EU clones itself in West Africa and then tries to ransack the region

Bill Mitchell - billy blog » Eurozone 2017-07-09

In a recent blog – If Africa is rich – why is it so poor? – I considered the question of why the resources that make Africa rich have not been deployed to the benefit of the indigenous people who reside there. We saw that poverty is rife in Africa, when it is obvious to all and sundry that these nations possess massive resource wealth. The answer to that paradox is that the framework of development aid and oversight put in place by the richer nations and mediated through the likes of the IMF and the World Bank can be seen more as a giant vacuum cleaner designed to suck resource and financial wealth out of the poorer nations either through legal or illegal means, whichever generates the largest flows. So while Africa is wealthy, its interaction with the world monetary and trade systems, leaves millions of its citizens in extreme poverty – unable to even purchase sufficient nutrition to live. The ‘free trade agreement’ (EPA) between the EU and the West African nations is one such ‘vacuum’-like device. In fact, the West African states are still mired in post-colonial dependency not because they lack the resources available to set out their own development path, but, rather, because of the post-colonial institutions that have been set up to maintain control by the former colonialists of those resources. Not content to ruin the prosperity in the Eurozone, the EU is pressuring some of the poorest nations in the world to adopt the same sort of failed monetary and fiscal arrangements and then go further – and sign ‘free trade’ agreements with reciprocal access. The rest of the West African states should follow Nigeria’s example and abandon these arrangements.

Twelve of 16 countries of West Africa are considered to be Least Developed Countries (LDC) or poor in common language.

The 12 LCD nations are Benin, Burkina Faso, Gambie, Guinea, Guinea-Bissau, Liberia, Mali, Mauritania, Niger, Senegal, Sierra Leone, Togo, while the 4 non LDC are Cape Verde, Ivory Coast, Ghana, and Nigeria.

Here is a map of the West Africa (Source).

I provide it for the US readers after recalling the old joke that “War is God’s way of teaching Americans geography”.

See this Comedy Sketch with US comedian Paul Rodriguez at the 1987 Comic Relief talking about American knowledge of geography.

And if you want some more laughs see this classic video.

In the so-called C19th Scramble for Africa, the West African region was carved up by the Colonial powers most of whom were European.

The colonial relations were:

Benin – France Burkina Faso – France Gambie – Britain Guinea – Britain Guinea-Bissau – Portugal Liberia – USA Mali – France Mauritania – France Niger – France Senegal – France Sierra Leone – Britain Togo – France Cape Verde – Portugal Ivory Coast – France Ghana – Britain Nigeria – Britain

I was reading a report from 2015 – The EPA between the EU and West Africa: Who benefits? – published under their Spotlight Report Policy Paper series by the Swedish-based Concord Europe.

CONCORD is the “European confederation of Relief and Development NGOs”.

The European Commission’s Information Page for West Africa claims that the ‘free trade’ agreement (The Economic Partnership Agreement) between Europe and West Africa has been beneficial.

Another EU document (September 18, 2015) – Economic Partnership Agreement with West Africa – Facts and figures – provides more hype.

In March 2016, the European Commission’s Directorate General for Trade released – The Economic Impact of the West Africa – EU Economic Partnership Agreement.

But the CONCORD analysis is at odds with the official ‘free market’ line.

I have made this point before but we should always keep it in mind. The advanced nations of the world today could not have become wealthy following the strategies that they force on to the poor nations now.

To understand that point, I recommend reading the 2008 Report from Dieter Frisch – La politique de développement de l’Union européenne – which was published as Report ECDPM 15, March 2008 (the document is in French).

ECDPM is the European Centre for Development Policy Management and Dieter Frisch was a former Director General for Development at the European Commission.

Frisch is an old hand at the development game. He wrote (p.38):

En effet, on ne connaît historiquement aucun cas où un pays au stade précoce de son évolution économique se serait développé via son ouverture à la concurrence internationale. Le développement s’est toujours amorcé au gré d’une certaine protection qu’on a pu diminuer au fur et à mesure que l’économie s’était suffisamment fortifiée pour affronter la concurrence extérieure. Mais un tel processus s’étend sur de longues années …

Which means that historically, there are no known cases where a country in its early developmental stages has developed through opening its economy to international competition. Development has always required a certain degree of protection which has been reduced over time as the economy becomes strong enough to deal with external competition. And such a process extends over many years.

One should also add that nations have not developed by forcing the government to run balanced fiscal positions if not surpluses.

The advanced nations all benefited from large public infrastructure spending on roads, transport, health, education, ports, energy, communications and the rest of it.

They also benefited from large public investments in skill development.

So the milieu that this ‘free trade agreement’ has been negotiated within is biased against development from the start.

Trying to develop while keeping the fiscal position in constant state of surplus would have prevented any of the advanced countries from making any headway.

The Member States of the West African Economic and Monetary Union (UEMOA) are Benin, Guinea-Bissau, Burkina Faso, Ivory Coast, Mali, Niger, Senegal and Togo and share a common currency (CFA franc) which is pegged to the euro.

This arrangement reflects the ‘post’ colonial control by the French who constrained national sovereignty during the decolonisation process between 1954 and 1962 by creating various protocols where the West African francophone nations were financially accountable to the French Treasury in a number of ways.

The aim of the restrictions were to force the West African nations in the currency zone to observe what the French called “strict monetary discipline”. For example, the West African Central Bank (BCEAO) remains under the control of the French such that it cannot devalue the F CFA without the French approval.

The early arrangements, however, failed.

Fast track to 1994, and in the same way the Europeans themselves went from failed snake in the tunnel, to the failed snake without tunnel, to the failed European Monetary System in 1978, to the even worse Economic and Monetary Union (the ‘Eurozone’), the Francophone West African States transitioned through various economic and monetary arrangements under the direction of the French until they cloned the EMU in the form of the West African Economic and Monetary Union (WAEMU).

Eight Member States are LDCs (excluding Ivory Coast).

Just as the EMS faced regular pressure because of disparities between the trade capacities of the Member States, which ultimately turned it into a mark-zone and biased towards recession and stagnation, the West African arrangements faced similar pressures.

And just like the Eurozone has been crippled by the Stability and Growth Pact (SGP) and its more recent variants (‘Two Pack’, ‘Six Pack’, ‘Fiscal Compact’), the WAEMU introduced a Regional Convergence, Stability, Growth and Solidarity Pack in 1999.

It is cloned in language and intent from the SGP. Just like the SGP places a fiscal straitjacket on the Eurozone Member States, which biases economic outcomes towards recession, the WAEMU pact forces Member States to achieve fiscal balance or surplus.

If a country violates this rule they are sanctioned (just like the Excess Deficit Mechanism in the Eurozone) and can be prevented from raising funds and/or spending outright.

There are other harsh rules relating to inflation, public debt and external sector commitments), public wage expenditure to tax receipts ratios, which further constrain sovereignty.

The WAEMU has a ‘Council of Ministers’, which bullies Member States that fail to obey the strict rules.

And just like the Eurozone, the nations within the WAEMU find it virtually impossible to stick to the rules as economic cycles impact on the fiscal balance and the overriding poverty that exists.

These nations which mainly export primary commodities and import industrial goods face massive swings in national income due to climate variability and unstable terms of trade in international markets.

They are pressured by the IMF and the World Bank to export like hell but then flood international markets with goods that drive the prices down.

The lost income then puts pressure on the external debt position (owed in no small part to the IMF) and then further demands for fiscal cuts are common.

This development strategy locks the nations into low and variable growth and on-going poverty.

So it was no surprise that the European Commission with its claws well and truly into the poor West African nations wanted to tie down that advantage even further with a ‘free trade agreement’ otherwise known as the Economic Partnership Agreement (EPA).

The CONCORD research investigates the veracity of several claims made by the European Commission under the mantra of “Trade is development”.

But as it questions from the outset:

… is the EPA negotiated between West Africa and the EU, between one of the richest regions on the planet and one of the poorest, really coherent with the development objectives of West Africa?

The answer is that it is not.

It is important to note that:

Until 2000 … the EU gave exports from West Africa almost completely free access to the European market … However these unilateral trade preferences were contrary to the WTO rules adopted in 1994. The WTO does permit the creation of free trade zones, for example between the EU and West Africa, and the EU decided to use this as a replacement, even though in these zones preferences have to be reciprocal, meaning that West Africa has to offer the same treatment to the EU … The EU could have asked the WTO for a waiver, as it has done in the case of Moldova … [but] … The EU refused to give such treatment to West Africa.

Further:

During the negotiations the EU also went much further than WTO requirements on liberalisation, by including services, investment and procurement alongside goods. West Africa was opposed to this, and wanted to maintain its ability to protect these sectors from EU competition.

By 2007, the EU was not able to get agreement with the West African nations, in part:

… because the EU grants LDCs unilateral trade preferences under the Everything But Arms regime, which offers them free access to the EU market without obliging them to liberalise in exchange.

So what does the EU do?

It then:

… threatened all the non-LDC ACP countries with loss of free access to the European market … [and] …. set a new deadline for the completion of negotiations …

Sound familiar?

And this is not Greece we are talking about which is an advanced nation in income terms. These are mostly very poor nations that struggle to feed their populations.

The CONCORD report shows that many West African nations succumbed to the threats and “decided to sign … on 30 June 2014”.

But the ratification process is slow and only so-called “‘stepping stone Economic Partnership Agreements’ with Côte d’Ivoire and Ghana entered into provisional application” by the end of 2016.

Further, while 13 West African countries have signed, Nigeria, the Gambia and Mauritania are holding out.

In particular, Nigeria does not wish to concede its sovereignty to the EU and “wants to develop its industry and its outlets in the rest of West Africa, while also reducing its dependence on petroleum exports”.

The CONCORD report concludes that Nigeria would not be able to have that independence of strategy under the EPA.

To show why the EPA is “incoherent with the development of West Africa”, the CONCORD report examines several propositions put forward by the EU in favour of the EPA.

1. Does the EPA offers free access for West African goods to the EU market?

Yes but the EPA gives the West African nations no new advantages but introduces clear competitive disadvantages.

Further, why should the “LDCs have to make these sacrifices” when “they are entitled to unilateral trade preferences under the Everything But Arms regime”?

2. “Will the EPA support the regional integration of West Africa?”

“Largely untrue”.

“the level of integration of West Africa is very weak” so it would have been better to set up processes to diversify trade within West Africa.

The EPA would divert trade within West Africa because there is a “strong difference in competitiveness” between the EU nations and the West African nations.

3. “Are West African agricultural products excluded from liberalisation?”

“True and false”.

“the EPA … holds a major risk for West African agriculture … [which] … is a major sector … provides 60% of employment and satisfies 80% of food needs of the region”.

The EPA protects only “18% of products” but generally liberalises access to the rest. For example, cheaper imported milk powder will damage “local milk production”.

It is important to understand that under the Common Agriculture Policy (CAP) the EU can “sell its agriculture production at less than the cost price, competing unfairly with West African agriculture”.

4. “Will the EPA provide aid that will allow West Afri- ca to bene t from the EPA?”

“True and false”.

There is a West Africa development program in place, which is an IMF-like strategy – based on cutting domestic costs and diverting activity into for cash-exports.

However, the current proposal is not guaranteed and the funding “is well below the needs estimated” to cope with the transitional costs to the new agreement.

Further, West African governments use tariffs to fund hospitals etc. Now, Modern Monetary Theory (MMT) proponents would immediately say that these nations could fund these essential infrastructure items by using their own currency capacity.

True enough. But in the real world of West African politics and the straitjacket these governments have placed themselves in under the watchful eye of major international bullies such as the EU and the IMF, the tariff receipts helps them in a small way while still trying to meet the ridiculous rules that constrain their fiscal choices.

The EPA will thus seriously alter their fiscal positions (within the current constraints) such that they would be pressured to make heavy cuts to public spending.

As the CONCORD report notes this spending is:

… indispensable to allow continued financing of the building of schools and hospitals, support for family farming, and other public services.

The EPA is thus another vehicle where the poorer nations are prevented from using their own fiscal capacities to improve the circumstances of their people.

5. Will the EPA respect the policy space of the West Africa?

“Largely false”.

“West Africa will lose policy space needed to develop their own trade policy, serving the interests of their people and they will lose fiscal revenue that could help finance their own development.”

Noting that the last conclusion is in the context of the current political and institutional constraints that I mentioned before.

As a result, the CONCORD report concluded that:

… the EU, the largest economic zone in the world, is trying to obtain disproportionate commercial concessions from one of the poorest regions in the world. With this EPA, West Africa will have less policy space to use important tools for the development of certain economic sectors, in order to improve the living conditions of its people. At the same time the EU has not undertaken any formal commitment to allocate additional long term funding that would be needed to enable West Africa to cope with competition from imported European products, and to compensate for the loss of fiscal revenues. As a result, the EPA is incoherent with the development of West Africa.

Conclusion

We saw that poverty is rife in Africa, when it is obvious to all and sundry that these nations possess massive resource wealth.

The answer to that paradox is that the framework of development aid and oversight put in place by the richer nations and mediated through the likes of the IMF and the World Bank can be seen more as a giant vacuum cleaner designed to suck resource and financial wealth out of the poorer nations either through legal or illegal means, whichever generates the largest flows.

So while Africa is wealthy, its interaction with the world monetary and trade systems, leaves millions of its citizens in extreme poverty – unable to even purchase sufficient nutrition to live.

The EPA between the EU and the West African nations is one such ‘vacuum’-like device.

In fact, the West African states are still mired in post-colonial dependency not because they lack the resources available to set out their own development path, but, rather, because of the post-colonial institutions that have been set up to maintain control by the former colonialists of those resources.

Not content to ruin the prosperity in the Eurozone, the EU is pressuring some of the poorest nations in the world to adopt the same sort of failed monetary and fiscal arrangements and then go further – and sign ‘free trade’ agreements with reciprocal access.

The rest of the West African states should follow Nigeria’s example and abandon these arrangements.

That is enough for today!