Author: Alexandre Kateb
Affiliated organization: Fondation Robert Schuman
Site of publication: Robert-Schuman
Date of publication: July 1st, 2019
At a time when China is openly courting the African continent, the outgoing president of the European Commission, Jean-Claude Juncker, pleaded in his September 2018 speech on the state of the Union for a “new alliance between Africa and Europe”. This alliance would be founded on “investments and sustainable jobs”. Previously, the summit between the European Union and the African Union, held in November 2017 in Abidjan, had insisted on the need to “provide young people with the skills and opportunities they need through the mobilisation of intelligent, targeted investments”. German Chancellor Angela Merkel, for her part, wanted the deployment of a Marshall Plan for Africa. Finally, President Emmanuel Macron has committed to devote €2.5 billion to African start-ups and SMBs between now and 2022, within the framework of the “Choose Africa” initiative.
Position, philosophy and instruments of Euro-African cooperation
Until the year 2000, Europe-Africa relations were almost entirely based on development aid. Nevertheless, although it remains Africa’s top financier, with €20 billion in annual aid sent to the continent, the European Union wanted to complete this approach with a deeper economic and commercial partnership. The Cotonou agreements set out a new structure for cooperation with ACP countries (Africa, Caribbean, Pacific), based on economic partnership agreements (EPA) with the various Regional Economic Communities (REC).
The EPA with the ECOWAS was finalised in 2014. However, Nigeria refuses to sign it in its current form. The APE with the SADC was signed in 2016 on a basis of the strategic agreement between the European Union and South Africa. Other APE are in various stages of progress
Through the EIP, the European Union had set itself the objective of supporting external projects of a total amount of €44 billion by 2020, mainly in neighbourhood and Sub-Saharan African countries, based on own funds of €4.1 billion. The Commission proposes renewing the EIP over the period 2021-2027, with a target envelope of €60 billion. For this to have a real impact, it is imperative to define a strategic vision, together with a few priorities and a coherent action plan.
Through the EIP, the European Union had set itself the objective of supporting external projects of a total amount of €44 billion by 2020, mainly in neighbourhood and Sub-Saharan African countries, based on own funds of €4.1 billion
Indeed, when faced with China which is offering Africans a multidimensional partnership based around the “new silk roads” concept, the European Union is having difficulty supplying attractive content for the alliance proposed by Jean-Claude Juncker, within the context of an equal to equal strategic partnership. A big story is missing, one which would transcend the technocratic approach and be a better embodiment of the partnership.
To do so we propose building a “Partnership for the Emergence of Africa”, articulating the North-South and South-South cooperation logics more efficiently. Morocco, to which the European Union granted an “advanced status” in 2008, could be a driving element in this. As soon as he came to power, King Mohammed VI commenced active economic diplomacy. South-South cooperation was inscribed in the introduction of the 2011 Constitution. Although trade with African countries represents only 5% of Morocco’s overseas trade, the kingdom became the second largest African investor in Africa and the largest in West Africa.
Many Moroccan companies are established in the region: banks and insurance companies, telecommunications operators, building firms, mining companies, food groups. A project for a gas pipeline from Nigeria to Morocco is under consideration and the kingdom has submitted its application to join the ECOWAS, after re-joining the African Union. This role as “leader” in South-South cooperation in Africa is consubstantial with the mutation in the Moroccan economy. To understand it, it is essential to take the measure of the latter.
The Moroccan experience: economic emergence and insertion in regional and world value chains
As from the years 2000, Morocco had numerous sectorial plans (Emergence Plan and Industrial Acceleration Plan, Green Morocco Plan, Fisheries Plan, Vision 2020 for tourism) and transversal strategies (National Logistic Strategy, Digital Morocco Strategy) which meant that public action was established long-term. King Mohammed VI surrounded himself with high level technocrats, to whom he entrusted the economic portfolios. This “managerial revolution” was accompanied by administrative de-concentration and decentralisation, through the advanced regionalisation policy, which transferred economic development jurisdiction to local level.
In this respect, the low level of skilled labour available is the Achilles heel of the Moroccan economy. Two thirds of workers have no qualifications and only one in ten workers has higher education qualifications. Also, human capital is not correctly valorised. Half of all young graduates from higher education are unemployed. The level of participation of women in the labour force is not more than 15% in urban areas. To this is added persistent spatial polarisation. Five regions concentre 60% of national production, reflecting a duality that goes back to colonial days.
This “managerial revolution” was accompanied by administrative de-concentration and decentralisation, through the advanced regionalisation policy, which transferred economic development jurisdiction to local level.
To reinforce the competitiveness of Made in Morocco and counteract sluggish growth, Morocco must generate more productivity gains. The country is in an uncomfortable position between countries with low labour costs and countries with high technological intensity. To escape the trap of intermediate income, it is essential to invest in human capital and innovation by getting private stakeholders involved. The success of the Automotive Skills Training Institutes (IFMA) demonstrates that upstream involvement of companies is a determining factor in professional training.
The same is true for R&D spending. The national R&D effort represents almost 1% of GDP – i.e. as much as in Brazil, Poland or Turkey – but this effort is borne two thirds by universities and only one third by business, unlike in the other countries mentioned. Nevertheless the start of a re-balance is being observed, with the establishment of private engineering and R&D centres in the country, such as the PSA group’s Morocco Technical Centre (MTC) in Tangier, the MG2 automobile engineering centre (Joint-venture between Magna and Altran Technologies) in Casablanca, or Dassault Systèmes’ “3D Experience” design platform in Fes.
This upgrading of production facilities is all the more necessary since the “fourth industrial revolution” would create an upheaval in the current activity models. Although traditional value chains were based on a system of degrouping and hierarchical sequencing of industrial production, this could change in the era of Compufactoring – “connected” robotisation and increased production – thanks to innovations such as the Internet of Things, Big Data, Blockchain and Artificial Intelligence (AI). Vertically integrated chains could be substituted by platforms composed of myriads of network connected microbusinesses, as in the RenDanHeyi model of the Chinese group Haier.
Towards a partnership based on the articulation of North-South and South-South logics
Supporting connectivity efforts across the whole of Africa
We have referred to the importance of logistics services and to Morocco’s insufficiencies on this level. This observation applies to many other African countries, which almost all, with the exception of Egypt and South Africa, show weaker performances than Morocco in this respect. This transpires at continental level and forces the capacity of these countries to become part of regional and world production chains. In September 2018, the European Commission published the elements of a strategy for Europe-Asia connectivity, in response to the Chinese New Silk Roads project, to which sixteen countries in Central and Eastern Europe, as well as Greece, had joined up.
In view of existing requirements and the desire to bind the African and European continents closer together, it would be more relevant to define a Europe-Africa connectivity strategy by supporting pan-African connectivity in energy, both physical (maritime, road and rail transport) and virtual. Sub-Saharan Africa is still a long way behind in this respect, which is translated by poor logistics performance.
Poor road connectivity deprives many producers of access to national, regional and world markets, and prevents them from benefitting from economies of scale. It is essential to complete the major transcontinental routes, like the trans-Saharan and the Trans-Sahelian.
Insufficiencies in terms of physical connectivity continue to jeopardise development. Sub-Saharan Africa is the only region in the world where road network density fell over the period 1990-2011. Poor road connectivity deprives many producers of access to national, regional and world markets, and prevents them from benefitting from economies of scale. It is essential to complete the major transcontinental routes, like the trans-Saharan and the Trans-Sahelian.
These two major highways could be connected to the Abidjan-Ouagadougou motorway and the Tangier-Abidjan-Lagos route. Finally, according to the AfDB, the cost of maritime services in Africa is still 40% higher than the world standard, due to congestion at existing port infrastructures. Greater integration between African ports and between the ports and their respective hinterlands would result in considerable positive externalities.
In order to support the Pan-African and Euro-African connectivity projects identified, the European Union could mobilise External Investment Plan (EIP) instruments. We suggest allocating €3 billion to the Europe-Africa fund for infrastructure over the period 2021-2027, articulating its action with the Africa Fund 5.0 launched in Marrakech in 2014, and based on the expertise of the Programme for Infrastructure Development in Africa (PIDA). This Euro-African connectivity strategy should be backed by joint EU-AU governance. This would allow for support for projects totalling €30 billion – or even much more – with priority given to the interconnection of electricity networks, the development of terrestrial and maritime logistics chains and the integration of African and European digital ecosystems.
Deploying integrated industrial sectors in Africa
Europe could give greater support to industrial investments in Africa, as is done by the Renault group in Tangier, by encouraging the creation of industrial sectors integrated at Euro-African level. Whereas China is gradually moving from the status of factory of the world to that of the world’s leading market, the tens of millions of “outsourced” Chinese industrial jobs are the dream of certain African countries. However, Chinese manufacturer investments in Africa are still limited.
With the exception of the Sino-Egyptian and Sino-Ethiopian free zones, Chinese manufacturing entities located in Africa produce mainly for local markets. As for the United States, with the African Growth and Opportunity Act (AGOA), started in the year 2000 by President Bill Clinton, they have granted African countries access to the American market without any counterpart in return. However, the AGOA has not resulted in any real boost in American-African trade, which remains lower than both Euro-African and Sino-African trade. Also, the USA is more focussed on a few “top” countries such as South Africa and Nigeria.
With the exception of the Sino-Egyptian and Sino-Ethiopian free zones, Chinese manufacturing entities located in Africa produce mainly for local markets
In more technological and capital intensive industries (automotive, aeronautical, electronics, pharmaceutical and fine chemistry), which are highly integrated at world level, the Euro-African partnership could take its inspiration from the industrial ecosystem set up between Japan and ASEAN countries in the ’80s. Thanks to this “wild geese flying pattern”, the nature of intra-ASEAN trade changed profoundly. The share of basic products (agricultural and mining) in this trade dropped, from 68% to 33% between 1980 and 1991. Mechanical and electronic components now represent two thirds of this trade.
The ASEAN Industrial Cooperation Scheme (AICO), set up in 1996, then boosted intra-regional industrial cooperation by granting preference to businesses established on site. This system persuaded many major Japanese industrialists to set up in the region. It is also based on a more modular, more horizontal integration logic enabling the emergence of local industrial players.
Europe could give greater support to industrial investments in Africa, as is done by the Renault group in Tangier, by encouraging the creation of industrial sectors integrated at Euro-African level. Whereas China is gradually moving from the status of factory of the world to that of the world’s leading market, the tens of millions of “outsourced” Chinese industrial jobs are the dream of certain African countries. However, Chinese manufacturer investments in Africa are still limited
In the same spirit, the African Union could set up, with assistance from the European Union, Pan-African industrial and technological cooperation (AITCO). Whilst awaiting for the African Continental Free Trade Agreement (AfCFTA) to become operational, this scheme could be based on diagonal cumulative rules of origin between the various Regional Economic Communities (RECs) with which Europe has signed an EPA.
It could encourage industrial cooperation between countries such as Morocco, Egypt, Nigeria and South Africa. European finance could be mobilised to create professional training centres – based on the model of Moroccan IFMA – and to support the certification of African companies to enable them to become part of industrial processes run by European groups. Note that the United States already applies, within the context of the AGOA, similar cumulation cooperation for African textile and clothing industries. The European Union applies this type of cumulation of origin between countries in the Agadir agreement. It could be extended on a bigger scale.
Organising the movement of talent and containing the brain drain
This reworked Euro-African partnership presupposes organisation of the movement of services, capital and skilled workers, within a context that valorises complementarities whilst avoiding the brain drain. Indeed, although they lead to an increase in exports and productivity, the impact of value chains on human capital is not unequivocal. It may even be negative due to the effects of agglomeration that are well known to specialists of the new geographic economy.
Within a region, the most advanced centres exercise an irresistible attraction on peripheral areas. Solutions to contain the brain drain phenomenon must therefore be sought. With this in mind the idea of a “Brain drain tax” was put forward in the ’70s by the economist Jagdish Bhagwati. It consists of taxing, for between five and ten years, skilled migrants established in host countries and paying the income from this tax back to the country of origin.
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