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AFRICA: Liberalised Services Still Require Proper Regulations

Servaas van den Bosch

CAPE TOWN, Sep 20 2010 (IPS) - With African countries’ trade remaining inordinately dependent on natural resources exports, their economies could benefit from liberalisation of trade in services but only as long as proper domestic regulatory frameworks are put in place, some trade experts argue.

Natural resources like minerals, fish, timber and fuels constitute a staggering 73 percent of Africa’s exports, compared to 14 percent of the European Union’s (EU) exports. Only five percent of exports are traded within Africa, with the balance destined for the industrial centres of China, India, the European Union (EU) and the U.S.

The continent’s dependency on these markets became apparent when demand plummeted in the wake of the financial crisis, putting an end to the 2003-2008 commodities boom, explained Sean Woolfrey, researcher at the Trade Law Centre of Southern Africa (Tralac), at Tralac’s annual meeting on Sep 16-17 in Cape Town, South Africa.

The non-profit Tralac provides capacity-building support to governments and other entities.

Angola’s oil fields, Zambia’s copper belt and Botswana’s diamond mines, among others, have created dangerously one-sided development paths, trade experts noted at the conference.

“Significant policy space is available when it comes to natural resources,” remarked Woolfrey. “But increasingly this space is being constrained by preferential trade agreements.”

As example he mentioned the economic partnership agreements (EPAs) that the EU is currently negotiating with the Africa, Caribbean and Pacific (ACP) states.

Namibia, experiencing a uranium rush, vehemently opposes limitations on export taxes in the EPA. The EU uses tariff escalations to prevent local processing, particularly in mining and forestry, hindering African countries when it comes to value addition. Woolfrey warned that, “this can lead to tit- for-tat trade policies that in the end are not always conducive”.

He pointed out that the rise of economic giants like China and India, hungry for natural resources, could benefit exporters “not because they are somehow more benevolent trade partners, but because the emergence of South-South trade in natural resources means more competition, which is good for suppliers”.

Competitiveness can be enhanced by the liberalisation of trade in services but this would also present a good opportunity to improve domestic regulatory frameworks, opined Tralac executive director Trudi Hartzenberg.

Her position contradicts that of African governments and civil society organisations that have strongly resisted the EU’s insistence in the troublesome EPA negotiations that African countries liberalise their markets for services companies from Europe.

It would be unfair, opponents have argued with some success, to expect companies from developing economies in the region to compete on an equal level with European services companies.

“It would for instance give German operators access to the Namibian market, but on the other hand it is very unlikely that Telecom Namibia Ltd will go to Germany to take over Deutsche Telekom,” said Namibia’s deputy finance minister Calle Schlettwein last year.

Most Southern Africa countries, apart from Botswana, favour postponement of services negotiations in the EPA talks. The EU is grudgingly giving in to this position.

But Hartzenberg’s opinion is that, in the absence of a services development agenda, consumers pay the price for expensive service delivery by South African companies and “inefficient” state-owned companies.

“The risks of liberalisation are overstated,” she told IPS. “South African firms in the services sector have established commercial presence in telecommunications, financial and other services in most Southern African countries already without any liberalisation having taken place.

“Such services are hard to keep out because they often involve foreign direct investment and most countries will bend over backwards to get that.”

Therefore it is timely to open the discussion on services, Hartzenberg argued.

“Even in least developed countries, services contribute an increasing share of economic activity in terms of employment. Services are also very important for the manufacturing sector. It is not possible to be competitive in manufacturing if we do not have competitive services inputs.

“We need only to take a look at bank and telecommunications charges in our part of the world to see that these high costs and, in some cases, poor quality of services are not only hampering business development but have very negative effects on consumers and households.”

Trade expert Mike Humphrey added that, “liberalisation does not mean that there is no control. There can be clear restrictions; it is not a blank cheque”.

Hartzenberg conceded that whether countries should open their services sectors to the EU specifically is a valid question. “If the EU is being given a first mover’s advantage, it may be an idea to look at which European services providers are competitive and opening up only for those that are most efficient.”

Discussing liberalisation in the context of the EPA, according to the Tralac chief, can also give impetus to much needed domestic regulatory reform to promote efficient, more competitive services providers.

The battle over services has only just begun as the powers that be have a vested interest in maintaining the status quo.

“When looking at the banking sector in South Africa there are really four firms that dominate the market and they do not necessarily want new competition,” said Hartzenberg.

“The same goes for telecommunications. In many countries in the region, fixed-line service providers are still owned by governments. They do not want competition to erode their income.”

Governments should be asking themselves whether these services companies are of benefit to the economy, said Hartzenberg. They should also ask: “Would the entry of Deutsche Telekom into Namibia improve service and lower prices? Would it be an efficient services provider?

“Whether a Namibian is working for a Namibian company or for a German- owned company should not make a difference, provided that the domestic regulatory framework is robust enough.”