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AfricaMoney | October 16, 2017

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The Expert Explains: What next for ACP-EU economic relations?

The Expert Explains: What next for ACP-EU economic relations?

On 6 October, the European Commission and the European Union’s External Action Service launched a public consultation on the relations between the EU and African, Caribbean and Pacific (ACP) states post-2020, when the existing Cotonou Agreement expires. So what does this suggest about future economic relations between the two blocs, and will it encourage future growth? For those who wish to dig deeper, here’s the explanation, straight from the desk of our expert guest contributor, Samantha Seewoosurrun, a reputed professional consultant in the financial services sector.

Relations between the EU and the ACP are well established, dating back to 1963. The current ACP-EC Partnership Agreement was signed in 2000 in Cotonou, Benin, and is due to expire on 29 February 2020. There are currently 79 ACP states, including 48 from sub-Saharan Africa including Mauritius, Seychelles, Madagascar and the Comoros, as compared to 28 Member States from the EU. The EU considers that a thorough review is needed of the assumptions on which the partnership is based, of its scope (should it be enlarged to North Africa?), instruments and ways of working. It is therefore conducting a consultation exercise until the end of 2015.

The existing partnership, which is legally binding, comprises a political dimension, economic and trade cooperation as well as development finance cooperation. It is mainly financed by the European Development Fund (EDF), which is an extra-budgetary multiannual fund composed of direct contributions from EU Member States, and which is complemented in parts by the external financing instruments sourced from the EU budget.

So what will be the economic focus going forward? The EU consultation paper highlights that economic performance across the ACP Group of states varies considerably, even if Africa overall has seen strong performance and a majority of countries have enjoyed ten or more years of high uninterrupted economic growth.

From the ACP’s perspective, Heads of State and Government have expressed concerns for the future of their economies, having stated at an ACP Summit in Sipopo in 2012 that they were concerned about the negative impact that servicing external and domestic debt has on growth, savings, investment and prosperity in their States, since unsustainable levels of debt in most of their States undermine investments in physical, human and social infrastructure.

The EU’s consultation paper poses three sets of questions on economic factors for consideration as follows:

1. How effective has the partnership been in promoting sustainable and inclusive economic development, should more be done, and what? Despite overall growth, it is noted that industrialisation, digitalisation and economic diversification have been limited in many ACP countries, while underemployment and size of the informal economy have remained too high. The EU notes that Africa’s economic potential remains globally very significant and that sustainable use of the oceans, amongst other factors, can create important economic and investment opportunities.

2. How effective has the partnership been in supporting macroeconomic and financial stability, in which areas could value be added, and how effective has it been in improving domestic revenue mobilisation, as well as in promoting fair and efficient tax flows and combatting illicit financial flows? Would there be added value and more efficiency if there was greater cooperation? The EU considers that many countries have not been able to collect the domestic revenues needed for sustainable development.

3. Has the partnership been able to contribute substantially to mobilising the private sector and attracting foreign direct investment, and what more could be done? The EU notes that private financial flows are already larger than all public resources combined. It suggests that it will be necessary to create enabling conditions for private initiative, trade and finance, for sustainable investments and decent employment creation, and to bring informal activities into the formal sector. It also considers that a strong commitment will be needed from companies to catalyse private sector investment in areas where market gaps exist and to engage in responsible practices as part of their core business strategies.

So has the EU identified the right economic priorities for the future? It is too early to say, since the consultation has just been launched, and the ACP has yet to present its own response. At the same time, the EU’s consultation process is not only a matter for institutions, but is open to individuals and organisations from any part of the world. Investors should grasp the opportunity to offer their views on the role of the private sector going forward and the enabling conditions needed, which would help them to achieve their own commercial goals and to foster economic growth in the region.

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