How the EU could spur African growth, instead of making more bad trade deals

Fishers in Mozambique won’t benefit from southern Africa’s latest deal with the EU. Grant Neuenburg/Reuters

Before the election of Donald Trump ripped up the global rulebook on trade, the European Union entered into an old school-style deal with many African countries.

After nearly a decade of negotiations, the Southern African Development Community (SADC), comprising Botswana, Lesotho, Namibia, South Africa and Swaziland, signed the Economic Partnership Agreement (EPA) with the 28 members states of the EU. When the process of ratification is complete, Mozambique is slated to become the sixth member of the agreement.

The EPA is designed to be asymmetrical in the African countries’ favour. The European Commission has insisted that the EU has “never accepted such a degree of asymmetry in a trade deal before”.

But some European and African delegates continue to question the fairness of the deal, not least because the African countries already benefit from duty-free access to the European single market through the “Everything but Arms” initiative of the Commission.

The EU will grant all signatories of the deal 100% free access to its common market, except South Africa, which will have custom duties on 1.3% of its exports.

Will it work?

The granting of free access to the vast EU market is lauded as a coup for the continued economic progress of the developing nations involved. While there is no reason to believe the motivations of the European Union are anything but sincere, whether it will have the intended effect is still unclear.

The rationale of the agreement has been showcased by the EU as a tool to spur economic growth. The argument goes that removing duty on “intermediate goods” – such as automotive parts and electronics that are used in the manufacturing of more specialised consumer goods – can now be imported on the cheap.

Discarded electronics for recycling at the East African Compliant Recycling in Nairobi, Kenya. Thomas Mukoya/Reuters

The EU claims that the agreement will protect African production activities from liberalisation, allowing domestic industries the time to mature. The textile industry has garnered particular interest where South African labour unions have been very vocal against further trade liberalisation. Countries such as Ethiopia and Kenya – both showing promise of becoming established textile-producing hubs – are also grappling with various hurdles from European customers who are perceived as “more demanding with respect to lead times, order sizes, and quality”.

An influx of cheaper, higher quality products such as textiles from the EU are likely to reduce trade between African nations, prevent manufacturers from making more diverse products, and limit industrialisation. Even South Africa’s inter-regional textile exports, despite boasting a more established and sophisticated industry, represent a mere 12% to 14% of total exports.

Giving European imports the duty-free treatment will leave African producers struggling: local businesses will be unable to sell their wares at competitive prices, while the agreement will limit the whole continent’s efforts to move up the industrial value chain, and produce a greater quantity of final consumption goods.

As a result, Africa will remain, contrary to the envisaged ambitions of the EPA, a perpetual supplier of raw materials with a poorly diversified economy.

Divide and conquer

Signatory countries are also at risk of destabilising their fragile economies by losing the ability to collect duties on imported goods.

Botswana, according to the latest World Bank figures, relies on such tariffs to fill 47% of its state coffers, Namibia for 22%, while Lesotho, a landlocked country within a country (South Africa) earns nearly 70% of its total tax revenue at its borders.

Botswana’s emerging economy could lose from the EPA deal. Siphiwe Sibek/Reuters

The Wilson Center, a US think tank, supports the criticism flung at the EPA, claiming the agreement is inherently flawed because of EU envoys’ “divide and conquer” tactics when negotiating with African countries.

As part of this approach, EU negotiators trigger the fear of losing preferential access to the EU market in their counterparts, which forces the African states to the table under the assumption that they are left with no choice but to participate in EPA talks.

This strategy can be seen in the behaviour of the European Commission towards other African nations. Recently, the Commission announced that Kenya, on the cusp of being declared a “middle-income” country, would lose tariff-free access to the EU market if the country did not ratify the East Africa EPA.

Tanzania faces a similar predicament if its status as a developing nation is reviewed.

The case of Mozambique

Instead of pursuing unhelpful trade deals, Europe should work to help address the African continent’s deepest structural problems.

The fishing industry in Mozambique serves as a poignant example. The country, disproportionately reliant on its fisheries for both foreign reserve income and feeding its citizenry, is losing up to US$65 million from its economy every year because of illegal fishing.

Through a series of deals in 2013, Mozambique undertook major investments to upgrade its previously inadequate maritime surveillance powers and safeguard the country’s coastlines.

The government bought patrol vessels, and improved monitoring, training and technology capabilities. But it is now facing criticism over how the deal was secretly financed and further questioning over why it is failing to put the new fleet to good use.

Mozambique’s new fishing fleet is mired in controversy. Grant Neuenburg/Reuters

An EPA offers little hope of alleviating the plight of fisheries, especially in light of research that shows that fisheries agreements conducted between the EU and island nations in the Pacific during the 1990s generated seven times more value for European states than for the island nations.

But a joint initiative on fishing would instead have the potential to increase export revenue and serve as a catalyst for job generation. A concerted effort between the EU and host nations on the issue of illegal, unreported and unregulated fishing alone could add 300,000 jobs and generate US$3.3 billion in revenue. It could also boost income from selling foreign rights by a factor of eight.

Southern Africa as a dumping ground

The EU’s incessant pursuit of EPAs are uncreative and may prove inadequate in promoting African economic self-reliance.

The most likely scenario for the agreement signed with the SADC is that the African countries involved will become a dumping site for European goods of superior quality to domestic products. Local consumers will no doubt favour these relatively cheaper goods over locally produced goods. This will have a direct affect on local trade and manufacturing prowess.

Instead of chasing new EPAs, the EU should concentrate on providing the skills and structures to assist host nations, becoming development partners rather than dictators of unfavourable terms.

The EPA is a fruitless attempt to reach a seemingly beneficial agreement, which risks become yet another unpopular global trade policy. The EU would do well to consider helping countries such as Botswana, Mozambique and Lesotho with the problems they actually have, rather than striking deals that are bound to fail.