Updates on this week’s 10th EU-AU Commission-to-Commission meeting:

1. The President of the European Commission, Ursula von der Leyen, travels to Addis Ababa accompanied by 20 Commissioners and the EU High Representative for Foreign Affairs and Security Policy. Discussions will focus on key issues such as growth, jobs, green transition, digital, peace, security and governance, and mobility and migration. The meeting will be an opportunity for the EU side to consult its African partners on the upcoming comprehensive Africa Strategy, which President von der Leyen promised to deliver in her first 100 days in office and is due to be presented in early March. The presentation of this important document will kick-start a wider consultation process that will lead up to the EU-AU Ministerial meeting in May 2020 in Kigali, Rwanda, and the upcoming EU-AU Summit in October in Brussels, where both sides will agree a joint approach on shared priorities. [ pdf Factsheet: European Union-African Union Commission-to-Commission take their cooperation forward (5.76 MB) ]

2. EU’s Africa strategy: changing the narrative from ‘development’ to ‘partnership. At the heart of the EU’s Africa strategy, due to be formally launched in early March, will be a series of policy-themed ‘partnerships’, according to a leaked draft. The EU Commission aims to “change the narrative: look at Africa for what it is becoming: home to the world’s youngest population; largest trade area since the creation of the WTO; appetite for regional integration; women’s empowerment; all creating huge economic opportunities.” The draft of the strategy covers various important areas, namely Partners for Sustainable Growth and Jobs; for a Green Transition; for a Digital and Data Transformation; Peace, Security, Governance and Resilience; Migration and Mobility; and Multilateralism.

   This strategy reflects the change in the narrative during the first three months of the Von der Leyen Commission that has shifted from the focus on ‘development’ to ‘partnerships’. The leaked draft points the direction of EU-Africa policy in one of the key documents driving the so-called ‘geopolitical’ Commission. Ministers are expected to adopt conclusions at a Foreign Affairs Council in April or May, and then at an EU summit on 18-19 June. Africa policy has also been embraced by the Finnish government during the country’s EU presidency last year, whereby both the EU and the Finnish strategies “aim to strengthen an equal strategic partnership between the EU and Africa and to boost their political and trade relations,” as its Development Minister Ville Skinnari pointed out.

   The strategy is likely seek to increase EU-Africa trade, business opportunities and investment, as well as EU support for the African Continental Free Trade Agreement that will come into force later this year. However, there are concerns that it will be overshadowed by the piecemeal progress of talks on the successor to the Cotonou Agreement, which is due to expire next month.

3. Towards an enhanced Africa-EU cooperation on transport and connectivity: report by the task force on transport and connectivity. On 19 February 2020, the Africa Transport and Connectivity Task Force delivered its final report on the state of the art in three key sectors of transport cooperation, that is aviation, road safety and connectivity. Part of the Africa-Europe Alliance for Sustainable Investment and Jobs proposed by the European Commission in 2018 in order to drive forward intercontinental cooperation, the Task Force was launched in early 2019 to foster a constructive exchange of views focused on cross-border integration, sustainable development and safe mobility of goods and people. Recommendations on Strategic Corridor Development and the Role of PIDA 2020-2030 (pdf):

• • Accelerate the implementation of the continental and regional frameworks, texts and instruments adopted by the African Heads of State and Government, in the prospect of the Africa-EU connection.

  • The development of regional corridors should go hand in hand with developing linkages between these corridors, the national networks and the urban agglomerates. The dimension of rural connectivity should be integrated into the corridor approach.

  • Support the establishment of corridor management institutions with a permanent operational structure along all priority corridors, optimize the inclusive dialogue between key actors in the corridor, and facilitate coordination among development partners.

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Institutional support project for the African Union: AfCFTA implementation (AfDB)

The African Union Commission has received a grant from the African Development Fund to finance the Institutional Support Project for the African Union: AfCFTA implementation. The AfCFTA Secretariat has the responsibility to coordinate the implementation of the AfCFTA Agreement and to undertake monitoring and evaluation of implementation progress. The key objective of the institutional support project is to support the set-up of the Secretariat and to facilitate the roll out of the preliminary implementation programmes details which are itemised further below, all of which will support to the creation of a single continental free trade area and contribute to Africa’s socio-economic transformation. The project includes the following components:

Two commentaries on the proposed US-Kenya FTA:

• Potential US-Kenya trade pact meets with muted response (Global Trade Review). As neither the largest nor the fastest-growing African economy – those titles are held by Nigeria and Ethiopia, respectively – and not even ranking in the top five US export markets in the continent, it is not immediately obvious why the US would choose Kenya for its first Sub-Saharan African trade deal. “One reason for the likely US focus on Kenya lies with the heavy influence of China inside the country,” say IHS Markit analysts John Raines and William Farmer. The research firm considers Kenya to be China’s only ‘core’ Belt and Road Initiative partner in sub-Saharan Africa, where strategic Chinese infrastructure investments are likely to be made. Raines and Farmer also proffer that Kenya probably is seeking to re-engage with the US after it failed to secure from Chinese investors the required $3.8bn billion in funding for stage 2B of its Standard Gauge Railwayproject, first in September 2018 and again in June 2019.

• Aloysius Uche Ordu: As it plans a new free trade deal with the US, Kenya must watch its steps (The East African). Why is the US entering a bilateral trade agreement with Kenya despite Agoa, the multilateral trade deal with the continent? Are there lessons from the Morocco-US bilateral trade deal? What are the implications of the proposed Kenya-US deal for the African Continental Free Trade Area (AfCFTA)? These are pertinent questions.

Jeremy Stevens: Covid-19 clouds the African horizon (Standard Bank)

Evidence of China’s adjustment is also evident in Chinese imports of Africa, which contracted by 4% and remain below 2013 peaks. Recall that a one percentage point decrease in China’s domestic investment growth is associated with an average 0.6 percentage point decrease in Africa’s exports. Indeed, China’s rebalancing translates into investment doing less heavy lifting and expanding much more sluggishly. Back in 2010, domestic investment was growing at 30% y/y but has slowed steadily in each of the past 10 years, slipping to just 4% in 2019. And 2020 is likely to be closer to zero. Meanwhile, African countries have fallen in relative importance to China: South Africa, for instance, slipped from China’s 12th-largest source of goods in 2013 to outside the top 20 last year.

This year, a demand shock and price decline would be very difficult for Africa. Even though tallying the impact of this coronavirus is not yet possible, already expectations for oil consumption have been reduced by 1.5mn barrels per day in Q1:20 and demand for copper is forecast to fall by 300,000 metric tons in 2020. Already, prices of key commodities, like copper, oil and thermal coal have already fallen by 20% since mid-January, and a few reports are emerging that Chinese buyers have postponed overseas orders, some declaring force majeure.

Unfortunately, resource sales (and prices) play an oversized role in fiscal revenue collection to help fund public expenditure. Consider that resource exports account for 40% of total exports in nearly half of SSA, and for eight the ratio is about 70% of exports. Furthermore, the path of commodity prices has one other significance. Making matters worse, around a quarter of China’s loans have been backed by resource concessions. On this score, the more indebted – often to China, backed by resources – are Angola and Zambia.

It is also plausible that the China-related deal pipeline will be smaller than it otherwise would have been. Disruptions in China will crimp revenues for companies in sectors affected by this coronavirus and divert attention of policy banks and commercial banks – the scaffolding for China-Africa deals. That said, much of the rationale for China’s endeavors in Africa (or Belt and Road, for that matter) are to leverage China’s competitive advantage in infrastructure, offshore some overcapacity sectors, and heavier industry, and tap into fast-growing consumer markets. All of this remains.

In contrast to China’s growing penetration, Africa’s traditionally large trading partners have seen their market share decline. Last year, China’s exports to Africa expanded by 7.2% y/y, to $113bn in 2019. And now, COVID-19 has disrupted the path ahead. Consider Yiwu in Zhejiang: as much as 7% of all of China’s exports to Africa originate from Yiwu. But today, Yiwu is far from business as usual. In terms of sourcing from China for domestic demand, South Africa and Nigeria purchase the most from China, but the risk of disruptions affecting cities in Africa is more a function of the relative share of China’s production in overall supply. In addition, overlaying loan data, it seems that Kenya, Tanzania, Mozambique and Ghana are likely sourcing considerable quantities of equipment and machinery from China. [Containing the coronavirus: what’s the risk to the global economy?]

Brexit beyond tariffs: The role of non-tariff measures and the impact on developing countries (UNCTAD)

Non-tariff measures could cause major fractures in post-exit trade relations between the UK and the EU, knocking up to $32bn, or 14%, off of UK exports to the EU, according to a new UNCTAD study. Potential losses under a “no-deal” Brexit from tariffs that may be imposed by the respective parties are estimated at between $11.4bn and $16bn, or 5-7% of current exports. The new study, Brexit beyond tariffs: The role of non-tariff measures and the impact on developing countries (pdf), says NTMs would double those losses. The study also projects that even if a “standard” free trade agreement were to be signed by the parties, the UK’s exports could still drop by 9%.

On the flipside, exports from developing countries into the UK, and to a smaller extent into the EU, could increase if the former doesn’t increase tariffs for third countries. A no-deal Brexit could offer some opportunities for developing countries as trade barriers between the UK and the EU would benefit suppliers from third countries. By contrast, a deal between them would preclude the incentive to turn to third countries, the study finds. However, the positive third-country effect could be diminished by increasing regulatory divergence. If the UK’s regulations divert over time from the EU’s, trade costs would rise for third countries due to production process adjustment costs and potential duplication of proofs of compliance. This would disproportionately affect smaller and poorer countries as well as small and medium-sized enterprises. The study quantitatively explores the post-Brexit role of NTMs and the consequences for developing countries by simulating possible impacts using a panel data gravity model. Under a tariffs-only scenario, exports of developing countries to the UK would increase 1.3% to 1.5% while a tariffs-and-NTMs scenario would see them rise 3.5% to 4%, according to the study. The positive impact would be strongest in agriculture, food and beverages, wood and paper sectors and weakest in electrical and machinery, metal products, chemicals, and textiles and apparel industries.

State of the Digital Economy in the Commonwealth (pdf)

Chapter 1 maps trade trends in the digital economy in the Commonwealth. It finds that while the contribution of ICT services to the Commonwealth’s total services trade and GDP has been gradually increasing since 2012, the Commonwealth seems to be losing out on high-technology manufacturing. The share of the Commonwealth in world high-technology exports declined from 19% to 11% in the period 2000–2017. In the last five years (2013–2017), manufacturing exports have been dominated by resource-based exports (equivalent to 5.3% of the Commonwealth’s GDP), followed by medium-technology exports (4%), and primary product exports (3.5%) in the Commonwealth. Moreover, just six Commonwealth countries make up 98.8% of the Commonwealth’s total high-tech exports as of 2017.

Beyond ICT services, the share of digitally deliverable export services – such as, insurance and financial services, intellectual property charges, telecommunications, computer and information, other business and audio-visual and related services – has increased in high-income as well as upper- and lower-middle-income Commonwealth countries, but decreased in small states and low-income countries. Among Commonwealth countries, the share of DDES in total trade in services varies from more than 70% in the UK, India and Ghana to less than 10% in some small states. Chapter 7 identifies seven possible policy initiatives for the Commonwealth to foster the digital economy, with a focus on intra-Commonwealth efforts.