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Africa’s Middle Class: Not Hype But Challenging To Get Right

Posted in Consumer Products and Goods, Corporate and Investment

The expanding middle class has been one of the cornerstones of the “Africa rising” narrative.  Discussion of that topic has been particularly lively over the past few weeks.  From a private sector perspective, this debate presents an interesting lesson about doing business in Africa’s consumer goods sector.

As an initial matter, it is important to keep in mind that there is no universally-used definition of middle class.  Although the phrase often is defined by an individual’s income, it also can be defined by other factors such as an individual’s wealth (i.e., savings or investments) or consumption (i.e., how much one spends).  For this reason, the African Development Bank’s use of income and purchasing power parities results in a prediction that the African middle class will reach half a billion people by 2030.  Yet, at the same time, Standard Bank’s use of South Africa’s Living Standard Measure results in a prediction that the African middle class in the eleven countries that combined account for half of sub-Saharan Africa’s total GDP (as well as over half of the total population) will reach 22 million people by 2030.  Despite the seemingly wide chasm between these two estimates, both the African Development Bank and Standard Bank are bullish on Africa’s burgeoning consumer market.

However, if a company is going to pursue opportunities in this market, then it first must appreciate just how diverse the African consumer market is.  Accenture has partitioned the market into five consumer segments: basic survivors, working families, rising strivers, cosmopolitan professionals, and the affluent.  Nielsen has partitioned the market into seven consumer segments: female conservatives, wannabe bachelors, evolving juniors, struggling traditionals, balanced seniors, trendy aspirants, and progressive affluents.  Whichever way a company chooses to splice the market, it is essential to identify the consumer segment(s) to which it wishes to sell and then tailor the products to suit the buying behaviors, needs and preferences of the chosen segment(s).  As with any other consumer market, price, brand loyalty, quality (and sometimes other factors) are all relevant considerations but each segment weighs these factors differently.  Equally as important is determining the supply chain and distribution network that best serves the chosen segment while still keeping transaction costs down.  In addition, advertising should be strategic with respect to both its content and its placement.  For example, recognizing that affordable and reliable Internet access is not a given across the continent, companies have begun to tailor their online advertising to pique consumers’ interests but also be compatible with potential access barriers.

So, no, there is no reason to give up on the African middle class nor the consumer class more generally.  However, in order to succeed in the market, it is essential to appreciate the diversity in the African consumer market, understand the African consumer segments which one wishes to engage, and then select and tailor the products and routes to market accordingly.

Africa’s Tripartite Agreement: Another Step toward Integration?

Posted in Current Events, Public Policy and Government Affairs, Trade Controls and Policy

Considerable attention has been paid to the recent signing of the Tripartite Free Trade Agreement (TFTA) which will bind three of Africa’s regional economic communities (RECs) together into one large free trade market of 26 countries, accounting for nearly 60 percent of the continent’s GDP.  How significant the Agreement will prove to be lies in the (implementation) details.  The parties to the Agreement chose a path toward integration that involves a gradual phased approach whereby each REC develops its own framework and blueprint.  However, the three RECs — the East Africa Community (EAC), the Common Market for Eastern and Southern Africa (COMESA ) and the Southern African Development Community (SADC ) — are at very different levels of progress in this regard.

Although the EAC was (re-)formed only in 2000, this community of five nations has accomplished far more than its REC peers.  A few of the many accomplishments include the adoption of an external tariff, an expansion and improvement of the port infrastructure in Kenya and Tanzania, prioritization of regional transport systems, and the adoption of common sanitary and phytosanitary measures.

Moreover, the EAC also has focused on important, but less flashy, process and systems improvements, such as harmonization of customs procedures, one-stop border crossings, and a system that allows sharing of customs clearance information.  It is far from perfect, but the metrics show significant improvements, reducing the number of days of transit time from Mombasa to Kigali from twenty-one days to just six, for example.

In contrast, neither COMESA nor SADC has advanced its respective customs and trade agenda.  COMESA, for example, has to build consensus among nineteen African member states — from Egypt to Swaziland — while doing so in three major languages (i.e. Arabic, English, and French).  COMESA itself has recognized a “lagging behind” in meeting its regional commitments and is placing greater emphasis on monitoring implementation of policies on the part of member states.  For the EAC, which comprises five member states, implementation and monitoring of agreements is much more manageable.  SADC has made remarkable strides in regional integration through a competitive, interconnected power market, known as the South African Power Pool.  However, it too has run into many barriers in establishing a functional customs union.

Some trade experts have commented that African countries should spend less time on “unachievable” agreements and more resources on regional infrastructure.  Well, actually they need to do both: good roads and ports are meaningless if efficient clearance systems are not in place.  At a minimum, implementation of the TFTA should focus on harmonizing the three member RECs’ external tariffs, customs procedures and standards.  Introducing commonality and removing contradictions will be particularly important for Kenya and other countries that belong to two or more RECs.

The AU still has its sights set on signing a continent-wide free trade agreement (CFTA) by 2017.  EAC Secretary General Richard Sezibera, usually cautious and careful, was enthusiastic about its prospects saying, “all that’s left is bringing in [the Economic Community of West African States], which shouldn’t be difficult.” In the end it all comes down to implementation, and that implementation for the TFTA will fall upon the “Tripartite Task Force of the Secretariats.”  Whoever fills their ranks, they have an enormous task.

Nigeria Sends Clear Signal of Getting Serious about Tax Enforcement

Posted in Corporate and Investment, Public Policy and Government Affairs

Over the past few years, Nigeria has reformed its transfer pricing regulations, introduced mechanisms to tackle tax evasion and pursued other revenue enhancing initiatives.  With revenue from petroleum taxes at its lowest point in fifteen years, the country is under even more pressure to increase its tax enforcement efforts.  At the same time, there have been reports alleging that the African continent loses over $50 billion every year to illicit financial flows has brought increasing attention to the need to strengthen the capacity of tax authorities in Nigeria and other countries.  Thus, it is a major development that the Nigerian government finally has ratified the Convention on Mutual Administrative Assistance in Tax Matters (“the Convention”).

The Convention is “the most comprehensive multilateral instrument available for all forms of tax cooperation to tackle tax evasion and avoidance.”  Under the Convention, States agree to provide administrative assistance — in the form of information exchange, recovery assistance and service of documents — to each other in tax matters.  (Where appropriate, this assistance may involve measures by judicial bodies.)  The Convention applies not only to income taxes but also taxes imposed by political subdivisions or local tax authorities, compulsory social security contributions, and other categories (e.g., property taxes, value added taxes, excise taxes).

As a party to the Convention, Nigeria now has access to the tax and other information that a revenue authority either has or can obtain in the over 60 countries that have ratified the Convention, a group that includes not only the majority of the G20 countries but also an increasing number of developing countries.  Nigeria can request this information or, with respect to certain categories of cases, enter into agreements for the information to be exchanged automatically.  In addition, there is a spontaneous exchange of information provision under which other States shall forward certain information without prior request from Nigeria.  This provision is triggered by a variety of circumstances, most of which pertain to situations where there may have been a tax loss to Nigeria.  Tax savings that may have resulted from “ within groups of enterprises” — in other words, from inappropriate transfer pricing — is one of these situations.

Nigeria also stands to benefit considerably from the enforcement support provided for by the Convention.  Upon a recovery assistance request from Nigeria, other States are obligated to “take the necessary steps to recover tax claims […] as if they were its own tax claims” unless they have made a reservation in respect of this provision.  Nigeria also can request other States to effect service of “documents, including those relating to judicial decisions” on its behalf.

Ratification of the Convention is a clear sign that Nigeria intends to pay far closer attention to the income-generating activities, and subsequent tax liabilities, of multinational corporations and other taxpayers.

Kaberuka’s Last AfDB Annual Meeting Begins and Ends on High Notes

Posted in Corporate and Investment, Current Events, Public Policy and Government Affairs

The election of a new president to head the African Development Bank captured the headlines out of Abidjan last week, but the Annual AfDB Programme and meetings were more than electing Africa’s new leading voice on development and inclusive economic growth.  Thousands of people attended this year’s Annual meetings from government, the private sector, and development institutions to witness or participate in discussions of the most important development issues on the continent.  With the theme of “Africa and the New Global Landscape”, experts debated topics as diverse as “strengthening health systems to prevent the next outbreak” to more familiar themes of the Bank, such as regional integration and energy.

Outgoing President Kaberuka frequently says that Africa’s improving, yet still poor, infrastructure costs the continent at least two percent of Africa’s annual growth, and the Bank, while it cannot alone fill the infrastructure gap, it can and should play a leading role in mobilizing investment in infrastructure.  New models for mobilizing this investment are needed, however.  In the energy panel (“Energy: The Next Revolution”), Africa Finance Corporation’s Andrew Ali sparked some concern by declaring the current private power delivery model as unworkable and ineffective, with projects taking on average seven years to close and only two projects closing a year in Sub-Saharan Africa.

But more help is on the way.  The “Africa50 Fund”, announced by the Bank only a year ago in Kigali, has raised more than $700 million and is expected to reach $1 billion before the end of this month.  The new CEO, Alassane Ba, believes the independent structure of the fund will allow for quicker investments and with its own project development facility he expects project development lead times to be cut in half.  The Indian government is entering into a novel partnership with the AfDB through the creation of the “Kukuza Project Development Company.”  Kukuza, which means “to grow” in Swahili, will target and grow projects that are in early-stage development, and once grown will sell them off to developers.  It uses a model that worked well in India, and according to Sanjay Ghag, Senior Vice President of Infrastructure Leasing & Financial Services Ltd (IL&FS), the facility will include a stable of proven experts who know the pitfalls of project development and will be able to fast-track projects.  IL&FS will serve as the main sponsor , and other partners include India’s Exim Bank, State Bank of India, Allied Investment Partners (of Abu Dhabi), and the AfDB.  And, Power Africa plans to deploy more transactions advisors to the continent to help with project development.

This year’s annual meetings opened on a positive but cautionary note with a discussion of the Bank’s recent research report “African Economic Outlook 2015”, which anticipates GDP growth in 2016 of 5 percent, but also lays out some of the top demographic challenges for the continent, such as growing gender inequality, a tripling of the population by 2050, and a commensurate rise in the youth population.  As some 370 million youth are expected to enter the job market in the next fifteen years, governments will be challenged to turn the “youth problem” into a “youth dividend.”

President Adesina and the Years Ahead for the African Development Bank

Posted in Current Events, Public Policy and Government Affairs

After six rounds of voting that saw off seven candidates from across the region, Nigeria’s outgoing Minister of Agriculture and Rural Development Dr. Akinwumi Adesina has been elected to serve as the next president of the African Development Bank (AfDB).

From the start, Adesina was one of the leading contenders for the role.  During his four-year tenure as Nigeria’s Agricultural Minister, Adesina has introduced the electronic wallet system and other innovations that have improved access to financing and inputs for over fourteen million smallholder farmers as well as drastically reduced corruption and other market inefficiencies.  At the core of this work has been a push for a fundamental change in the perception of agriculture from that of subsistence to business.  These accomplishments have led to him being described as “a man on a mission to help Africa feed itself” and honored with Forbes’ prestigious African of the Year award.  In addition, Adesina has served on the Economic Management Team of Nigeria, the country’s highest economic policy management body.  The fact that Adesina had strong support from both the outgoing Jonathan administration and President Buhari reflects well on Nigeria and suggests an emerging policy consensus on key issues.

Notwithstanding Adesina’s extensive service to his country, he has proven himself to be a pan-Africanist.  He has lived in more than 15 countries across the continent and is fluent in French on account of having lived and worked for over a decade in Francophone countries.  In addition, Adesina is one of 17 global leaders appointed by UN Secretary-General Ban Ki-moon to the Millennium Development Goals Advocacy Group and has served as the Vice-President for Policy and Partnerships at the Alliance for a Green Revolution in Africa.

Adesina is taking the helm at an especially critical time in the Bank’s history.  Below are four of the main challenges, opportunities and priorities that lie ahead for the incoming president.

  • Infrastructure. Africa’s infrastructure deficit is one of the region’s most significant challenges but also one of the most promising areas for private sector involvement. Over the past few years, the AfDB and other relevant actors have been implementing “specific initiatives to unlock private funding with technical assistance and targeted financial support (including for regional projects) and to make multilateral banks procedures more amenable to public-private partnerships.”  Closing the infrastructure gap and developing Africa’s private sector will require Adesina build on this work which was a cornerstone of outgoing President Kaberuka’s legacy.  It is promising that Adesina has identified smart infrastructure and private sector development as strategic priority areas for his tenure.
  • Regional integration. Increasing intra-African trade is another area of reform that is important to the public and private sectors in the region and will  be part of President Kaberuka’s legacy. Twenty-six African nations stand on the brink of launching the COMESA-EAC-SADC Tripartite Free Trade Agreement, a deal that will bring together over 600 million people, approximately 56% of Africa’s economic activity and over $1 trillion in GDP.  This agreement has been years in the making and implementation will require support from a broad range of actors.  It is essential that Adesina and the AfDB play a leading role in ensuring the success of this monumental undertaking.
  • Economic diversification. Although Africa’s GDP growth is expected to increase to 4.5% this year and 5% in 2016, a prolonging of the current state of low commodity prices may impact government spending (and, in turn, economic growth) in the region’s largest markets including Nigeria and Angola. The AfDB should support economic diversification and related initiatives to improve the economic resilience of the region’s more resource-dependent countries.  In this regard, Adesina’s experience in transforming Nigeria’s agricultural sector is one of his strongest assets.
  • Fragile states. Political stability has been one of the main reasons that the African continent has enjoyed robust economic growth since the early 2000’s. However, the current unrest in Burundi is an immediate reminder of the fragility of some of the continent’s newer democracies.  In addition, political instability, as well as conflict and climate change, is a primary contributor to the food insecurity that persists in a number of countries in the region. Fragile states are a high priority for the AfDB which is currently implementing a five-year strategy for addressing fragility and building resilience by strengthening institutions and addressing other root causes.  The situation in Burundi may reach resolution before Adesina begins his first term in September but the elections in the Democratic Republic of Congo and Rwanda are right around the corner.

Dr. Adesina has his work cut out for him but his track record suggests that he is fully up to the task.

What the Home Battery Could Mean for Africa

Posted in Energy and Natural Resources

The African continent is revolutionizing itself as the place where no infrastructure is no problem.  This began in the telecommunications field: Africa lacks a robust system of landlines, which traditionally enable better access to desktop computers, online services, and financial institutions.  But the emergence of cellular telephony has allowed individuals across Africa to bypass this infrastructure deficiency.  Today, the Pew Research Center estimates that over two-thirds of Africans own cell phones, with adoption nearing 90% in some countries.  Now, Africa may be on the path to revolutionizing itself in a second field: electricity.  Decentralized energy storage options, like those announced by Tesla, General Electric, Samsung, LG Chem, and others, could play a significant role in enabling that revolution.

Currently, Africa’s energy situation mirrors its former telecommunications situation.  Over 600 million people live without access to electricity in Sub-Saharan Africa.  While 13% of the global population lives on the continent, they currently constitute less than 5% of global energy demand.  And the continent as a whole is rich in renewable energy resources: the Sahara Desert provides unparalleled sunlight access, the Rift Valley contains geothermal reserves, and the coasts and interior have strong wind streams.  But at present there is no way to harness or store these energy sources effectively.

Hence the potential significance of distributed generation.  By day, a home battery can be charged on renewable sources; by night, it will continue to provide power despite the setting sun or calming winds.  Most manufacturers of decentralized storage appear to provide scalable batteries—one battery could power a home or small business, and many batteries could power a town.  Home battery costs have decreased 14% since 2007, as many manufacturers currently list their home batteries at around $3,000.  Moreover, costs to consumers will likely continue declining because of the many manufacturers competing in the marketplace and Tesla’s promise to place its home battery specifications in the public domain.

When Tesla CEO Elon Musk unveiled his company’s home battery on April 30, 2015, he noted its potential value for Africa.  The alternative—installing and upgrading traditional grid infrastructure on the continent—is highly expensive.  For instance, South Africa’s government-owned utility company estimated it would cost $22 billion to improve the grid enough to meet current demand.  Decentralized energy storage that is affordable will increase the feasibility of on-site energy generation and reduce the need for a fully-developed transmission grid.  Analysts project the market for microgrids reaching $20 billion in 2020, and on-site generation of solar power becoming comparable to or cheaper than grid-supplied power.  Just like how cell phones enabled access to the internet and microfinancing, distributed generation and on-site storage could light up homes, increase technological innovation, and change the look of the African economy.

Whether a home battery built by Tesla, General Electric, Samsung, LG Chem, or another company becomes the premiere energy storage solution in Africa, distributed generation has the potential to revolutionize electricity and power throughout the continent.

Calvin Cohen is a summer associate in Covington’s Washington D.C. office and a student at Vanderbilt University Law School.

AGOA Should Do More to Strengthen Intellectual Property in Africa’s Creative Sectors

Posted in Arts, Culture, and Entertainment, Public Policy and Government Affairs

It is a welcome development that the African Growth and Opportunity Act (AGOA) has moved closer to reauthorization. However, much more can and should be done through AGOA to strengthen intellectual property (IP) rights in Africa, particularly in the continent’s creative sectors. Africa’s creative sectors have the potential to be key economic drivers and IP protections are critical to ensuring that both artists and countries can enjoy not only the cultural but also the economic benefits of these sectors.

By definition, the creation of protectable intellectual property assets is at the core of an artist’s or artisan’s work. Guaranteeing IP rights over that work accrues various benefits to the creator and the larger community. First, in the absence of IP rights, creative professionals cannot make a fair return from their creativity and therefore struggle to make a livelihood out of their craft. Second, by allowing artists to transform their creativity from a passion to a commercial enterprise, IP rights increase the contribution that the creative sector makes to a country’s GDP. This type of economic diversification is important for many African countries, particularly those that are highly resource-dependent and seeking to diversify their economic base. Finally, a strong IP regime attracts foreign investment whereas a weak regime is regarded as a risk factor.

Although most African countries are members of the World Intellectual Property Organization and have signed the Agreement on Trade-Related Aspects of Intellectual Property Rights, IP infringement has been detrimental—to the tune of billions of dollars—to the continent’s creative sectors, including the Nigerian film industry and the West African textile industry. A key reason for this problem is that the IP regimes of many African countries are outdated (often having been rolled over from colonial era laws) and not comprehensive. Although some countries have made significant progress in developing coherent and modern IP laws and regulations, many who would benefit from such protection are not aware of, neglect to use, or are unable to afford the protection nor its enforcement. At the governmental level, there often is a lack of capacity to register or enforce IP rights.

It is time for protection of IP rights to be more than just a condition for AGOA eligibility. The U.S. government should provide technical and capacity-building assistance to AGOA-eligible countries in order to help their governments create IP policy frameworks, modernize IP laws, and enforce these regimes. In the interests of promoting regional integration, the U.S. government also should work with the African Regional Intellectual Property Organization and the Organisation Africaine de la Propriété Intellectuelle to develop regional agreements (such as the Swakopmund Protocol and the Banjul Protocol) and address issues that are of a cross-border nature.  An added benefit to acting at the regional level is that it facilitates a coordinated approach to dealing with creative works that stem from traditional knowledge or traditional cultural expressions.

AGOA moves forward: Reviewing last week’s reauthorization in the U.S. Senate

Posted in Corporate and Investment, Current Events, Public Policy and Government Affairs

On Thursday of last week and with a vote of 97-1, the U.S. Senate approved the “Trade Preferences Extension Act of 2015,” which includes reauthorization of the African Growth and Opportunity Act (AGOA). With this action, the Senate seeks to reaffirm the “centerpiece of trade relations between the United States and sub-Saharan Africa,” as well as enduring bipartisan consensus for stronger commercial ties with the region.

The legislation now goes to the U.S. House of Representatives. As this bill moves closer toward becoming a reality, it is important to review the specific changes that the Senate’s version of AGOA reauthorization entails for African beneficiaries and their counterpart in the U.S. Here, we briefly evaluate the key revisions of the program, broadly classified as the “good” and the “to be determined.” Importantly, opportunities still exist to modify AGOA reauthorization, and several amendments could strengthen the bill.

The “Good”

Long-term extension:  AGOA reauthorization extends the program until September 30, 2025—a 10-year time horizon, which crucially also includes continuation of the third-country fabric program for the same period. Together, these provisions stand as the longest extension the bill has ever received. Short-term extensions and an uncertain renewal process have been the largest obstacles to AGOA’s success. The Senate’s new reauthorization bill provides exactly the type of stability and predictability required for beneficiary countries to utilize AGOA more effectively and for companies to make long-term investment decisions in the continent.

Targeted and flexible eligibility reviews: The Senate’s version of the AGOA reauthorization provides increased flexibility with an advance warning for a country whose eligibility is in question. In addition to an annual review and request for public comment on whether beneficiary countries conform to the eligibility criteria, the president may now initiate “out-of-cycle” assessments. The president must also provide the country in question a 60-day warning if its preferences are to be withdrawn. Additionally, the U.S. government will have more flexibility in dealing with beneficiary countries not meeting the eligibility criteria. The Senate legislation provides for the “withdrawal, suspension, or limitation” of duty-free treatment. This gives the president a more targeted way to penalize violations. For example, if this new approach had been in place during Madagascar’s 2009 coup, which led to the country’s exclusion from AGOA from 2010-2014, the U.S. may have been able to preserve the several thousands of jobs that were lost (largely by women), while pursuing more focused actions against the interests of those perpetrating political instability.

A focus on agriculture and women: This AGOA renewal recognizes the critical role of the agricultural sector and specifically mandates support to “businesses and sectors that engage women farmers and entrepreneurs.” According to the World Bank, agriculture employs about 65 percent of the region’s overall labor force, with particularly significant incorporation of female workers. This hortatory language is important, but the Senate’s version of AGOA reauthorization also takes action to provide the type of technical assistance needed to help African agribusinesses gain access to U.S. markets. In particular, the legislation lifts the cap on the number of countries that can receive American trade capacity-building support and urges the Department of Agriculture to increase the number of Foreign Agricultural Service personnel assigned to staff these important programs to 30. The Senate’s leadership on this issue is commendable, but the fulfillment of these provisions will ultimately hinge on the performance of the federal agencies involved in providing trade capacity building and, unfortunately, history is not the best guide. For many years, the U.S. Commerce Department’s Foreign Commercial Service on the African continent was understaffed, and this trend only recently changed under the leadership of Secretary Penny Pritzker.

Movement toward reciprocal trade agreements: AGOA provides unilateral access for African imports into the United States. While this continues to be a stimulus for economic development and U.S. investment, there is a need to begin to move to a more mutually beneficial trade relationship with Africa, especially as many African countries have initiated reciprocal trade preference programs (the Economic Partnership Agreements) with the European Union. Sub-Saharan Africa remains one of the only regions in the world where the United States lacks any type of comparable free trade agreement (FTA). The Senate legislation appropriately requires the Office of the U.S. Trade Representative (USTR) to report on plans for negotiating such agreements within a year and to notify Congress of any African country that has expressed an interest in an FTA. While this is a very positive aspect of AGOA reauthorization, the USTR reports should be issued more frequently than every five years, as presently provided for in the Senate legislation.

Publishing utilization strategies: Despite success in key areas and important improvements, AGOA-eligible countries have struggled to utilize their preferential access to U.S. markets. The AGOA reauthorization seeks to address this issue by requiring participating countries to develop and publish “utilization strategies,” which designate the sectors in which each country believes it can be competitive and how it plans to take advantage of this potential. This is a welcome initiative. Not only will it give more focus and content to the annual AGOA forums, but it will provide businesses, from Africa and the U.S., more opportunities to engage governments on how to take advantage of the program. USTR is also required to submit an AGOA utilization report to Congress on a biennial basis. These new reports could support increases in the use of the program, especially if the private sector and civil society are actively involved in the discussion.

The “To Be Determined”

The role of South Africa: The ongoing dispute over U.S. poultry exports to South Africa has been one of the most significant obstacles to AGOA reauthorization. Lawmakers ultimately compromised over the issue by including a provision on the AGOA reauthorization that requires the president to commission a review of South Africa’s participation in the program within 30 days of the AGOA extension. In many respects, this is the best outcome given the others that reportedly were being considered, such as excluding South Africa altogether or extending the benefits for only three years. Given South Africa’s FTA with the EU and the growing number of U.S. companies filing complaints to USTR about barriers to accessing the South African market, Pretoria and Washington need to use this moment to forge a blueprint for a more mutually beneficial trade relationship.

Support for regional integration: AGOA reauthorization seeks to support Africa’s regional integration agenda through improved rules of origin provisions, but more could be done to back the region’s ambitious efforts to enact a continental free trade agreement by 2017. While many remain skeptical about the timeline for this initiative, leaders of the East African Community, the Southern African Development Community, and the Common Market for East and Southern Africa are expected to sign a “Tripartite Free Trade Area Agreement” on June 10, 2015, which will incorporate half of the African Union’s member countries overall, with a combined population of 600 million people and an integrated domestic product of almost $1 trillion. More integrated African economies could be a “game changer” for the region, and AGOA could still provide a better articulation of what the United States could do to support this process and align U.S. trade policy with the region’s goals.

Import sensitivities and tariff rate quotas: Perhaps the most impactful provision of an AGOA reauthorization would be to expand product eligibility for AGOA beneficiaries. Import-sensitive sectors like sugar and cotton are areas where Africa could gain the most in terms of expanded trade with the U.S. In fact, in August of last year, USTR identified 316 specific tariff lines as priorities for possible inclusion in an AGOA renewal, but this call to action does not seem to have resonated in Congress yet. A 2013 brief from our colleagues at the Brookings Institution concludes that full duty-free, quota-free access to U.S. markets would increase African exports by $72.5 million, while costing the U.S. only $9.6 million. A similar Brookings brief highlights many areas where more could be done in terms of allocating additional quotas for agricultural exports to AGOA-eligible countries. As feasible, legislators could still consider these areas as measures to improve AGOA.

Next steps

The Senate’s move to reauthorize AGOA is a major milestone for the program, but it is still far from certain that bill will ultimately pass. There are indications that the House of Representatives will move to vote on the Trade Promotion Authority before AGOA, leaving the bill in a somewhat precarious position leading up to President Obama’s trip to Kenya in July. In the interim period, most proponents of the program will likely continue to concentrate their energies on urging Congress to take quick action. While the focus on AGOA continues, U.S. legislators have taken other important actions to improve U.S. investment policy in Africa. Last Thursday, Senator Richard Durbin (D-IL) filed an amendment to the Senate’s version of the Trade Promotion Authority, which would require the president to establish a strategy to increase U.S. exports to the region. This amendment builds on Senator Durbin’s previous bill, “Increasing American Jobs through Greater Exports to Africa Act of 2012,” (with parallel action taken in the House by Representative Chris Smith (R-NJ)), which also called for a “Special Africa Export Strategy Coordinator” to be placed in the White House and act as a principal lead on implementation of efforts to support U.S.-Africa trade. The American legislators who voted overwhelmingly to support AGOA last week should take a serious look at this amendment as they consider the TPA before the Memorial Day recess.

Witney Schneidman is a nonresident fellow at the Africa Growth Initiative in the Global Economy and Development program of the Brookings Institution. This piece was first posted on Brookings’ Africa in Focus blog.

Going to Kenya is an important undertaking, Mr. President

Posted in Current Events, Public Policy and Government Affairs

Dear Mr. President:

Recently, the distinguished Harvard professor, Robert Rotberg, made the argument that your planned visit to Kenya in July is a “dumb” idea.

I couldn’t disagree more, and here is why:

One of Professor Rotberg’s central points is that your visit will exacerbate ethnic tensions in the country, as your father was a Luo, and Luos largely backed President Kenyatta’s opponents in the 2012 elections.

This is a misreading of Kenyan politics. While there are ethnic rivalries in Kenya, as in many African countries, the country is increasingly defined by its multi-ethnic private sector. In fact, in the 2013 elections, the private sector undertook an aggressive and comprehensive peace-building campaign that contributed significantly to a fair and free outcome. Given that you are going to Kenya to participate in the 2015 Global Entrepreneurship Summit, the first time it will be held in sub-Saharan Africa, your visit will be an important boost to Kenya’s private sector and its contributions to the country’s development.

Professor Rotberg is also critical of the fact that you will be hosted by President Uhuru Kenyatta, who was indicted by the International Criminal Court (ICC) for allegations of crimes related to the 2007 elections. While the ICC indictment is a serious matter, you already hosted Kenya’s leader, along with 50 other African heads of state at the White House last August during the Africa Leaders Summit. Reciprocating the visit does not break new diplomatic ground. More importantly, your inclusive approach to summit participation was an important turning point for U.S.-African relations. We need to engage virtually all African governments on issues where we both agree and disagree—and specifically engage on contentious ones such as human rights, press freedoms, and transparency. You should not pull back from this approach.

Rotberg also argues that, since Kenya is “wildly corrupt,” your visit there will only undermine the United States’ efforts to promote the rule of law worldwide. True, 36 of the continent’s 54 countries, including Kenya, are ranked in the bottom half of Transparency International’s Corruption Perceptions Index 2014. Thus, by this reasoning, the U.S. engagement on the continent would be quite limited indeed. Moreover, it also follows that your two visits to Myanmar—which ranks lower than Kenya on TI’s index—should have been avoided.

There is no question that corruption is a significant problem in Africa, especially in undermining inclusive economic growth and discouraging U.S. investors. However, exporting American business practices to the continent contributes to combating the scourge of corruption, as the vast majority of American countries comply with the Foreign Corrupt Practices Act. African leadership and a commitment to transparency and accountability in all sectors is the most important response to fighting corruption, and the U.S. can contribute to this effort.  This will be an important message to convey at the Global Entrepreneurship Summit.

Perhaps most salient are Rotberg’s concerns about your security, given al-Shabab’s siege on the Westgate mall in 2013, and, most recently, the atrocious attacks at the University of Garissa. While your security is paramount, we must have confidence in the ability of U.S. security officials, working with their Kenyan counterparts, to lock down and secure the venues where you will be speaking. Anything less would be a victory for those who rely on terror to advance their objectives.

Where I agree with Professor Rotberg is in his encouragement for you to visit other African countries (although, again, not at the expense of Kenya). Nigeria is also deserving of a visit given General Buhari’s impressive electoral victory last month, and President Jonathan’s concession to Buhari. Ethiopia is an increasingly important partner on a range of security and commercial issues and would benefit from a visit. Hopefully an address to the African Union, based in Addis Ababa, is on your agenda before you leave office. Your participation in a summit of the International Conference on Great Lakes would be valuable in achieving a resolution to one of the continent’s most protracted conflicts in the eastern Congo.

Professor Rotberg is a long-time, dedicated Africanist as well as a friend and colleague. Yet, he does not seem to appreciate the historic aspect of your visit to Kenya.

In fact, Mr. President, the parallels between your visit to Kenya and President Kennedy’s visit to Ireland in June 1963 are unmistakable. At the time, Ireland had not quite been independent 40 years. Kenya has been independent just over 50 years. Ireland was a poor country in the early 1960s, a generation away from its era as a Celtic Tiger that, unfortunately, was short-lived. Kenya is poised for economic growth above 6 percent for the next several years, but only ranks 147 out of 187 countries in the 2014 U.N. Human Development Index. And both countries deeply value their relationship with the U.S.

For President Kennedy, the first Catholic to become president of the United States, his visit to Ireland was a true homecoming and a chance to revitalize the bonds between the U.S. and Ireland as well as all Irish in the diaspora. Indeed, President Kennedy described his visit to the predominantly Catholic Irish Republic as “the best four days of my life.” In President Kennedy, the Irish saw their future.

The same will be true for you, Mr. President. Your visit will inevitably strengthen and elevate a part of the world that has been overlooked by the U.S. for too long. And, in you, virtually every Kenyan, and many Africans across the continent, will see a link to and future with the United States, given your strong family ties to the nation. The reality is that many in Africa and the United States have been waiting for this visit since the day you were inaugurated. Given our competitive and challenging world, and Africa’s emerging importance in it, your visit to Kenya is quite significant. Safe travels.

Witney Schneidman is a nonresident fellow at the Africa Growth Initiative in the Global Economy and Development program of the Brookings Institution. This piece was first posted on Brookings’ Africa in Focus blog.

Burundi: “Third Term-ism” and the Threat to Democracy

Posted in Current Events

On Tuesday morning, weeks of violent protests in the East African nation of Burundi ratcheted up considerably when Major General Godefroid Niyombare attempted to overthrow President Pierre Nkurunziza.  At the time of the announcement, President Nkurunziza was in Tanzania attending a Heads of State Emergency Summit that the East African Community (EAC) had convened to discuss the escalating situation in Burundi.  Although the President Nkurunziza reportedly has returned to the country and coup leaders have conceded defeat, uncertainty prevails as to the situation in Burundi and its implications for the region as a whole.

At the root of the conflict is the decision by the ruling party CNDD-FDD to designate President Nkurunziza as its candidate for the June 26 election.  President Nkurunziza already has served two terms in office and his eligibility to seek a third term turns on the party’s interpretation of Article 96 of the Burundian constitution.  This Presidential term limits provision reads: “The President of the Republic is elected by universal direct suffrage for a mandate of five years renewable one time.”  President Nkurunziza and his party assert that he is eligible for a third term because he was appointed to his first term by Parliament rather than “elected by universal direct suffrage.”

Opponents of President Nkurunziza’s bid for a third term note that the ruling party’s creative constitutional interpretation comes a little more than a year after it tried — and failed by a single vote — to amend the constitution in order to, amongst other things, remove presidential term limits altogether.  Furthermore, the interpretation contravenes the 2000 Arusha Peace and Reconciliation Agreement, which is the delicate power-sharing agreement that ended the country’s long-running civil war.  Although the Agreement states that the President “shall be elected for a term of five years, renewable only once,” it then continues on to state explicitly that “[n]o one may serve more than two presidential terms.”  All of these machinations by the ruling party have been regarded as part of a larger effort to flout the Agreement and shore up and entrench the ruling party’s power.

The Constitutional Court of Burundi officially has agreed with CNDD-FDD’s interpretation and cleared President Nkurunziza to run.  However, the court’s vice-president Sylvere Nimpagaritse has claimed that “most of his colleagues thought the third-term bid was unconstitutional, but they were under pressure to change their minds.”  He fled the country rather than sign on to the ruling.

The situation remains fluid.  There are yet no indications that the Burundian government will postpone the elections but the EAC Heads of State, the African Union, and the international community all have agreed that elections should not be held in this climate.  It is imperative that these words translate into actions that safeguard the Burundian people’s right to free and fair elections.  More so, the handling of this situation will set a critical precedent for the region particularly with respect to the elections set to be held in the Democratic Republic of Congo and Rwanda in 2016 and 2017 respectively.  In both countries, the sitting president has reached his constitutional maximum term limit but there are warning signs that third terms may be sought.