Sunday, October 19, 2008

EU to fund African trade bloc

Odhiambo, Allan; Business Daily (Nairobi) 2008-07-22

The European Union (EU) has agreed to finance the creation of a larger trading bloc in Eastern and Southern Africa (ESA) which will give momentum to the project that is expected to increase the region’s competitiveness in the global arena. The move is also aimed at restricting the outbreak of numerous inter-governmental trade spats.

The finance package, worth €645 million, was announced at the ongoing meeting between the EU and Eastern and Southern African states, convened by the Inter-regional Coordinating Committee (IRCC), in Dar es Salaam.

According to Trade and Development Commissioner Louis Michel, the EU appreciates the opportunities that exist in the regional integration projects and will make the finance available through the European Development Fund (EDF).

“The EU is willing to bring its full political and financial support to this project”, he said at the joint EU/ESA meeting last week.

The IRCC comprises several regional economic blocs including the East African Community (EAC), the Common Market for Eastern and Southern Africa (COMESA), the Southern African Development Community (SADC), the Indian Ocean Commission (IOC), and the Inter-Governmental Authority on Development (Igad).

Michel warned, however, that although the prospect of a common ESA bloc is good, high transport and electricity costs in the region could hinder growth.

“To highlight a few examples”, he said, “the cost of exporting a tonne of maize from Zambia to Tanzania is higher than the cost of exporting the same tonne from Zambia to Europe or the United States”.

According to the IRCC chairman, the region is confident of ensuring it operates in synergy to boost its growth potential.

But even as the forum closed, the two partners failed to strike a deal on the contentious issue of aid for trade. Expectations were high that there would be intense lobbying for additional aid to assist the region’s growth in power to participate in a free global market.

‘Aid for trade’ is a subset of development assistance that promotes international trade as well as establishes international initiatives that promote trade-related development. Europe and Africa have differed over the nature of existing arrangements, and according to analysts, as currently constituted they are not particularly suited for growth in poor countries.

The EU’s decision to allocate the region funds through the EDF is expected to help the EAC, COMESA, and SADC to consolidate their planned merger into what could potentially be Africa’s largest trading bloc.

In June this year, East African Heads of State endorsed the proposed merger of the three regional trade blocs into a single Free Trade Area (FTA). Modalities of the merger are due to be discussed at a special tripartite summit to be held in Kampala in October.

An FTA is an arrangement under which a group of countries agree to eliminate tariffs, quotas, and preferences on most goods traded among them. However, members of an FTA are not obligated to adopt similar policies with respect to non-members.

To avoid tax evasion, the countries use certificates of origin which set limits on foreign and local inputs as well as local transformations. Goods which fail to meet these limits lose entitlement to the special treatment provided for in the region.