A New Horizon for Africa

Author: Yoselyn Pina
            Summer Intern

As the World Cup comes to an end after Brazil’s humiliating 7-1 defeatagainst Germany no one can deny this World Cup will be memorable. Not only because the fans’ favorite, Brazil was eliminated, also because it put the eyes of the world in Brazil. To be the host of the World Cup and the Olympics in 2016 represents a huge achievement to the region. Latin America has been fighting since 1991 to create a good regional integration. In that year Brazil entered into a partnership with Argentina, Uruguay and Paraguay to create Mercosur (South America Market) with the intention of creating a trade bloc that will open regional trade. This project sounded like a great idea in theory, but there has been mixed results.

When Mercosur was first created, Argentina and Brazil were the pillars that sustained the organization. Both countries were in a strong enough economic position as to actually promote new ways of trade. As time progressed, however, Brazil became the only pillar holding Mercosur up. Where did Mercosur struggle? A possible explanation is that the member countries were not able to solve their internal problems while, at the same time, creating strong regional institutions that would benefit the entire region. Argentina’s economic problems have moved it from being a primary economic engine of Mercosur to almost a peripheral position. It is also difficult to make partner members of this organization work together when one of them has an inflation rate of 6.5% and the other one has 25%. Also, Argentina has walked away from free trade promotion to focus more on protectionist measures, which the Brazilians didn’t agree with. The addition of Venezuela also created tension within the organization because it did not bring any economic value. It was only based on political affiliation. In this circumstance, Brazil decided to focus on inward rather than worrying about its other regional members. One ponders what Mercosur could have been if the member states were able to create strong regional institutions.

So, why are we talking about Mercosur? Regional integration is also an important, and extremely relevant, topic in another part of the world. Africa is one of the most complex regions in the world. But in the past few years the region has grown tremendously. Around $80 billion dollars are expected to enter the continent at the end of this year. In 2040, Africa will have the largest amount of labor, surpassing China and India. Unfortunately, most of the news that we hear from this area of the world is negative. One way experts believe Africa can overcome its historical reputation and solve its economic woes is through regional integration. There have been many attempts to integrate the continent the first one and most emblematic is the African Union (AU). This organization not only focuses on economic development but also to create a peaceful Africa that is why it has the right to intervene in countries when conflicts appear. But the common opinion is that just like Mercosur this organization has failed in its mission. During the civil war in Libya the AU was criticized for not intervening and to put a stop to the conflict. Also the organization has received a lot of criticism about how to integrate the region economically considering most countries still struggle with poverty. Most people feel this organization is just an accessory. Therefore leaders have created other organizations to achieve the goals that the African Union has not. Examples are Common Market for Eastern and Southern Africa (COMESA) and Economic Community of West African States (ECOWAS).

The problem that I see when creating multiple organizations is that all of them have different agendas and may, oftentimes clash; preventing them from achieving the goals that will improve the region. As a Latin American, regional integration is an ideal that has not been achieved, as, unlike Europe, one big organization with sub-organizations to control the different areas may be preferable to the status quo. The main challenge, therefore, is to actually create a supra national body that may succeed in achieving the goals – giving Africa a more realistic body to emulate.

To change the idea people have of Africa is necessary to come with a good plan that will achieve the kind of regional integration that everybody wants. If leaders fail to prepare for every possible outcome, the entire system will collapse with the first problem. Africa needs to overpass different obstacles to achieve this goal. The path will be long, but with time and dedication Africa will rise as it was always meant to.

African Trade Integration from an American Perspective

Author: Matt Eiss

As an American living in an age of economic and political strength, it can be easy to forget the difficult questions that our country was forced to make during its fledgling years. The United States and Western Europe have benefitted from the current global system. With the increased efficiency of trade in goods and services between opposite ends of the globe, however, new questions have arisen and new systems of interacting between countries. Regional integration and its economic impacts have become germane in response to this new global environment. Some countries and regions are struggling to find their niche within this globalized economy. The United States (and other successful countries) needs to look back to a foundational period when they were in a similar situation for a more fair economic system.      

Alexander Hamilton in the Federalist Papers (Federalist 12 and 13) wrote about the benefits of a strong union. During the ratification period of the U.S. Constitution, Hamilton fought using pen and paper to argue the benefits of a strong union of states. To paraphrase his economic arguments in The Federalist Papers, Hamilton argues that if the states integrated they could benefit significantly through international trade by having a common external tariff and unrestricted internal commerce between states. Another important aspect was that in integrating, foreign powers could not be used against each other to further their own economic interests and promote distrust between the states.      

There is a modern example that mirrors this quick history lesson in Hamiltonian economic theory. Economic unions are becoming a common form of unification that applies Hamiltonian theory into practice. What Hamilton discussed in terms of a strong central government, is not what “regional integration” means today. Even so, his economic prescription remains valid. African nations are currently playing catch up to the regional trade unification zones that mark the modern macroeconomic landscape. The United States should recognize this line of thinking due to Hamilton’s integral role in developing U.S. economic and political thought.  

It has been especially difficult for African nations to integrate because of the various trade agreements individual African nations have with the EU and the U.S. Recently, African ministers and trade experts on regional integration followed Nigeria’s position against trade liberalization deals with the European Union. African trade leaders argue that if they were to adopt the Economic Partnership Agreements (EPAs) with the EU, their ability to regionally unify economically and develop stronger economies would be hindered. While the idea of EPAs is good in theory and would be beneficial for Africa in the future, it would be detrimental if African nations agreed to them as Africa is currently configured economically. Hamilton, I’m sure, would support giving Africa the time necessary to regionally integrate to create stronger economic trading partners for the EU and the U.S. and strengthening the global economic system.   

Africa Still the Odd One Out

Source: IPS/TRALAC 
Author: Servaas van den Bosch


CAPE TOWN , Sep 8, 2011 (IPS) - While globally trade agreements are more and more about linking production chains between countries and continents, Africa remains locked in a struggle to overcome the colonial legacy of fragmentation, trade experts say.

"It’s no longer a world of them and us. Countries are all part of the same production chain, so by practicing protectionism we would shoot ourselves in the foot," said Chief Economist of the World Trade Organization (WTO) Patrick Low.

Speaking on Thursday at the two-day Trade Law Centre of Southern Africa’s (Tralac) annual conference in Cape Town, Low said preferential trade agreements (PTAs) are less and less about tariffs and increasingly deal with ‘deep integration’, or linking production networks.

Low referred to the WTO’s World Trade Report 2010 that shows that 87 percent of trade conducted under PTAs enjoys a preferential margin of just two percent. And only 16 percent of world trade is subject to preferences.

"It’s no longer just about opening markets, but about subtle ways to create a competitive environment for your industry. By engaging in such deep PTAs, trade within production networks has gone up by eight percent," said Low.

However, this does not apply to Africa.

"Africa does not fit into this pattern. Rather than accommodating production networks, it is locked in a struggle to overcome the colonial legacy of fragmentation. PTAs in Africa are therefore rather shallow and do not necessary lead to deeper integration," observed Low.

An analysis of global trends in PTAs shows they increasingly facilitate the removal of obstacles to cross-border production. They are highly private sector-driven, with a buy-in from government and with domestic regulation supporting regional developments. They also often go further than what the WTO prescribes for free trade.

In Africa, said trade law expert and Tralac associate Gerhard Erasmus, PTAs are motivated by post- colonial politics and characterised by a top-down government-led approach. Africa also pursues a linear model of trying to move from Free Trade Areas (FTAs) to a customs union and ultimately a common market. This is not always realistic and results in ‘messy’ FTAs without the proper monitoring and enforcement of rules.

For instance, the Southern African Development Community (SADC) is in name a FTA, but it continues to suffer from numerable trade barriers.

"A truck driver shipping goods from South Africa to the Democratic Republic of Congo will be, for instance, held up at a border by obstinate officials citing improper documentation and be forced to abandon the truck.

"Upon returning to the border post, after months of unsuccessfully trying to seek redress through the courts, the truck will be gone and so will the merchandise," Erasmus said of the daily challenges private sector players face.

Development of services, such as a cost-effective transport sector, is largely avoided in the extensive trade talks African countries have engaged in over the past decade. Yet without them, trade suffers.

"For example 40 percent of Rwanda’s export income is gobbled up by transportation costs," said Erasmus.

"Africa continues to be preoccupied with trade in goods, rather than embracing a deeper regional integration agenda like elsewhere in the developing world. Talks are mostly state-driven with both the private sector and civil society occupying a peripheral place. The private sector should be engaged to boost deeper integration," said Tralac Director Trudi Hartzenberg.

Services are essential to boost the production sector or networks, even when they deal with goods, said the Organisation for Economic Co-operation and Development’s Hildegunn Nordhas. He said that services were needed to grow industry and businesses. The development of services can open markets or boost productivity.

"The cut-flower trade in Kenya only started flourishing when more tourists flocked to Kenya, thereby establishing regular air connections that could then be used to export flowers.

"Or take the proliferation of the telecom sector in Africa. Where you previously had to drive to a farm in the rural areas to see if they had produce, you can now call the farmer on his cell phone," Nordhas said.

To continue to ignore the development of the service industry in trade agreements on the continent will do Africa no favours in the long run, Nordhas said.

"The relative gap between developed and developing countries that invest in services and Africa will grow and we will fall behind. So actually the development of services is a priority." 

Mauritius beats Kenya to foreign capital

Source: Business Daily

Foreign companies with an eye on Africa’s emerging markets are flocking to Mauritius to incorporate local subsidiaries in a move that could deny more than a dozen African governments billions of shillings in corporate taxes and position the island nation as the region’s economic hub. Kenya, which has been eyeing the regional economic hub status, is one of the likely casualties of the migration to the Indian Ocean state, whose favourable tax regime and efficient judicial system have become popular with multi-nationals looking for a safe haven to anchor their expansion into Africa’s highly profitable but risky frontier markets.

In the past five years alone, more than four foreign firms have entered the Kenyan market using Mauritius-based subsidiaries threatening Nairobi’s ambition to become the business hub for the 15 nation Common Market for Eastern and Southern Africa (Comesa). Waguthu Holdings (K) Limited, the company that is associated with the multi-billion shilling real estate project, Tatu City, is also owned by a parent company incorporated in Mauritius as MCIH.

Investment analysts said that though there has been a growing interest in Kenya as a business hub for the newly-created East African Community’s common market, pressure is mounting from Mauritius’ continued attractiveness as an operation base for foreign investors eyeing the region. “Mauritius offers a lot of incentives in terms of favourable tax regime and asset protection mechanisms,” said Simeon Cheruiyot, a partner at consultancy firm, PriceWaterhouseCoppers (PwC).

The range of incentives available to foreign firms in Mauritius includes a 15 per cent charge on a company’s taxable income such as business or trading profits. At 15 per cent, Mauritius’ corporate tax rate is half the 30 per cent rate that Kenya applies to similar income. Kenya has also been rendered less attractive by the levying of a 10 per cent withholding tax on dividends for non-residents as Mauritius applies a zero rate for similar income.

Foreigners living in Mauritius are also spared royalties taxes compared to their Kenya-based counterparts who are taxed at the rate of 20 per cent. James Kamau, a managing partner at Iseme, Kamau and Maema Advocates said Mauritius has spiced up its tax offers with a long list of double taxation treaties it has signed with more than 20 countries.Double taxation treaties are inter-government agreements that protect transnational companies from being taxed twice for the same asset or income easing the flow of trade and investments.

Kenya has double tax treaties (DTTs) with a handful of nations including the United Kingdom, Canada, Denmark, Norway, India, Sweden, Zambia and Germany. Mauritius has more than 30 double taxation treaties in Africa alone.

More recently, Mauritius has also entered into Investment Promotion and Protection Agreements (IPPAs) with its double taxation partners. The list includes 15 African countries of Benin, Botswana, Burundi, Cameroon, Chad, Comoros, Ghana, Guinea, Madagascar and Mauritania, Mozambique, Rwanda, Senegal, South Africa, Swaziland, Zimbabwe and Tanzania.

The agreements allow foreign investors to freely repatriate investment capital and returns, shields them from expropriation of their property and offers the signatories a most favoured trading partner status (MFN) with respect to treatment of investors. Under the IPPAs foreign investors from signatory states are also guaranteed compensation for losses in case of war, armed conflict or riot and are offered clear arrangements for settlement of disputes with the contracting states. Analysts said efficient judicial and dispute resolution mechanisms have also given Mauritius an edge over the competition in Africa.

The World Bank’s private sector-lending arm, the International Finance Corporation (IFC), has in its Doing Business 2011 report ranked Mauritius’ judicial system as the best in Africa in terms of reforms aimed at facilitating business and investment transactions. Influential Kenyan investment group, Transcentury Limited, is among firms that have opted to pursue justice in Mauritius’ judicial system. The Kenyan firm moved to a Mauritius court early last year at the peak of its battle with Egyptian rival — Citadel Capital over the control of the Kenya-Uganda Railway concession.

It had sought ex-parte orders to stop the other shareholders in the concession deal from raising $10 million of fresh capital in a rights issue. RVR is registered in Mauritius. The Commercial Court in Nairobi, which handles trade disputes, is currently overwhelmed by the large number of cases before it, causing cases to drag on for many years. This forces most investors to unwillingly opt for costly out-of -court settlements to avoid losing their investment all together. Industry operators said the favourable tax regime in Mauritius is likely to keep more investors trooping to the island nation as they expand their businesses in line with ongoing regional integration.

Uganda coffee farmers reap benefits of fair trade Coffee picking

Source: Business Daily Africa

The cultivation of coffee for fair trade has turned the fortunes of this historical cash crop around in some poor rural areas on the slopes of Mount Elgon in eastern Uganda. The east African country’s government liberalised the coffee export market in 1990s, attracting many coffee buyers to the Arabica coffee-growing districts. Increased competition went hand in hand with cash payments to farmers from the sale of coffee, as opposed to the old system where they had to wait for cooperatives to pay them. Nevertheless, the prices remained low at 0.35 dollars for one kilogramme of coffee and farmers could not break even. Some farmers lost interest in coffee cultivation while others started to cut corners. The coffee was not pulped well; it was mixed with husks and sand to increase weight. Concerned about the decline in the quality and quantity of the historical cash crop, some former staff and members of the Bugisu Cooperative Union formed Gumutindo Cooperative Trading and adopted fair trade rules.

Gumutindo means quality in the native language of the Arabica coffee - growing tribe that lives on the slopes of Mount Elgon in eastern Uganda. Sam Magona, one of the founders of Gumutindo, told IPS that by joining the fair trade movement they wanted to reclaim the reputation of Ugandan Arabica coffee on the world market and to ensure that farmers got higher prices for their produce. Gumutindo has since established it own warehouse in Mbale, some 300 km east of Uganda’s capital Kampala. It is affiliated to the British-based Fairtrade Foundation and exports organic coffee to Café Direct Plc and Trade Aid, among others.

Apart from paying higher prices, Gumutindo provides a social premium with each kilogramme of coffee that is produced. This premium comes in the form of a bonus to farmers which they can use to set up support projects, in the areas where coffee is cultivated, that are also aimed at those people not engaged in coffee production.

Quality assurance                                                                                                                    
Lydia Nabulumbi, Gumutindo’s quality assurance officer, told IPS that the sorting process is done both by machines and humans to ensure quality. “The criteria for determining whether to buy the coffee are strict. When the coffee comes through the gates, our quality assurance people check the beans.

Cleaner coffee                                                                                                           
“Quality is about the physical appearance of the coffee beans and how clean they are. Then they check the moisture content and the number of defects. When they decide that it is good quality, they give permission for the coffee to be bought and stored in the warehouse for export,” she adds. Over the years, the coffee beans that Gumutindo receives has been cleaner, which has meant less sorting than before.

Export strategists                                                                                                                
The review meeting will take place in Kampala with speakers drawn from the Trade ministry, export strategists, and UEPB’s executive director Alberto Gonzaler. “The momentum built over the past three years of the NES is under review in order to fill gaps and promote synergy fostered among the major stakeholders and players,” Mr Karibwije said. Coffee remains Uganda’s major foreign exchange earner. NES, through partnership with the Netherlands Trust Fund II Project, seeks to create sustainable export competitiveness in the coffee sector.

The review will also help re-examine Uganda’s export markets and to hedge against market uncertainties such as those occasioned by the 2009 economic meltdown. It is expected that the knowledge gained during the review process of the coffee sector will be replicated in reviewing of the remaining 11 export sectors of the broader NES, in the second half of 2011.Farmer associations are at the heart of the review process and the invigoration campaign. 

9th AGOA Civil Society: A Huge Success

The Ninth AGOA Civil Society forum held in Washington DC on July 29^th & 30^th was a tremendous success.  The forum ended with an excitement for the future of AGOA.  

The forum commenced with Senator Cardin (D-MD), from the Senate Foreign Relations Committee as the keynote speaker. This then flowed into a panel giving background on Civil Society and AGOA from 2000-2010. The ensuing panel, Energizing AGOA Agriculture Trade, was moderated by Patrick Wilson, the BIG-Africa Partnership Secretariat. While lunch was being served, William Fitzgerald, the Deputy Assistant Secretary of State for African Affairs gave thoughtful input on AGOA. This continued into a engaging discussion that progressed into and Infrastructure Panel moderated by Katrin Kuhlmann.  Kuhlmann, a Resident Fellow from The German Marshall Fund, has conducted extensive work on African  Development Corridors and Regional Economic Communities. After the final panel, moderated by David Saunders that discussed the Impact of Trade on African Societies, the day was concluded with a reception. 

Master of Ceremony of the evening reception, Tony Carroll, VP Manchester Trade, addresses the African Women Entrepreneurs

Tom Sheehy, Staffer from Congressman Ed Royce's office addresses the gathering while Tony Carroll, VP of Manchester Trade, and Steve McDonald, Director of Africa Program Wilson Center look on

The morning of Friday, July 30^th kicked off with a positive speech from Congressman Jim McDermott (D-WA). The Congressman has been a supporter of AGOA and posses unique understanding of Africa. 

Manchester Trade's panel, Textiles and Beyond, was attended by African Women Entrepreneurs and was very well received for its ideas on AGOA reaching beyond textiles.

Tony Carroll, VP of Manchester Trade, moderates Textiles and Beyond

34 African Women Entrepreneurs in the audience during Manchester Trade's Textiles and Beyond Panel

Stephen Lande, President of Manchester Trade, Panelist of Textiles and Beyond. Lande advocating for permanence and predictability of AGOA, and to not use AGOA as an economic sanction.

Navdeep Sodhi, Nigeria Associate, Nigeria Office Manchester Trade. Sodhi discussed business diversification initiatives by Nigerian textile manufacturers .

Examples of products Sodhi referred to during his presentation on business diversification by Nigerian textile manufactures. In the blue bag, long lasing insecticide treated net (LLIN); in clear bags, Post-Consumer recycled polyester chips and fiber from PET bottles

At the Woodrow Wilson Center there has been a buzz of excitement the past two days; as the forum has been comprised with excellent panels, an outstanding audience, and remarkable staff. Although Civil Society has concluded, if you were unable to make the event or would like to watch the panels again, the Woodrow Wilson Center will have the forum on their website soon.

AGOA At 10 - Washington D.C. Kansas City Forum Information

AGOA Forum 2010

“AGOA at 10: New Strategies for a Changing World”

August 2-3

Woodrow Wilson International Center

One Woodrow Wilson Plaza

1300 Pennsylvania Avenue N.W.

Washington, DC 20004

August 5-6

Marriott Convention Center

Two Hundred West 12th Street

Kansas City, Missouri 64105

The United States will hold a portion of the Ninth United States-Sub-Saharan Africa AGOA Forum. The forum begins  August 2-3, 2010 with senior government trade officials from 28 African nations, continuing August 5-6 with participates from the African Private Sector. This year's two-city format provides U.S. businesses a opportunity to discuss issues with decision makers across Africa. Potential issues include broader trade, capacity-building issues, and trade regulations. 

LOCATION:   Woodrow Wilson Center for International Scholars

                        6th Floor Flom Auditorium Room

                        1300 Pennsylvania Ave., NW

                        Washington, DC 20004

                        Tel: 202.691.4000

DATE:             August 2, 2010

Conference 9:00 am – 5:30pm (Woodrow Wilson Center)

Reception   7:00pm – 9:00pm (Woodrow Wilson Center)

                      August 3, 2010

Conference 9:00am - 5:00pm (Woodrow Wilson Center)

Closing Ceremony - 5:30pm - 6:30pm (Woodrow Wilson Center)

LOCATION:   Marriott Convention Center

                        200 West 12th Street

                        Kansas City, Missouri 64105

                        Tel: 816.421.6800

DATE:             August 5, 2010

Conference 8:30 am – 5:30pm (Marriott Convention Center)

Reception   6:00pm – 8:30pm (Marriott Convention Center)

                      August 6, 2010

Conference 8:30am - 12:30pm (Marriott Convention Center)

Closing Ceremony - 1:30pm - 2:30pm (Marriott Convention Center)

RSVP is required to attend these events. To RSVP click here. RSVP

requested by July 23, 2010****