English Version:


Gerrishon K. Ikiara:
The European Union-ACP relationship: The case of Eastern Africa

[Title pages]
[Summary]
Acknowledgements
Table of Contents
Abbreviations

1. Introduction

• 1.1 An Overview of Eastern African Relationship with the European Union

2. Potential and Constraints on Development in Eastern Africa

• 2.1 The Potential of the Region
• 2.2 Trade Patterns
• 2.3 Constraints on Socio-Economic Development in Eastern Africa

3. Impact of EU-Eastern Africa Relationship

• 3.1 Impact of Preferential Market Access
• 3.2 STABEX and SYSMIN Schemes
• 3.3 Other Impacts of EU-Africa Relationship

4. Common Interests Between Europe and Eastern Africa

5. Proposed Reforms in EU – Eastern African Relations

Bibliography

About the Author

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Arbeitspapiere zur EU-Entwicklungspolitik

Working papers on EU-Development Policy

Documents de travail sur la politique du développement de l’UE

4

Gerrishon K. Ikiara

The European Union-ACP Relationship:
The Case of Eastern Africa

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Arbeitspapiere zur EU-Entwicklungspolitik

The series „Working papers on EU-Development Policy„ takes up topical problems in European development policy. It is intended to provide a forum for discussing political options for creating European development policy and the dialogue between North and South. Its objective is to contribute to a better understanding in pursuing a coordinated and coherent European development policy as agreed under the terms of the Maastricht treaty.

ISSN … 1432-9824
ISBN …3-86077-596-0

The series appears at irregular intervals. It may be ordered free of charge from the Friedrich-Ebert-Stiftung, D-53170 Bonn/Germany.

Editor:

Projektgruppe Entwicklungspolitik Christiane Kesper

Copyright 1996 by Friedrich-Ebert-Stiftung
Godesberger Allee 149, 53175 Bonn

Layout: PAPYRUS – Schreib- und Büroservice
Printed in Germany 1996

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Gerrishon K. Ikiara
The European Union-ACP Relationship: The Case of Eastern Africa

A quick overview of the history of EU-Eastern Africa relations indicates that Europe has had a large impact on these economies as their main trade partner and their major source of investment. The trade provisions were instrumental in developing the exports of certain countries. But due to many development constraints such as the slow pace of reforms, the lack of investment security and the highly different economic structures and potentials of the countries, few of them were able to exploit the preferential treatment.

The evolution of the impact of EU co-operation shows contrasting results: It has apparently failed to have a significant effect on the development of the trade sector, yet it has considerably accelerated the process of economic and political reforms. Moreover, some countries, such as Mauritius, have taken advantage of the existing market access provisions to significantly diversify their trade with Europe.

Renewed co-operation should be based on common interests. It should encompass both new areas and continue in areas of past cooperation such as infrastructure development in the regional context, support for the reforms aiming at improving investment climate and increasing foreign investment. Europe also needs to help the region in addressing its excessive debt burden. Moreover, tariff and non-tariff barriers to African exports to the EU need to be eliminated. But this should pursued in a context of enhancing the competitiveness of the African economies, not with the aim of simply seeking preferential access. If certain schemes need to be maintained (STABEX, SYSMIN), further gains should be obtained by an increased support of the EU to the liberalisation of these economies.

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Acknowledgements

This paper was prepared for the seminar on „The Future of Lomé„ organised by the Friedrich-Ebert-Stiftung in Brussels on the 10-11 June 1996 and for the Conference on the „Future EU-ACP Relations beyond Lomé IV„ organised by the European Center for Development Policy Management in Maastricht on 12-14 June 1996.

We would like to thank the European Centre for Development Policy Management (ECDPM) in Maastricht for its support during the preparation of these studies and for its continuous and constructive co-operation on a wide range of development issues.

Finally, we would like to express our sincere gratitude to all those who helped move these studies through the publication process. The successful completion of this project would not have been possible without their dedication and effort.

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Table of Contents

1.	INTRODUCTION		7
	1.1	An Overview of Eastern African Relationships with the European Union	7
2.	POTENTIAL AND CONSTRAINTS ON DEVELOPMENT IN EASTERN AFRICA		10
	2.1	The Potential of the Region	10
	2.2	Trade Patterns	11
	2.3	Constraints to Socio-Economic Development in Eastern Africa	13
3.	IMPACT OF EU-EASTERN AFRICA RELATIONSHIP		15
	3.1	Impact of Preferential Market Access	15
	3.2	STABEX and SYSMIN Schemes	18
	3.3	Other Impacts of EU-Africa Relationship	18
4.	COMMON INTERESTS BETWEEN EUROPE AND EASTERN AFRICA.		19
5.	PROPOSED REFORMS IN EU-EASTERN AFRICAN RELATIONS		21
BIBLIOGRAPHY			22
ABOUT THE AUTHOR			23

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Abbreviations

ACP	Africa, the Caribbean and the Pacific
CAP	Common Agricultural Policy
COMESA	Common Market for Eastern and Southern Africa
EC	European Community
ECA	Economic Commission for Africa
ECU	European Currency Unit
EU	European Union
FDI	Foreign Direct Investment
GDP	Gross Domestic Product
GSP	Generalised System of Preferences
IGAD	Inter-Governmental Authority on Drought and Development
KMC	Kenya Meat Commission
MFA	Multifibre Agreement
STABEX	System for the Stabilisation of Export Earnings (under the Lomé Convention)
SYSMIN	System for Stabilising Minerals (under the Lomé Convention)
WTO	World Trade Organisation

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1. Introduction

The general objective of this paper is to examine issues that are likely to impact on the future relations between Eastern African countries and the European Union. The paper assesses the impact of past cooperation, the potential and constraints on development in this African region and also examines possible options in relation to the current arrangements. It is divided into five sections.

Section I provides an overview of historical links between Eastern Africa and Western Europe, while section II discusses the potential and constraints on development in Eastern Africa. Section III analyzes the impact of past EU co-operation with the region and Section IV examines common interests between Europe and the region. The concluding section V presents some reform proposals on future co-operation with the EU.

1.1 An Overview of Eastern African Relationship with the European Union

The beginning of sustained and intensified contacts between East Africa and Western Europe can be traced back to the 15th Century when the Portuguese sailor, Vasco Da Gama came to the East African Indian Ocean Coast. His visit opened up trading and other contacts between the region and Western Europe, which expanded rapidly after that. The relationship took a dramatic turn when in the late 1880s, the Berlin Conference partitioned East Africa into English and German spheres of influence that later became colonies. Uganda and Kenya became English colonies while Tanganyika became a German colony. After the first World War, the whole of East Africa came under the British Colonial rule. During this period, the other Eastern African Countries came under European influence: Sudan under Britain, Somalia under both Italy and Britain, and Rwanda and Burundi under Belgium. It was only Ethiopia which resisted establishment of complete colonial rule after their war with Italy.

This spate of colonisation marked the beginning of major changes in the region’s economic, political and socio-cultural development process. There is today a strong European imprint left by the Colonial rule, which lasted less than 100 years before the countries in the region became independent in the early 1960s.

A glance at today’s investment flows, aid and other aspects of economic relationships reveals the strong impact Western Europe has had on East Africa. The existing trade patterns for countries in the region show the large share that Western Europe continues to hold with regard to the exports and imports of countries like Kenya, Uganda and Tanzania. Kenya for instance, by the time of her independence in 1963, sent 60% of her exports to Western Europe (with UK alone having a share of 25% of total exports). In the case of imports, 53% of Kenya’s imports in 1963 emanated from Western Europe (31% from UK). This pattern of trade more or less prevailed for the other countries in the region, (Table 1). While trading patterns have diversified since then, the dominance of Western Europe remains.

Apart from trade, Western Europe has also been the most important source of investments in the area, although countries like Japan and United States have become increasingly important in the 1980s and 1990s.

The impact of Western Europe on Eastern as well as other parts of Africa has been a highly controversial subject with very radical interpretations. While there are those who regard the coming of Western Europe into Africa as the beginning of modernization on the continent, there

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has been another school of thought exemplified by thinkers like Walter Rodney, who have attributed the underdevelopment of the continent to domination and exploitation by Western Europe (Walter Rodney, 1972).

Source: IMF: Direction of Trade Statistics.

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For the last two decades, Eastern African countries, like other African Caribbean and Pacific (ACP) countries, have interacted with Western Europe mainly within the context of Lomé Convention, which was first signed by EC and ACP member countries in February 1975. The agreement focused on cooperation in trade, financial and industrial development, between the EC and ACP member states. The second and third Lomé Conventions were concluded and signed in 1979 and 1985 respectively. The main features of these earlier conventions were that they allowed specified products from ACP member countries to enjoy preferential treatment in EC markets. The preferences were mainly in form of exemption of duty and removal of quantitative import barriers on a wide range of manufactured products from ACP countries. In addition, some raw materials and ACP agricultural exports that fell under EC Common Agricultural Policy (CAP) were given special treatment in EC markets, relative to similar products originating from non-ACP countries. Some of the products that benefitted from Lomé arrangements included beef and veal, fish, dairy products, cereals, fruits, tobacco, biscuits and chocolates and cut flowers. Kenya’s exports of cut flowers for instance, have expanded tremendously since those initial days.

The convention also had provisions for ACP countries to receive technical assistance from EC countries in areas such as trade promotion, market research and development of information systems to facilitate trade.

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2. Potential and Constraints on Development in Eastern Africa

2.1 The Potential of the Region

The Eastern Africa region consists roughly of ten countries with highly different economic structures and potentials. In total, they cover an area of more than 1,000 sq. km. and a population of about 185 million people by mid 1994 (Table 2) The region includes some of the largest countries in the continent, like Sudan (with an area of 2.5 million sq. km.) and Tanzania. The region has also some of the smallest countries such as Djibouti, Burundi and Rwanda, with less than 30,000 sq. km. each. In terms of population, Ethiopia is the largest with more than 53 million people, followed by Tanzania, Kenya, Sudan.

Source: ADB: African Development Report, 1995.

The region’s annual output for the period 1991-94 averaged US$ 44 billion, with Tanzania, Ethiopia, Kenya and Sudan accounting for about 81% of the total. East African countries overall registered a low GDP growth rate of 1.3% during the period. Indeed about a third of the countries had negative growth rates. Impressive growth rates were only recorded in Sudan (5.4%) and Uganda (5.0%) during the period 1991-94.

With a population approaching 200 million people and growing at more than 2% per annum, the Eastern African region has a huge potential as a market. However, the low levels of GDP per capita in virtually all the countries seriously reduce the effective purchasing power of the people in the region. Thus, the market potential of the Eastern African region for goods emanating from within the region, European Union or other

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parts of the world can only be tapped if an effective strategy is found to raise the productivity of labour and other factors of production in the area, thereby increasing the per capita GDP and therefore the purchasing power of the population.

The region’s per capita GDP during the period 1991-94 was about US$ 240, with the highest national per capita income being US$ 500 for Djibouti, followed by that of Tanzania (US$ 354) and Kenya (US$ 304).

2.2 Trade Patterns

Table 3 provides a profile of the region’s trade by country for various periods from 1991-94. The major export commodities from the region are primary products which account for over 50% of the exports total for each country. The structure of trade is still heavily dominated by primary products, which suffer from low elasticities of demand. The region has thus been mainly a source of raw materials. Closer scrutiny reveals that the major export destinations and import sources are strongly linked with the history of various countries. Kenya and Uganda, as former British colonies, have the UK as their main trading partner. The same applies to Burundi, Rwanda and Somalia, which largely trade with Belgium and Italy respectively. The former French colonies also continue to have France as their major trading partner.

The main agricultural exports from the region are tropical products. Export earnings from these products, such as coffee and tea, are essential as some states in the region depend on one or a few tropical products for the bulk of their export earnings. Cut flowers are an example of non-traditional tropical products, which have been successful in the region in recent years, with Kenya as the leading exporter. Bananas are an important export for Somalia. With the integration of the EU market, the new banana regime may to some extent reduce the competitiveness of the region’s banana’s on the EU market. In the past they had secure markets in Italy and France whereas now they must compete with the lower cost fruits of Ecuador, Colombia and Central America.

Sugar is an important agricultural commodity for some countries in the region. The region’s sugar producers include Tanzania, Uganda and Kenya, which are much less important than Mauritius and Swaziland which control more than 60% of the exports of the commodity from Africa. Tanzania has a quota of 10,000 tonnes, while Kenya and Uganda have insignificant quotas of 5,000 tonnes each within EU market. The region could benefit from a larger quota. However, pressure from the European sugar beet farmers citing sugar surplus in the EU has been an obstacle.

Beef and veal are also products with considerable potential from Eastern Africa, where pastoralism is a major economic activity. Under Lomé IV, the region’s largest quota for beef and veal is 142 tonnes for Kenya, which is small compared to Botswana’s 18,916 tonnes and Zimbabwe’s 9,100 tonnes. Kenya has, however, not effectively utilized its quota due to recent problems with the main meat processing parastatal firm, the Kenya Meat Commission (KMC), and frequent droughts. Articles 3 and 4 of the beef and veal protocol express willingness to consider the transfer of quotas between years and between ACP states when supply problems (drought, etc.) lead to unused quotas. The granting of further new beef quotas to the region is not likely, although it could help Ethiopia which has included beef as a likely export possibility to the EU.

Fish processing is one of the most successful cases in both the region and other ACP countries. Frozen fish, excluding fish fillet made up 12.4% of the total (principally from Kenya, Senegal and Namibia). The rules of origin are, however, seen as an obstacle in expanding exports of fish into the EU market. To qualify under the rules of origin, the fish must be caught by ships registered in the EU or ACP states and at least 50% owned by nationals of these countries, with further restrictions on the nationalities of the crew members. The basic criteria are supplemented by rules specific to individual products. The processing of fish products for preferential access to the EU market faces a double barrier as a result of the rules of origin criteria for both the primary input as well as the processed product. The rules are probably the greatest setback to the fish products trade.

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Source: EIU Various Issues, IMF Directory of Trade Statistics Year book.

For manufacturers to benefit from exemption from tariffs, levies or duties or similar barriers, ACP exports must ‘originate’ in the ACP. Products need to be either wholly obtained, or sufficiently processed in an ACP state. Rules of origin normally require ‘substantial transformation’ i.e, a shift of heading in the 4 digit Harmonisation Coding system. But this is not always sufficient. For instance, the simple assembly of parts and articles to constitute a complete article will not qualify for preferential treatment according to the existing rules of origin. These rules of origin are too strict for the region in light of the fact that industrialization is in its nascent stages. Kenya and Ethiopia exported 18% and 11% of ACP exports of hides, skins and leather in 1994.

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The ACP countries have been excluded from the Multifibre Arrangement (MFA), which has restricted developing country exports of textiles and clothing to the EU and other industrialised countries since 1974. ACP textiles and clothing exports to the EU are not subject to formal quantitative restrictions and this has given them a competitive advantage over other developing countries, which generally face high tariff and quota restrictions on their exports. However, in order to enjoy duty-free access, the ACP exporters have to comply with strict rules or origin.

Manufactures of textiles and clothing must usually start from the yarn. There is a value-added criteria specifying the maximum share of non-originating materials, usually 45% which is supplemented by further conditions on the share of particular non-originating materials.

Over a third of ACP exports of textiles and clothing comprise raw material, which is excluded from the MFA. Most of this is raw cotton to which no value has been added by the exporter through dying or other forms of processing and which has duty free access to the EU anyway. The region’s producers include Tanzania and Sudan. The largest producer in the region is Sudan, which depends on textiles for a relatively large share of her export earnings. Hence we can conclude so far that only a few countries have exploited the preferential treatment for textile and clothing exports to the EU.

2.3 Constraints on Socio-Economic Development in Eastern Africa

There are a number of constraints, including climatic, economic, political, institutional, socio-cultural factors which have made it difficult to utilize the potential that exists in the region.

Excessive population pressure is one of the main constraints facing the countries in the region. Growing at an annual rate of about 3 per cent, the population in most of the countries in the region is doubling in a short period of about 20 years. This has continued to put excessive pressure on the economic resources of these fragile economies, with adverse effects on their ability to save and invest; provide adequate infrastructure for essential services such as education, health housing, water and sanitation, transport; and to provide employment opportunities. In addition, rising pressure on land resources in some of the countries has led to soil erosion, depletion of forests and water catchments, posing a major threat to the environment. Continued deterioration in the quality of the environmental conditions is likely to aggravate the level of poverty and the general poor welfare of the people in many of these countries. The danger to the environment in the Eastern Africa region is especially serious in view of its fragile eco-system due to a high frequency of droughts.

The declining attractiveness of the region to foreign investors in the last two decades has also made it difficult to stimulate economic growth. This problem has been to some extent attributed to poor macro-economic policies in the first two decades, political instability or uncertainty and rising levels of corruption and mismanagement of economic resources, inadequate and inefficient infrastructure, which have created an unconducive environment for both domestic or foreign investors.

The on-going economic and political reforms in the region since early 1980s were expected to eliminate or at least reduce some of these constraints. The reform process, however, has been rather slow in many of the countries and these benefits have not materialised in a significant way. Lack of a major breakthrough in export competitiveness for many of the countries in the region and their products has slowed down the rate of economic transformation. This makes these countries continue to depend heavily on commodity exports and reflects their general failure to substantially diversify their economic activity.

External Debt

The debt crisis that started in 1981 has persisted without the region showing any signs of recovery. The high level of external indebtedness has become a major obstacle to development efforts in the region. The table below provides a grim picture of the situation, with all the countries in the region falling in the severely indebted low income countries. These countries have had a rapidly deteriorating debt servicing performance (Table 4).

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Source: World Bank: World Debt tables, 1994/95.

The debt overhangs and high levels of aid dependence will continue to be a major burden for the region for a long time. This poses a number of insurmountable problems;

• It increases systematic dilemmas for the international community as the donor institutions become more exposed to the build up of arrears.

• Indebtedness is incompatible with the ongoing structural adjustment. It is likely to have adverse effects on countries’ ability to attract foreign investment and retain domestic capital as well as effective public management.

Source: World Bank (Debtor Reporting System).

The servicing of external debt continues to represent a heavy burden, with debt service ratio’s averaging 60% (TDS/XGS) in the region (Table 5).

Interest payments as shown by INT/XGS swallow an excessive slice of their GDP. Worst hit again are Somalia, Sudan and Tanzania.

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3. Impact of EU-Eastern Africa Relationship

Lomé’ has been one of the organisations that African countries have continued to take very seriously with virtually all African States participating in the last four Lomé’ conventions.

The fourth convention (Lomé’IV) was signed in 1989, succeeding the previous agreements signed in Lomé in 1975, 1979 and 1984. Lomé IV maintained the long-term development aims of previous conventions, but placed new emphasis on economic policy reform in member states in line with the general emphasis on conditionality among multilateral funding bodies.

To assess the impact of Lomé IV Conventions, it is important to consider the four main elements of the trade component of the convention. These are the preferential access of EU market for ACP exporters without any reciprocity; the mechanism for stabilizing commodity export earnings through the stabex; the support of activities to strengthen the trade sector performance through the trade development cooperation, which was expected to stimulate diversification of the economy horizontally and vertically through development as strengthening of activities such as processing, marketing distribution and transportation; and finally, greater focus on trade in services.

Source: UNCTAD Handbook of International Trade and Development Statistics, 1992, (Cited in Adedeji, 1996).

Although each of the above areas have been negotiated by ACP countries, the benefits to them are not always easy to see. Touching on this issue, Adedeji argues that: „The extent to which these benefits have been enhanced is very difficult to gauge given that Africa’s trade sector continues to perform dismally inspite of the preferential treatment of her products both under the Convention and the GSP„ (Adedeji, 1992:3).

3.1 Impact of Preferential Market Access

Analysis of trade between Africa and the European Union indicates the Lomé preferential arrangements may not have had the required impact of increasing the share of Africa and other ACP member countries in EU’s imports.

Looking at Africa’s export and import statistics over the period from the 1970s to the 1990s, the convention does not seem to have had sustainable impact in strengthening trade between Africa and European Union. The share of Africa’s exports to the EU declined by almost 50%, from 6.0% in 1976 to 3.3% in 1992. In terms of value, however, Africa’s exports to EU rose from ECU 9.4 billion in 1976 to ECU 24.2 billion in 1985

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before falling to ECU 16.0 billion in 1992. A similar trend was observable in the case of other ACP groups (Table 7). In terms of specific export commodity groups, the share of Africa’s exports of food items, agricultural raw materials and ores and metals experienced a major decline between 1970 and 1990 (Table 6).

Decrying the drastic fall of Africa’s share of EU imports from 6.3% in 1980 to only 3.3% in 1992, Adedeji, the former Secretary-General of ECA notes: „Prospects seem to be glimmer as Africa loses out on her overall competitiveness in both production and trade to other third world countries notably in East Asia and the Pacific„, (Adedeji; A, 1992: 3). Between 1973 and 1992, six East Asia countries, which did not have any preferential arrangements with the European Union, increased their share of exports to EU markets from 1.5% to 3.6% respectively.

It is thus clear that success in the EU market is not dependent on the existence of preferential arrangements, but on the competitiveness of the products.

Analysis of the Africa’s performance in both trade and development, the two main areas of cooperation between the EU and ACP in the Lomé Convention, shows that the convention more or less failed in its main objectives: „Despite their reliance and strong commitment to this cooperation, the Convention has failed to make a significant impact on the development of Africa’s trade sector as demonstrated by the declining trade shares and lack of diversification,„ (Adedeji A. 1992: 3).

Source: Eurostat data, cited from Adedeji; 1996.

One of the main objectives of the trade cooperation in the Lomé Convention was to promote trade between ACP and EU members by providing preferential treatment of some ACP products to the EU market and by improving market access. Thus, except for products which are covered by the EU’s Common Agricultural Policy, many export items from African countries were allowed entry into the EU market without custom duties. According to the Convention, it was also not necessary for ACP group of countries to reciprocate those preferences given by the EU group.

Under Lomé IV, the ACP products which can be exported to the EU market duty-free include beverages such as cocoa and tea, spices, raw tropical wood, fresh fish, jute products, sisal twine cordage, copper, tin phosphates and petro chemicals. This list is significant in the sense that the items included constitute more than 60% of Africa’s exports.

Some critics have argued that the sacrifice made by the EU on these duty free provisions is small because, first, these are products which hardly compete with EU products and, second, the same preferences are available to African countries in other major international markets such as North America and Japan under the General-

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ised Special references (GSP) scheme for least developed countries.

Another set of products that is able to enjoy preferential tariffs within Lomé, over the GSP rates, include vegetable oils, coffee, fish and meat products, rice, tropical fruits, fruit juices and oil seed products. A large proportion of commodities in this second category are very important for many of the countries in the Eastern Africa region. Coffee is a major export item for Kenya, Tanzania, Uganda, Ethiopia, Rwanda and Burundi, for instance, while many of the countries in the region have high potential in some of the other commodities such vegetable oils, oilseed products, fish and fish products, tropical fruits and fruit juices.

Source: UNCTAD Handbook of International Trade and Development Statistics.

The third category of trade items consists of those products that come under the Common Agricultural Policy. These are heavily protected through subsidies. Some of the products that fall in this category include bananas, sugar, beef and veal, and rum. ACP member states obtain market access for these products only through special protocols which clearly spell out the terms under which they can be exported to EU markets. Conditions which are usually specified for this access include quota restrictions, price guarantees, calendars etc.

While the rationale for these conditions is clear for the EU members, there are cases when these special conditions have been used to deny some of the African countries the ability to export more of certain items that have high potential in the EU market.

It was in this context that some argued that some of the African countries could benefit more from a general liberalisation of EU agricultural trade within the WTO context than from the existing preferences on selected items. Under such broad liberalisation of European agriculture, African countries that are capable of raising their productivity and competitiveness could increase their shares of the EU markets for some products. The recent expansion of Kenyan exports of horticultural products to the EU demonstrates that this is possible and that it could make a considerable contribution in the struggle to diversify the African economies.

The impact of the duty free access provision has been eroded by existence of various non-tariff measures within the EU market, which include quantitative barriers to some agricultural products that qualify for duty free entry like beef and veal, fruits, vegetables and rice. In Eastern Africa, Kenya qualified to export meat to EU market under preferential terms, but with annual quotas. Other non-tariff barriers that have adversely affected access to EU markets include levies and other charges applied at the discretion of Customs Officers, and sometimes the requirement for imposition of an equivalent tax on the export product. Internal sales taxes levied on the sale of some of the ACP products have

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also tended to reduce the competition of the EU within the market.

Some countries have, however, taken advantage of the existing market access provisions of the Lomé Convention to diversify their exports into Europe substantially. One of the outstanding success cases is that of Mauritius, which has transformed itself from a sugar-dependent economy to one of the most dynamic economies in Africa. Textiles have gradually become an important export commodity from Mauritius to the EU market, helping to broaden the country’s economic base. Kenya has also been able to develop a horticultural sector to become one of the country’s major sources of exports in the last decade. The country took advantage of the market access for ACP products within the EU market.

But analysis of the four Lomé Conventions shows that those products that compete with temperate products have not been so lucky. They have, over time, faced various types of tariff and non-tariff barriers including quotas, levies, marketing calenders, and reference prices, which compel exporters of fresh fruits and vegetables to EU markets not to fix prices below a given reference price.

3.2 STABEX and SYSMIN Schemes

The transfers under STABEX aim at helping the ACP states to achieve stability in their exchange earnings and facilitating sustained social and economic growth and development. While this has been taken as one of the most important provision of Lomé Conventions, it has had major limitations, including:

1. complex mechanisms and procedures of transferring funds.

2. long delays in transfers emanating from cross-checking of statistics and lengthy discussions on whether reasons for short falls/ deficits are beyond the control of the ACP applicant.

3. the inadequacy of funds allocated for the STABEX scheme. The convention only allows for a maximum of 25 percent advance from the following years’ instalment.

4. tendency to discourage processing of export commodities, as agricultural items that undergo significant processing do not qualify for STABEX support.

5. the requirement that the use of STABEX transfers conform to EU objectives, which may necessarily be congruent to the ACP country. This rule requires the applicant to clearly state the intended use of the funds.

For many ACP member state, compensation that they obtain from STABEX and SYSMIN schemes are a small proportion of the losses incurred through price fluctuations of their main export commodities. One study indicated, for instance, that while ACP countries lost about US$ 100 billion in the 1980s due to the fall of export prices, they received only US$ 50 billion in total aid from all sources during the same periods (Courier No. 155: 4).

3.3 Other Impacts of EU-Africa Relationship

One of the impacts of the EU-Africa relationship has been that it has accelerated the pace of economic and political reforms in various African countries. Since Lomé II signed in 1979, human rights issues have started to emerge as important issue among the two groups. In Lomé IV, structural adjustment become an important issue. The convention included provisions on democracy, good governance and human rights. While some of the countries in Eastern Africa have been rather unhappy with these provisions, growing concern and pressure from EU members has helped to accelerate the pace of democratisation and economic reforms in these countries. While the ruling authorities sometimes have protested what they regard as intrusion on their sovereignty, there has been considerable support from the pro-change elements within these countries.

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4. Common Interests Between Europe and Eastern Africa

While both European Union members and Eastern Africa leaders recognize that major changes are taking place in the global trading system, especially after the Uruguay Round agreement and further integration of EU, that will radically affect the future of EU-ACP relations, it is clear that both sides are eager to maintain some form of modified relationship.

Both EU and African leaders would, for instance, like some form of co-operation to continue between the two regions. This is partly due to the historical and existing links between Europe and Africa in terms of trade, investments, etc. First, as pointed out earlier, Eastern Africa’s economies are strongly linked to Western Europe through trade, investments, and overseas development assistance. It will be a long time before these links significantly change.

While Eastern Africa’s share of total European trade is small, the trade is highly significant for the two regions. For Africa, Europe remains, by far, the most important destination of exports and source of imports.

In the case of European Union, the value of Africa’s exports is small, but the region is an important source of a number of tropical products like coffee, tea, etc., and some minerals important to the European Market. But more important for Europe is that Eastern Africa, with close to 200 million people, is a significant market for the EU’s manufactured products. The future potential for the region as a market for EU products could be even more significant, especially if the region recovers from its present economic crisis. The proximity of the two regions will contribute to their maintaining strong economic links.

Secondly, due to the long historical and colonial association, there tends to be a feeling of some degree of responsibility on the part of some of the European member states to play a part in getting Africa out of its present crisis. At the same time, there is a feeling among the Eastern African population that Europe helped to create the region as it is today and must play a part in rectifying the situation. In a seminar held in Nairobi on 21 May 1996 focusing on the relationship between the European Union and Africa, a number of African participants expressed fear that Europe was abandoning Africa at its hour of need.

The seminar discussions showed that while both EU and Africa participants realised that the era of preferential treatment within the Lomé Convention was either coming to an end or undergoing drastic changes, there was some common agreement that new forms of co-operation could be developed between the two regions. One of the areas which received considerable attention was the need for measures to increase direct foreign investments from Europe to the region. Of special interest in this area were infrastructural investments, especially those projects which would facilitate faster integration of the countries in the region. These have formed a number of regional integration bodies including COMESA, East African Co-operation and IGAD. Transport and Communication between the member states of these organisations was seriously hampered by poor infrastructure such as roads, railway lines, shipping lines, etc, which in turn limited movements of people and goods from one country to the other.

There is also evident common interest between the two regions to strengthen economic and

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eventually political integration in the region. Both EU members and African leadership regard economic integration in the region as a critical step in the development process of Eastern Africa. It would seem that the region could improve investment, prospects, especially for regional projects, if the economies are integrated.

Another common interest between EU and Eastern Africa leaders is economic reform. After initial reluctance to wholly embrace economic reforms being introduced as part of the World Bank and IMF supported structural adjustment programme, attitudes have shifted toward more support for the reforms. Both African leaders and European Union leaders seem to place considerable hope on the positive impact of reforms, particularly on an improved environment for foreign investments.

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5. Proposed Reforms in EU – Eastern African Relations

In view of the strong mutual feeling by the EU and Africa that some form of co-operation should exist between them, it is important to think of ways and means of doing so.

One of the proposals is that in order to enable Eastern Africa and other African countries to benefit more from current and future co-operation efforts, there is a need to eliminate tariff and non-tariff barriers against African exports. African exports to the EU are an insignificant proportion of total EU trade. While there may be hardly any noticeable reduction of the welfare status of the EU population, such a move could be highly significant for the people involved.

Despite its shortcomings, the STABEX transfers have helped some of the countries to adjust to losses arising from fluctuations in exports of their main commodities. In Eastern Africa, coffee producing countries have benefitted from this scheme. Many ACP member states still feel that the scheme is important, so it will be necessary to address its weaknesses in order to make it play its role more effectively.

It has become clear that in the increasingly liberalized global trade environment, Africa’s future does not lie with preferential schemes like the Lomé Convention, but with taking deliberate measures to increase African countries’s competitiveness. EU and ACP member states could co-operate in the short and medium term to formulate a strategy to accomplish this.

The debt burden is another area that must be addressed before Eastern Africa can focus more on economic recovery measures. The European Union could play a crucial role in the search for ways and means of alleviating Africa’s debt burden to create a more enabling environment for development.

There is growing realisation that more private investments from the European Union in the region will be more important than handouts or preferences. The Secretary-General of the newly revived East African Co-operation said in a recently held seminar on the European Union and its relationship with Eastern Africa in Nairobi that investments to the region have declined in the last two decades (Daily Nation, May 22, 1996). It was, however, acknowledged that part of the problem was that EU investors were not happy with the investment climate due to constraints related to political, administrative, legal and infrastructural issues. The on-going liberalisation of the economies in the region was expected to lead to more effective macro economic policies and create more conducive environment for foreign investors.

The East Africans would like to see new investments in the transport and communication sectors and other infrastructural projects, the completion of which would remove significant constraints on the expansion of regional trade.

There is also a growing recognition that the East African countries could actually gain more from full liberalisation of European markets, especially for products in which the countries are competitive. Expansion of Kenyan exports of cut flowers in the European market is an example of this. Kenya exports of cut flowers to the markets in 1994 totalled 13,000 tonnes, which made Kenya the most important African exporter of cut flowers to EU market. The commodity is estimated to earn the country between US$ 30 and 40 million annually in the recent years (Kenya Airways, journal, The Traveller, 1996). This clearly indicates that these countries stand to benefit substantially if access to the EU market for many tropical products is broadly liberalised. If this happens, these countries may not need to depend on preferential treatment.

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Bibliography

Adedeji, A. 1996 „Africa’s Expectations Under Lomé IV Convention in the Area of Trade„ ECA.

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Davenport M. (1995) The Uruguay Round: Implications for African Commonwealth countries; Unpublished workshop paper.

Economic Intelligence Unit, Country Reports (various issues).

European Investment Bank – Annual Reports.

Ndeti, K. and Gray, K.R. (eds.) (1992) The Second Scramble for Africa: A Response and a Critical Analysis of Challenges Facing Contemporary Sub-Saharan Africa. Masaki – Nairobi.

OECD: Geographical Distribution of Financial Flows to Aid Recipients.

Timberlake, L (1994) Africa in Crisis, East African Educational Publishers – Nairobi.

UNCTAD: Handbook of International Trade and Development Statistics (various issues).

Walter Rodney, How Europe Underdeveloped Africa, Tanzania Publishing House, 1976, Dar-es-Salam.

Whalley J. (ed.) (1988) The Small Among the Big, Vol II. CSIR Research Monograph. University of Western Ontario London, Canada. External Debt Statistics.

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About the Author

Gerrishon K. Ikiara is currently a Senior Lecturer in the Institute of Diplomacy and International Studies and Department of Economics, University of Nairobi, Kenya. His teaching and research interests have included Economics of Industry and Labour, Economic Development, Public Finance and International Economics. He is co-editor of a number of books, including Industrialisation in Kenya: In Search of a Strategy. He has also published over forty articles in journals and books on Kenyan and African economies. Ikiara has co-ordinated and/or participated in various research projects regarding business enterprises in an African setting. Examples include the World Bank funded Regional Programme on Enterprise Development (1993-1995); the UNCTAD funded project, Co-ordinated African Programme of Assistance on Services (CAPAS), 1992-1996.