Inquiry into Australia’s trade and investment relationships with the countries of Africa
On 13 June 2017, the Australian Foreign Affairs, Defence and Trade References Committee launched an inquiry into Australia’s trade and investment relationships with the countries of Africa, with a report expected by 14 February 2018. The reporting period has since been extended by the Senate to 21 June 2018.
The inquiry is directed in particular at the following: a) existing trade and investment relationships; b) emerging and possible future trends; c) barriers and impediments to trade and investment; d) opportunities to expand trade and investment; e) the role of government in identifying opportunities and assisting Australian companies to access existing and new markets; f) the role of Australian based companies in sustainable development outcomes, and lessons that can be applied to other developing nations; g) the role of Australian based companies in promoting the achievement of Sustainable Development Goals; and h) any related matters.
Two Public Hearings have been held to date: on 2 May 2018 in Perth and on 11 May 2018 in Canberra. In a statement delivered at the first hearing, Business for Development highlighted that “[T]rade keeps goods, services, and capital flowing. Whether it be ending hunger and poverty, providing decent work and economic growth, innovation and infrastructure, trade is a common thread woven throughout the SDGs’ targets.
“It is through understanding the value chain and developing strong partnerships, trade is developed. By fostering the development of inclusive agribusiness opportunities, mining companies supported by African & Australian governments and civil society can work together to drive inclusive growth.”
Joint submission from the Department of Foreign Affairs and Trade (DFAT) and the Australian Trade and Investment Commission (Austrade)
Africa is a large continent comprising many nations at very different stages of economic development and stability. Assessments of the opportunities for Australian companies need to balance growth projections against the reality of conflict, commercial risk and weak political and economic governance in many African countries.
The overall assessment is positive for increasing engagement by Australian companies in Africa in the coming decades, however for significant increases to occur, sustained improvements in the business-operating environment will be required.
A number of the findings of the 2011 Joint Standing Committee on the Foreign Affairs, Defence and Trade Inquiry into Australia’s relationship with countries of Africa remain relevant today: “Africa is a diverse continent of increasing importance to the world. In geopolitical terms, African countries have increasing influence on international organisations; in resource terms, Africa has vast reserves; in trading terms, Africa’s underutilised arable lands represent great opportunities to feed the world. Africa also continues to face significant challenges, particularly in health, governance and economic development”.
Trade and Investment Flows
Australian companies’ commercial interests in Africa are mainly in the extractives sector but are increasingly in services, education and agriculture. Australia’s trade (goods and services) with Africa has fluctuated over the past decade from $6.1 billion in 2004 to a high of $10.3 billion in 2014.
Total trade (goods and services) with Africa was valued at $7.6 billion in 2016, comprising two-way merchandise trade of $5.3 billion and two-way services trade valued at $2.3 billion. Aluminium ore, wheat, vegetables, coal, machinery and parts dominate Australian exports to Africa. Petroleum and, to a lesser extent, motor vehicles are Australia’s largest imports from Africa. Services trade was dominated for both exports and imports by personal travel services, with education-related travel making up almost 50 per cent of the value of services exports.
By comparison, total goods and services trade with ASEAN in 2016 was $38 billion representing 13.8 per cent of Australia’s total trade that year. In the same period trade with Africa was approximately 1 per cent of all trade flows.
For North Africa, the reduction in stability, growth and trade post-Arab spring has significantly affected the region. In 2016, two-way trade between Australia and North Africa totalled $909 million. Australian exports to the region mostly comprised beef, dairy, machinery parts, fruit and vegetables and wool. Imports to Australia from North Africa mostly comprised petroleum, fertilizers and textiles.
With the exception of South Africa, investment flows outside of the resources sector are still limited. A DFAT stock-take in 2015 estimated that investment flows in the extractives sector by Australian companies were significant and geographically diverse with projects underway in 35 countries. Australian companies are most active in the resources sector in South Africa, Namibia, Tanzania, Zambia and Burkina Faso.
Opportunities for Australian Companies
Africa currently has a population of 1.1 billion which is forecast to reach 2.5 billion by 2050 bringing with it a tripling of the workforce to 1.5 billion. The twin drivers of population increases coupled with a growing urban middle-class are expected to result not only in higher economic growth but also in increases in consumer demand over the coming decades. These changes could lead to new opportunities for Australian companies with an appetite to increase their engagement in specific markets.
However, population growth and associated demographic changes alone will not be sufficient to increase significantly Australian trade and investment flows with Africa. Improvements in the overall business-operating environment in Africa are critical to reducing commercial risk and uncertainty, and will be a key factor in generating increased Australian business interest and engagement in the continent.
Recent DFAT and Austrade analysis is that the most realistic and immediate commercial opportunities for Australian companies in Africa are in mining and related equipment, technology and services; education; agribusiness and food and infrastructure
The submission makes four recommendations to enhance trade and investment with the countries of Africa:
- Strengthening government-to-government engagement
- Expanding economic diplomacy
- Fostering stronger private sector linkages
- Addressing business risk factors in Africa
In order to advance and protect our economic interests in Africa and our ability to influence and shape outcomes for Australian business, the submission recommends strengthening Ministerial and parliamentary contact and links with African counterparts. We should expand economic diplomacy to raise awareness of commercial opportunities and promote Australian capabilities. There is also scope to develop greater business and private sector linkages. Finally, the submission recommends enhanced use of Australia Awards to influence policy thinking in Africa and targeting aid programs to support good governance and an improved regulatory environment.
Submission from the Trade Law Centre (tralac)
Since this inquiry is about “Australia’s trade and investment relationships with the countries of Africa” the essential focus would presumably be on specific countries, investment locations and export destinations. And the benchmarks for how this relationship should look like, should be stated. What is the aim behind the present exercise? Will trade in goods, trade in services, and investment matters be targeted as separate objectives or in an integrated fashion? Is the aim to shape a new trade and investment governance regime (negotiate preferential agreements with specific African countries, or customs territories), or is the aim to enhance trade and investment facilitation within current governance parameters (e.g. World Trade Organisation (WTO) agreements and the current unilateral preferential arrangement, operating under a WTO waiver)?
There is however value in noting some bigger picture aspects, and what African governments are doing in order to boost African trade and regional integration. Information, and informed perspectives, on these developments can contribute to the development of an Australian strategy for Africa.
Beyond Mining and Commodities?
In April 2016, The Economist published an article on African developments under the heading: Making Africa work – The continent’s future depends on people, not commodities. It made the following points:
For decades, sentiment about Africa has followed commodity prices. Miners sank billions into African soil to feed China’s appetite for minerals. Now investors are glum.
Pessimists should remember two things about commodity busts. They don’t last for ever. And they don’t hurt everyone: 17 African countries with a quarter of the region’s population will show a net benefit from the current one, thanks to cheaper energy. More important, by focusing on the minerals markets it is easy to miss some big trends that are happening above ground.
In the long run, the potential rewards from a market of 1.2 billion people are too attractive to ignore, despite the risks. Africa has also become more peaceful and democratic than it was even a decade ago.
Africa’s past has long been defined by commodities, but its future rests on the productivity of its people. By 2050 the UN predicts that there will be 2.5 billion Africans – a quarter of the world’s population.
Given good governance, Africa can prosper, sustainably.
In some ways, the continent’s future is in the balance. Whether it bounces back from the commodity slump or slips back into stagnation, war and autocracy will depend on whether enough of the continent’s leaders keep moving forward. These leaders need to be supported.
A future relationship with Africa should include involvement in projects and programmes which will assist those leaders that pursue inclusive growth policies, infrastructural development, and very importantly, better governance.
Good governance is vital for a rules-based, transparent and predictable trade and investment environment. Foreign investors should think about ways and means to promote better governance in the countries where they do business. It is also in their best interest.
If the opportunities in Africa are only viewed as of the quick profits and run kind, then it does not really matter how the governance environment looks. This is not in the interest of Africa’s inclusive growth and sustainable development.
Trade facilitation issues remain a major challenge in Africa. (It costs more to move one container from Windhoek, Namibia to Lusaka in Zambia, than to move the same container to Perth from Windhoek via Walvis Bay.) Bad roads, corruption, red tape and non-tariff barriers still hobble trade between African countries, which still only accounts for about 17% of total African trade. Improving this situation requires not only investment in infrastructure, but domestic regulatory reform and regional harmonisation of regulations in these infrastructure services sectors, fighting corruption and liberalising trade, especially in terms of reducing non-tariff barriers. But trade facilitation also has to be anchored in support infrastructure (physical, policy and legal) that enhances the capacity to produce tradeables competitively. For example, the development of quality infrastructure (eg laboratories and other testing facilities) has to enjoy priority, supported by the adoption and implementation of appropriate sanitary and phyto-sanitary (SPS) measures, and technical regulations at national and regional levels. These are essential to ensure effective access to export market opportunities.
What are African Governments doing re: Trade and Integration?
Regional integration is actively pursued; most African markets are too small to attract sufficient investment in industrialization. The Regional Economic Communities (RECs) have been formed since post-colonial times to make this possible.
Some are formally committed to the formation of customs unions and common markets but progress has been slow. Many member states battle with weak governance structures and technical constraints – which make it difficult to comply with SPS standards for agricultural exports, for example.
Africa’s own continental integration agenda aims to boost intra-regional trade from the current low level, to 25 percent or more by 2022. How will this happen?
The Tripartite Free Trade Area (TFTA), consisting of the members of COMESA, SADC and the EAC, was launched in June 2015 but only covers trade in goods; with modest levels of tariff liberalization to start with. The original intention was to conclude a trade in services agreement too, but it is uncertain whether this will happen.
Services and trade facilitation may now be prioritized in the other continental initiative, the Continental Free Trade Area (CFTA), under the auspices of the African Union. The negotiations started at the beginning of 2017 and all 55 African Union Members are involved. An important lesson from the TFTA experience, that is borne out by the lack of implementation of most intra-African trade agreements, is that African governments are more comfortable with best endeavour provisions, than with binding commitments.
Investment governance matters have an important feature of the broader governance and development agenda; reflection and appraisal instruments such as bilateral investment treaties have prompted new thinking about fundamental aspects of rules based governance such as dispute resolution. It is not common to find provisions in regional dispute resolution arrangements that provide access for private parties; and African governments do not have a track record of litigating against each other.
Preferential non-reciprocal trade arrangements are still in place for most African countries. The African Growth Opportunity Act (AGOA) with the United States (US), the European Union’s (EU) Everything but Arms and Generalised System of Preferences (GSP) programmes (including the Australian System of Tariff Preferences (ASTP) are examples). The poor uptake of these preferences demonstrates that there may well be more fundamental challenges, including the weak industrial capacity of African countries, and the more general lack of competitiveness, or that there are substantive provisions in these arrangements (eg rules of origin) that make it very difficult to access these potential market opportunities. These issues motivate very strongly for a broader approach to forging new partnerships with Africa, including support that will assist to address, what have been historically called, supply-side issues, but perhaps can be broadly referred to as competitiveness challenges.
The experience of the Economic Partnership Agreement negotiations between groupings of African countries and the EU offers important lessons for third parties, including the Australia and the US, should they be interested to negotiate reciprocal, WTO-compatible trade and investment agreements with African countries. Limited success has been achieved after more than a decade of complex negotiations. Only one such agreement really got off the ground; the Southern African Development Community (SADC) EPA, which entered into force in October 2016. The African members are South Africa, Namibia, Lesotho, Botswana, Swaziland (these 5 are the member states of the oldest Customs Union in the world) and Mozambique. An important contributory factor to the complexity of negotiations with external parties, is the fact that Arica’s own integration process is still under construction.