100 billion.

“We increasingly see more business going on between African countries and China,” Maree said. “Trade or investments often have a financing or advisory component and we try to tap into this.”

The deal with Standard Bank will give ICBC access to a network in 19 African countries, enabling it to help Chinese businesses take better advantage of opportunities in the continent. This is in keeping with ICBC’s goal of diversifying its revenue streams so a larger proportion of its income – 10%, up from the current 3% – comes from overseas operations. There will be a particular focus on emerging markets, and if there is one thing Africa has to offer it is emerging markets.

“China sees Africa very much as an investment in the future. It sees Africa industrializing, becoming more peaceful and stable and, over the next 50 years, following the same path as Asia,” said Dirk Kotze, general manager of The Beijing Axis, a consultancy that focuses on China-Africa related trade.

According to Kotze, African development may parallel that of post-Second World War Southeast Asia, when economic development began to thrive in a region still do tted with conflict.

“Before the current problems started, Kenya was growing at over 7% a year,” Kotze said. “Nigeria saw a peaceful transfer of power last year – that is extraordinary when you look at the country 10-15 years ago. Then there is the growth in Zambia and Mozambique, which was the world’s second poorest country in 1990.”

His list stretches on and on.

Policy papers and comments from Chinese think tanks make it clear that China expects Africa to grow steadily during the first quarter of this century, and that the time to lay down roots is now.

According to a report by Jian-Ye Wang, an economist with the International Monetary Fund, “The government has been actively encouraging private firms, small and medium as well as large, to invest in Africa … Trade and other commercial activities have grown faster than aid flows. The private (more broadly, the corporate) sector, rather than government ministries, is increasingly the engine of economic exchange between China and Africa.”

While the nature of this growth speaks volumes about China’s commitment to Africa, there can be little argument that large-scale investments have so far targeted one thing above all else: commodities.

In 1979, Africa produced about 6.8 million barrels of oil per day. In 2005, the number was 9.8 million. The continent holds 8% of the world’s oil reserves but, through 2010, West Africa may account for about 38% of global oil production.

Although China is the world’s second largest energy importer and its pursuit of oil receives a lot of attention, Beijing’s activity in Africa is relatively small compared to the international oil companies operating across the continent.

According to Wood Mackenzie, African national oil firms loom large, with investments worth US$279 billion as of March 2007. International oil companies followed with US$168 billion and Chinese firms trailed with US$13 billion.

The reality is that Chinese companies are latecomers. Shell first entered Nigeria in 1938 and enjoyed a monopoly there until the country won its independence in 1960. Viewed in this way, China’s energy deals with pariah states (like Sudan) become easier to understand – there was little left to choose from.

The vast majority of China’s oil production in Africa, 81%, is in Sudan, which has 5% of Africa’s proven oil reserves.

“It is actually not easy for us to find projects. The oil market has more than 100 years of history and all the good projects are already taken. As a newcomer, it is obviously not easy to do well,” said Fu Chengyu, CEO of China National Offshore Oil Corp is quoted as saying in a report by Erica Downs, China energy fellow at the Brookings Institution in Washington DC.

In the same report, Downs argued that the notion of a state-driven push to buy up global resources may be more fact than fiction. For example, Sudan was omitted from a list of countries that Chinese companies are encouraged to invest in, but this didn’t stop China National Petroleum Corporation from filling the void left by Western oil firms following America’s decision to impose sanctions on Khartoum in the mid-1990s.

“The lack of close coordination among China’s [oil firms] is due to the fact that [they] view one another as rivals, competing not only for oil and gas assets, but also for political advantage,” Downs claimed.

But oil is only part of the story – Chinese companies from a wide variety of sectors regard Africa as a viable market.

“It wasn’t just the oil and mining companies,” Standard Bank’s Maree said of his experiences dealing with Chinese corporate interest in the continent. “It was also the mobile phone companies and the construction companies, and so on.”

In the tech sector, Shenzhen-based Huawei saw sales in the continent top US$2 billion across 40 countries by 2006.. Huawei’s rival ZTE plans to invest US$400 million in Angola with a view to cornering the local market. China National Electric Equipment Corp, meanwhile, enjoys profit margins in Africa that are five times what it can get in more competitive mature markets.

The scope of Chinese involvement is vast: It may be logging in Mozambique, shoemaking in Nigeria or household goods production in Sierra Leone.

Then there are the banks. China Export and Import (Exim) Bank is funding more than 260 projects across 36 African countries while China Development Bank had loaned more than US$1 billion to Africa as of March 2007. This money has so far helped build 9,000 kilometers of roads and railways as well as eight large- and medium-sized power plants.

One country that has attracted a fair share of Chinese attention is Zambia. More than US$300 million has been sunk into the mining, manufacturing projects, construction and agriculture industries. Zambia’s copper belt has proved such a hit with Chinese mining firms – as well as a host of spin-off industries – that Beijing set up a special development zone there earlier this year.

Beijing made a commitment to establishing at least five of these zones at the China Africa Cooperation Forum in 2006. One already exists in Mauritius and it has been reported that two more are planned for Nigeria.

The idea behind these zones is to provide access to Chinese officials who may grease the wheels of trade by providing business contacts, reduced tariffs and streamlined processes. Beyond this, though, it is difficult to say exactly what the zones entail, who funds them and how African businesses might benefit.

“There is a little bit of opaqueness when it comes to China and Africa and this is one of those areas,” said Chris Alden, a lecturer in international relations at the London School of Economics who has written much on Asia-Africa ties.

The Chinese government has highlighted these zones as potential vehicles to deepen economic ties with specific countries. In this way, they can be seen as part of an approach to Africa that differs from that of Western countries. It is all about cash, with no questions asked about human rights or institutional corruption. However, loans from China are often used to hire Chinese companies. Similarly, infrastrucure investments are closely tied to access to natural resources.

The irony is that China may be acting like a developed country by taking a single approach to a very varied continent.

“The Chinese have, so far, approached Africa in an odd way with a single formula,” said Alden. “No conditions, certain forms of packages and inducements to win positions.”

As their relationships in the continent deepen, however, this approach may become untenable.

“They have to get away from Africa as a whole and start viewing it through the prism of local politics, local economics and the like,” Alden added.

The deal between ICBC and Standard Bank may be a giant step in that direction, opening the door to a wealth of local knowledge. Standard’s Maree said initial cooperation would likely focus on Africa, with ICBC looking for access and Standard Bank for new customers.

It is worth asking how prospective Chinese clients, many of which are state-backed and perhaps unfamiliar with stringent credit checks, will work with the more sophisticated checks and balances at Standard. Chinese banks may be improving their standards but they still have a tendency to push deals through without paying enough attention to risk.

“There is a let’s-get-the-deal-done attitude, which is refreshing in a way. But of course we have to make sure that whatever deals we do have had all the right due dilligence and that everything stacks up,” said Maree.

Kotze takes this a step further, suggesting that, through deals like the ICBC-Standard tie-up, Chinese companies can aquire invaluable experience – about both managing international business in general and operating in Africa specifically.

In this way, the country will be better-equipped to fill what he believes is a vacuum being created by waning Western political influence in the continent.

“Africa is that last beachhead. The EU and the US have pulled out, really – they are only after resources – so it’s a bit of a vacuum. It’s up for grabs.”

Business Week

No end in sight to strongly divergent views on ACP-EU EPAs

The European Union is determined to get those African countries on board which have so far kicked against the economic partnership agreements (EPAs). At the end of 2007, only 35 out of 78 African, Caribbean and Pacific (ACP) countries had initialled EPAs.

Apart from the 15 Caribbean countries which had initialled a full EPA, the other 20 African and Pacific countries had agreed to interim agreements which only cover the liberalisation of goods and agricultural products.

Many ACP countries had major misgivings about the EPAs. But most of those without least developed country (LDC) status were threatened by the possibility of having their exports disrupted. This would have happened at the expiry of their Cotonou agreement market access preferences to the European Union (EU) at the end of December. Thus they caved in.

In contrast, the pressure was not that great on LDCs as they are able to continue their exports to the EU under the Everything-But-Arms trade provision. The only non-LDC countries that did not initial EPAs were Nigeria, Congo-Brazzaville, Gabon, South Africa and seven Pacific Island states.

The two regions that were most opposed to the EPAs were West Africa and the Pacific. Both these regions saw only two countries each signing on, Cote d’Ivoire and Ghana and Fiji and Papua New Guinea respectively.

Most of the West African states refused to initial an interim agreement. They are clear that they want to negotiate a ‘‘friendly’’ EPA. They have given themselves two years, up to 2009, to do this. As a first step, they recognise that within the region, there is much work for them to do before they can agree on the contours of liberalisation with the EU.

The farmers’ movement in some of the West African countries has made its voice heard. Having suffered the detrimental impacts of the flood of food imports in the past decade, they want their region to have higher tariffs on agricultural imports than is currently the case.

Some countries in West Africa, such as Nigeria, already have fairly high tariffs. The work internally is to raise the existing tariff levels, harmonise these levels within the region, and then work out ways to negotiate the EPA with the EU on this basis.

According to Marc Maes, an EPA expert from the Brussels-based development organisation 11.11.11., the West Africans were angry that the EU had pushed Cote d’Ivoire and Ghana to the point where they had signed individual EPAs ahead of the rest of the region. The region wanted to move ahead together and now that task has been made so much more difficult unless changes can be made to the interim agreements that have been signed by these two countries.

In Central Africa, countries have signed individual EPAs protecting various sensitive products. It will be challenging to harmonise the different schedules and convert the interim agreements into full EPAs at the regional level.

According to Maes, ‘‘the region is now in pieces. The pieces will have to be brought together. The countries need to find common ground and this will take time.’’

A European Commission (EC) official said, ‘‘the interim agreements that were initialled at the end of last year with Pacific and African countries were a means to secure and even extend their market access to the EU, given the expiry of the WTO (World Trade Organisation) waiver.’’

The WTO waiver refers to an interim breathing period allowed by WTO states to the EU and ACP to bring their trade arrangement in line with WTO rules.

Maes spoke about the EC’s 2008 work plan, saying, ‘‘they are going to be pretty determined and aggressive. In each of the interim agreements, they have clauses for accession.

‘‘For example, in West Africa, where only Cote d’Ivoire and Ghana have initialled an interim agreement, they want the outstanding countries in that region to accede to this agreement. The interim agreements also have rendezvous clauses which are commitments to further negotiations that include the services and trade related issues. They are going to push as hard as they can to make those countries that signed the interim agreements live up to these rendezvous clauses, and those that have not signed any agreement to do so.’’

According to Maes, some rendezvous clauses, however, are more aggressive than others. In the Southern African interim EPA, countries had agreed to the liberalisation of one service sector the moment the full EPA is signed and that they would open up other services sectors in the following three years. Other agreements are less specific.

Will negotiations in 2008 be as contentious and fraught with tension between the two sides as in 2007? According to Maes, the EU seems to be backtracking on its promises to the ACP once again, and there could possibly be a fight over this.

‘‘In Lisbon (at the EU-Africa Summit in December 2007), as a result of the public outcry by APC countries over the EPAs, Jose Barroso (the EC president) promised that he would meet all the ACP regions at high level this year and that the interim EPAs that had been signed in haste will be revised. The ACP countries, in their resolution of December 13, 2007, welcomed the Barroso proposal. They want these interim agreements to be reviewed at these high level meetings, and for the contentious issues to be taken out.’’

But, said Maes, ‘‘now the Commission is backtracking. Peter Mandelson (EU trade commissioner) told the European parliament at the end of January that the Commission will not look backwards but forwards.

‘‘They see the high level meetings as opportunities to launch negotiations for the full EPAs and that, in the context of negotiating full EPAs, the interim agreements can be improved upon.’’

IPS

Ethiopian AGOA exports double since 2005

Ethiopian exports to the United States have doubled since 2005 under the AGOA trade pact the Horn of Africa nation joined seven years ago, the US embassy there said in a statement.

"Since the project's inauguration two years ago, Ethiopian exports under AGOA/General System of Preference (GSP) have increased by almost 100 percent to 8.9 million dollars (5.9 million euros) in 2007, much higher than the average national exports growth rate over the past five years," the US embassy said in the statement.

Ethiopia is one of several African countries eligible to participate in the African Growth and Opportunity Act (AGOA), a pact formed in 2000 that gives exports from the world's poorest countries of the continent duty-free status on the US market.

"We are on the verge of a major breakthrough where companies in the US and elsewhere are starting to recognize Ethiopia as a place to do business and our exporters are starting to open their eyes to the world of opportunities that exist in the export sector," project director for Ethiopia, Addis Alemayehu, was quoted as saying in the statement.

Ethiopia's total exports to the United States, which include leading export items such as coffee and spices, have also risen from 61 million dollars (40.4 million euros) in 2005 to 81 million (58.2 million euros) in 2007, an increase of almost 30 percent, according to the statement.

AFP

EPAs:'EU has suddenly discovered Africa has other partners'

Foreign Minister Nkosazana Dlamini-Zuma is engaged in a flurry of diplomatic talks with her counterparts in the Southern African Development Community (SADC) to forge a common approach to European partnership agreements (EPAs) ahead of a meeting with European Trade Commissioner Peter Mandelsonthis week.

Dlamini-Zuma held discussions with Botswana ministers last week week and will consult other member states before the meeting with Mandelson on March 4 in Botswana. The meeting will be critical in determining whether there is any scope for reviewing the EPAs already signed by a number of African states. It will also be critical for the future of the Southern African Customs Union (Sacu) as all countries except SA have signed EPAs.

SA has refused to sign an EPA because of the EU's demands for the liberalisation of services and concerns about implementation. It wants the entire EPA process to be reopened and negotiated afresh but this is unpalatable for countries that have already signed interim EPAs.

Dlamini-Zuma criticised the EU for using the partnership agreement process for purposes beyond trade negotiations. "They are using them to regain ground they think they have lost in their quest for hegemony in Africa. The panic button was pressed by Africa's relations with China, India and South American countries."

The EU had "suddenly realised" Africa could have economic relations with other nations. In the past, the EU was the dominant factor in Africa, Dlamini-Zuma said. SADC countries would try to form a coherent group "as we try to make the EU give us space to reconsider issues."

Referring to the EU's demand for most favoured nation treatment, Dlamini-Zuma said SA could not allow a partnership agreement with the EU to restrict its relations with the rest of the world. Under the most-favoured nation clause, EPA signatories would have to extend concessions made to other major countries in future free trade agreements, to the EU. SA's bid to win over Sacu members has so far met with resistance. Botswana is apparently angered by SA's stance and is ready to break ranks with the customs union.

While SA has vilified the EU for strong-arm tactics, trade commentators are concerned it is holding the region to ransom by threatening to pull out of the customs union if Sacu members do not agree to a renegotiation of the EPAs.

SADC trade adviser Paul Kalenga said recently that the EU was the first major global economy to extend duty-free, quota-free access to southern African economies, excluding SA. If these countries acceded to SA's demands and backed out of the EPAs, they stood to lose this favourable market access.

Business Day

Fairtrade comes down to hand-outs

If you’re getting a bit sick of being told what goods you should buy and where you should buy them from, I’ve got some bad news for you.

It’s Fairtrade Fortnight. So you can expect to be bashed over the head about your consumer choices a lot more over the next two weeks.

In case you didn’t know, Fairtrade goods are those ones (usually bananas and coffee, but increasingly lots of other stuff as well) with the little blue, green and brown logo on them in the supermarket. Another way to tell the Fairtrade products is that they often cost you more, but offer no discernible improvement in quality over their cheaper, presumably UnFairtrade, cousins.

That’s because you’re not paying extra for better quality. You’re paying extra so that the people who made the goods get more money, and thus a better quality of life.

A noble goal. Trouble is, apparently it doesn’t go to the people who actually need the help most…

Just in time for Fairtrade Fortnight, the Adam Smith Institute has come out with a report saying that the Fairtrade movement doesn’t actually help the most impoverished farmers.


Now I have to make clear upfront that – as you might be able to guess from the name – the Adam Smith Institute is a free market think tank. As such, they are unlikely to publish a pamphlet singing the praises of a scheme devoted to economic intervention. But I suspect they have a point.


So what is Fairtrade anyway? The idea behind it is essentially that producers of goods in poor countries are given a better-than-market price for their products in order to give them a decent wage and ensure they can develop their business, rather than being gutted every time the bottom falls out of whichever market they’re in.


Consumers have lapped it up. We bought nearly £300m worth of Fairtrade products in 2006, and £493m last year. Tate & Lyle has just said it’s going to turn over its entire operation to Fairtrade sugar – 40% of the cost of each bag of sugar will go to its growers and producers in Belize. Scotland has said it’s going to try to become the world’s first Fairtrade country.


And why not? It’s nice to feel that our consumer choices are doing some good. Most people don’t want to exploit other human beings if they can avoid it at a minimal cost to themselves, particularly in a public arena where other people can scrutinise your choices.


Sure, they’d probably pay a domestic servant or a Polish plumber far less than the going rate if they can get away with it. But if you’re talking about a few pence on the price of a cup of coffee, for which you get the pleasure of the till operator and other shoppers seeing that you’ve made the ‘ethical’ choice, then it’s no surprise that Fairtrade has been a hit.


But there are issues with Fairtrade. For one thing, it’s a major brand. And as the Adam Smith Institute points out, Fairtrade’s rapid growth and the labelling of towns across the country as ‘Fairtrade’ towns means that other ethical ‘brands’ with different approaches are squeezed out. Not everyone agrees with Fairtrade’s promotion of farming co-operatives, for example, which some argue are more inefficient and prevent people from developing beyond basic agriculture. If Scotland decided to declare itself a “Coca-cola” country, residents would be rightly annoyed.


The core problem is that in the end, Fairtrade comes down to hand-outs. The point of a free market, when it’s allowed to function, is that the pricing mechanism shows people where there’s a need – and therefore a profitable opportunity – to be fulfilled. Oil prices rise, we go and dig for more oil or find a substitute. Food prices rise, we grow more food. Coffee prices keep collapsing – you find a better industry to work in.


As Ceri Dingle of educational charity WorldWrite tells The Telegraph: “Fairtrade is much more about satisfying the Western consumer’s guilt. No country has ever become a successful economy by being a farm – they need to industrialise.”


However. It’s easy to be cynical about these things, particularly when idiot celebrities swarm all over them waving plastic armbands and spouting nonsense about the evils of shareholders. And it’s entirely true that as Tom Clougherty of the Adam Smith Institute says, what we really should be campaigning for is truly free trade, with tariffs and subsidies scrapped.


But equally, from that point of view, it’s hard to complain about consumers choosing to give select coffee growers in Mexico a few extra pennies in change when some of the richest European landowners are raking in millions of pounds a year from taxpayers, who have no choice in the matter at all.


The good thing about Fairtrade’s success is that it shows that consumers – given a free choice - are willing to pay a premium to back products which they believe are ethical and leading to sustainable development. So in the absence of any real effort by governments to get rid of the subsidies that really cause the pain in the developing world, then if we’re going to object to Fairtrade, we should be looking for better models to follow.


For example, the ASI cites Café Britt as a good non-Fairtrade alternative – these Costa Rican coffee bean farmers have ‘climbed the economic ladder’ by doing all the roasting and processing as well as growing the beans. Or there’s Ugandan group Good African Coffee, for anyone who’d rather buy from a genuinely developing country rather than the arguably pretty developed Mexico.


As Fairtrade grows bigger, scrutiny of its economic logic will only increase. The ethical sector is ripe for smart entrepreneurs to come up with genuine ways to benefit developing countries, while turning a profit and avoiding reliance on hand-outs. Fairtrade will find it has to compete for the ethical pound, which should be good news for the beneficiaries of ethical produce. That’s the beauty of free markets.

Money Week

Southern African Customs Union split over EPAs

The future of the Southern African Customs Union (Sacu) hangs in the balance, even as engagement takes place at the highest political level to save the world’s oldest customs union from collapsing.

Sacu was split last year when Botswana, Lesotho, Namibia and Swaziland broke ranks with SA and signed an interim economic partnership agreement (EPA) that would govern trade with the European Union (EU).

Now, angered by the other members’ decision to initial the pact, it is feared that SA might use their move as a reason to break up the union. This would have grave economic implications, especially for Lesotho and Swaziland, which rely heavily on revenues from the customs pool.

EU Trade Commissioner Peter Mandelson was to meet President Thabo Mbeki to discuss SA’s position on the EPA. Mbeki, in his state of the nation address in February, singled out the EPA and regional integration as priorities this year, but observers said these commitments were not reflected on the ground.

Paul Kalenga, a trade adviser of the Southern African Development Community (SADC) secretariat, told a recent conference of the Trade Law Centre of Southern Africa that Sacu members needed clarity on SA’s role. “There is an anxiety about SA’s position. The other countries do not understand what SA’s strategy is for global and regional integration,” he said.

Xavier Carim, SA’s chief trade negotiator, yesterday said: “None of us are looking at the break-up of the customs union. We will try to go forward in a way that will not undermine the benefits achieved by the other countries but also not undermine Namibia and SA’s positions. The EU has indicated it is prepared to address some of the problematic issues.”

At a SADC ministerial meeting in Botswana last week, SA is said to have tabled 32 pages of concerns about the EPA, and is said to be calling for the EPA to be negotiated afresh. The demand would be unpalatable to the EU and to Botswana, Lesotho and Swaziland , which are set for a second phase of talks to thrash out terms for the liberalisation of services. Botswana in particular is said to be angered by SA’s stance, and a source said that country was “prepared to make the break.”

Sacu member countries negotiated the EPA under the SADC configuration. However, that was a configuration in name only, as several SADC members joined other configurations. Instead of cementing unity, there is now a stalemate threatening to fracture the union.

While SA has in the past punted the EPA as an opportunity to strengthen regional integration, and motivated its bid to join the talks on those grounds, SA opted out of the EPA at the end of last year, citing unfair demands by the EU. Under article 31 of the Sacu Agreement, member states may not enter into new preferential trade agreements with third parties without the consent of other members.

“SA was initially surprised when Sacu member states broke ranks, but it can now use this to break up the union. The signs are not positive,” said a commentator who declined to be named.

But the implementation of the EPA is also severely hampered by SA’s decision to opt out. Kalenga said the region would have difficulty enforcing the common external tariff with SA outside the agreement, because of conflicting tariff regimes. The EU, for instance, agreed to the reinstating of a 5% tariff on beer, to shield Namibian brewers against European imports. However, with SA not party to the agreement, beer imports into SA attract no tariff, creating a loophole to circumvent the tariff.

Politically, the break-up of Sacu would go against commitments to forge closer regional ties, but economically SA would, in fact, benefit. It is known that the treasury is unhappy about the vast distributions from the customs pool to BLNS countries (Botswana, Lesotho, Namibia and Swaziland).

Business Day

Africa must speed up signing EPAs or face the consequences: EU

The European Union has raised concerns about the speed at which African countries are moving towards negotiating for a comprehensive trade deal with Europe, which is expected to fast-track economic integration in the region ahead of the December deadline.

EU officials have warned that African nations could find themselves in trouble similar to what they faced in December2007 when they almost lost preferential access to the European market, which holds a key economic lifeline to many countries, including Kenya.

This is because of failure to beat an end-of-year World Trade Organisation deadline on negotiating a comprehensive trade deal. The crisis was averted when Kenya and other nations signed interim pacts to avoid possible trade disruptions.

This is the first time that the EU is speaking out against the threat to its trade relations in Africa in the face of growing pan-Africanism pushed by rich nations in the African Union. They are opposed to the kinds of interim deals that the European regional bloc signed with Kenya in December as the continent struggles to forge a united front in global trade negotiations.

Countries like Kenya have been seen to be undermining the continent’s zeal for a more radical position—which is being pushed by South Africa’s President Thabo Mbeki and Senegalese leader Abdoulaye Wade— by negotiating sweetheart deals in its national interest as it did late last year with the interim Economic Partnership Agreement (EPA).

Nairobi’s decision ruffled diplomatic feathers in many states, including neighbouring Tanzania. Kenya has been a key ally of the European Union and the US after it took a more pragmatic route in trying to resuscitate the troubled World Trade Organisation (WTO) Doha trade round together with other smaller nations.

The Doha Round has been on the skids for the better part of this decade because of opposition by countries such as India, South Africa and Brazil, which are about to get into the rich nations club.

Mr Stefano Manservisi the European Commission director general for Development and Relations with Africa, Caribbean and Pacific States , says African states must speed up the negotiation process or else they could face disruptions in 2009.

A delay in the implementation of a comprehensive EPA by December may see most African countries such as Kenya face the risk reverting to the less generous general system of preferences (GSP).

Statistics show that should Kenya’s trade regime with the EU revert to GSP, some products that have been entering the European market at zero duty would attract a levy of between 8.5 and 15.7 per cent — an issue that most producers have argued would jeopardize chances of remaining competitive in their traditional main export markets in Europe.

Though African trading blocs and the EU are supposed to have signed a comprehensive Economic Partnership Agreement (EPA) by December 31 this year, Mr Manservisi expressed fears that this could not be done within the year, citing wrangles within the various blocs. “There are differences among and within the trade blocs, but they can share experiences towards a common regional bloc. There will be no Pan Africa integration without first setting strong pillars of regional co-operation.”

But representatives from various regional trade blocs in Africa say the trade concessions being offered by Europe were not good enough, given that many poor countries were opening up their economies to fierce global competition from big foreign firms. They say that budgetary support programmes were inadequate to help them cushion their economies as they moved to implement the new EPA and accused Brussels of not making a binding financial commitment for additional resources.

“The region is already experiencing financial difficulties in securing enough resources from EU and what has been awarded is a far cry from the real needs” said Mr Eriya Kategaya, the chairperson of the EAC Council of Ministers.

Mr Kategaya says only €2 million had been made available for sharing under the Inter-Regional Coordinating Committee (IRCC), which brings together Comesa, EAC and IGAD.

“They are not willing to talk of any extras on development and instead cite the EDF (European Development Fund) which has always been in existence. There is nothing new,” he said.

Trade between 80 African, Caribbean and Pacific (ACP) nations, including the EAC member states and the EU has been based on a preferential framework that grants nearly all products originating from the ACP duty-free access to the European market.

A recent African Union summit in Addis Ababa resolved that any trade deals with Europe must be ratified by the AU, blocking countries from signing interim trade deals with Europe.

Trade experts said the pacts, which were signed between some regional trading blocs and Brussels, are against the drive for Africa’s unity.

Of interest to the AU will be the exclusion from the final agreement certain clauses that are deemed to work against regional integration efforts in Africa. Besides, the AU is also said to be keen on a final pact that will ensure that all members duly benefit from development assistance packages that comes with the EPAs.

Although Comesa has been pursuing joint trade deals with the EU under the Eastern and Southern Africa (ESA) platform, only nine of the 16 member states have signed new pacts with Brussels— under separate platforms.

“We have come to a critical juncture where we have to move fast. It is a shame for us to be lectured by the EU over the delays, whereas it’s us who will eventually benefit,” Comesa secretary-general Erastus Mwencha said.

Mr Mwencha, who is also the AU deputy chairman, said although the interim deals had helped countries like Kenya to avert disruption of trade, they had failed to address the critical aspect of development and instead driven a wedge among African states

Business Daily

EU piles on the pressure for EPAs

by Aileen Kwa

The European Union (EU) has an ambitious agenda for the economic partnership agreement (EPA) negotiations. It is pushing for the conclusion of full agreements in the next one to three years, covering everything from services to ‘‘trade-related’’ issues such as investment, competition and government procurement.

The latter include issues, also called ‘‘new generation’’ or ‘‘Singapore issues’’, which developing states successfully blocked in the World Trade Organisation (WTO) as they were regarded as detrimental to development. The issues first arose in the run-up to the WTO ministerial meeting in Singapore in 1996.

A European Commission (EC) official said, ‘‘We want to finish negotiations on outstanding issues in 2008. The interim agreements so far include provisions on market access, development cooperation and revised rules of origin. We want to continue negotiations on services, investment and trade-related rules. This is the work plan for this year. We will continue negotiations at regional level in order to bind all ACP (African, Caribbean and Pacific) countries into full EPAs.’’

According to the official, ACP countries would be willing to enter into expanded EPA negotiations. ‘‘Transforming the interim agreements into full trade and development agreements means going beyond market access and including wider issues, such as trade-related rules. Market access alone is not sufficient to help their economies integrate into the global economy. Preferential access granted under the Cotonou agreement has not contributed to increasing the world trade share of the ACP. Creating a more predictable business climate with transparent trade rules could make their markets more attractive for investors,’’ said the official.

Marc Maes, an EPA expert from the Brussels-based development organisation 11.11.11., has a different opinion regarding this expanded EPA agenda: ‘‘The trade-related issues which the EC seeks to negotiate belong to its most offensive interests. These issues can seriously reduce the ACP countries’ policy space while it remains uncertain whether they really will attract many investors. Investors not only look at rules but also at infrastructure, the proximity of lucrative markets and the availability of skilled workers,’’ Maes pointed out.

The interim EPAs include trade in goods. The EU’s full EPA agenda also includes other trade rules. The liberalisation of services and the liberalisation of rules in investment and competition will guarantee the EU’s services companies access to the African markets. The EU wants services to be liberalised across the entire spectrum: professional, business, telecommunications, distribution (retailing / wholesale services); environmental; financial; transport; energy; tourism and so forth.

These negotiations will entail African countries being expected to make commitments to remove any domestic regulation they have that could impede European companies in accessing these markets. This could include removing any existing limitation on land ownership rights for foreign enterprises.

It also could include scrapping laws subjecting foreign corporate takeovers to government approval; laws that require foreign investors to form joint ventures with local companies should they enter the market; and laws limiting the scope of operation of foreign investors. The liberalisation of investment rules could also mean getting governments that currently have ‘‘positive discrimination’’ regulations to scrap such rules if they are not deemed to be in the interest of foreign investors.

For example, some countries may mandate their banks to put aside a certain percentage of their loans for small farmers. Such rules may have to be cancelled. The EC will also demand that foreign companies be given the same rights and privileges as local companies, including government subsidies and support.

The new issues will also include the liberalisation of government procurement. All government projects and purchases will have to be opened to bidding by European companies. In order to boost employment and strengthen local companies and industries, government contracts to build schools, hospitals and to set up information technology are often provided to local companies.

If the new government procurement rules are agreed upon, this will no longer be possible. European companies will have to be given equal access to all government projects and purchases.

There is uncertainty about how far the EC will able to push the ACP in the months ahead. According to Maes, ‘‘by the end of last year there was a lot of opposition. Relations between the EC and ACP negotiators have been soured. They are very frustrated by the pressure the EC exerted and what they saw as the mercantilist ambitions of the EC.’’

But there are two areas which the EU is likely to use to pull ACP countries back to the negotiating table in 2008. According to Maes, ‘‘under the EPAs, some rules of origin (market access rules dealing with the ‘nationality’ of products) have been improved upon compared to what countries had under the Cotonou agreement, for instance in fish and textiles.

‘‘However, on the whole these rules have not been improved upon. The EU could propose negotiations to make these rules less burdensome for the ACP countries. The other area is development. The development chapters (where the EU is supposed to outline how they can support the ACP with aid) are incomplete and also have to be improved upon.’’

IPS

Little progress made towards African regional integration

Despite the importance of regional integration, there has been limited progress in Africa and the prospects are not promising either, experts at the UN Economic Commission of Africa say.

...staff members of the commission have investigated why regional integration does not improve income convergence in Africa despite the common goal of more open and freer trade.

The purpose of regional integration in Africa is to promote political and economic co-operation, the authors argue in their paper titled "Why Doesn't Regional Integration Improve Income Convergence in Africa?" presented recently at the 2nd African Economic Conference in Addis Ababa.

The paper discusses the link between low-income convergence and growth performance on the one hand, and the little progress in regional integration process on the other.

The slow convergence, the authors argue, is generally associated with the slow growth in output in many African countries. The authors demonstrate that in general, most African countries fail to acquire higher capital and deepen employment. "Moreover, the contribution of TFP [the productivity of all inputs taken together] to production is low (in most cases, negative), characterising inefficient production technology," they say.

Secondly, say the authors: "Aside from the fact that Sub-Saharan Africa has only minimal contribution to the world trade, the intra-Africa trade was also minimal.

Regional integration in Africa was not able to increase the volume of commodity traded within the region. It is also doubtful whether there are some significant mobility of labour and resources within each regional economic community."

Thirdly, according to the authors, the limited inflow of foreign direct investment in the region restrains the accumulation of capital that is essential to output growth. "Moreover, the little investment coming into Africa is shared only by few countries."

The regional economic groups studied are the Southern African Development Community , Common Market for Eastern and Southern Africa, Economic Community of West African States, Central African Monetary and Economic Community, West African Economic and Monetary Union.

Given the constraints, the authors argue, "The success of African regional integration and narrowing down the differences in income seems to depend on how the countries in the region would be able to improve trade by opening borders among the neighbouring countries, given the region's marginal share in world trade ... Although formal institutional framework may help in facilitating regional integration, a lesson from the East Asian emerging countries suggests that a spontaneous and rapid regional integration is through market driven phenomena and sustained economic growth."

Reacting to the findings, Prof. Sam Tulya-Muhika said there have been no attempts to regional economic integration in Africa but rather what is in place are regional co-operation blocs.

"We do not even know what regional integration is," said Prof. Tulya-Muhika, the chairman of the East African Co-operation Forum. "So if it is only regional co-operation you can't get the benefits of regional integration. It's a natural tendency for African states to remain sovereign. Not until we define the purpose of regional economic communities, we shall not even attempt at the same because most states are a creation of colonialism without a shared vision."

Tulya-Muhika, an expert in regional integration matters, added: "There cannot be employment unless there is increased production. To continue talking about trade will remain a song so long as we are not producing goods and services."

Intra-African trade accounted for just less than 10 percent of the continent's total exports between 1996 and 2005. In the same period, Africa's world exports grew faster than the trade within the continent.

The export commodities being traded within the intra-Africa region are basically of primary products in nature. Petroleum alone accounts for more than 30 percent of this exchange, while cotton, live animals, maize and cocoa add another 18 percent. To a lesser extent, fresh fish, vegetables, tea and sugar are also traded within the region. Manufactured goods account for only about 15 percent of the intra-African export trade.

allafrica.com