On 13 June 2016, the Senate referred the following matter
to the Senate Foreign Affairs, Defence and Trade References Committee for
inquiry and report by 14 February 2018: Australia’s trade and investment relationships with the
countries of Africa, with particular reference to:
(a) existing trade and investment relationships; (b)
emerging and possible future trends; (c) barriers and impediments to trade and
investment; (d) opportunities to expand trade and investment; (e) the role of
government in identifying opportunities and assisting Australian companies to
access existing and new markets; (f) the role of Australian based companies in
sustainable development outcomes, and lessons that can be applied to other
developing nations; (g) the role of Australian based companies in promoting the
achievement of Sustainable Development Goals; and (h) any related matters.
Overview of Australia’s existing trade and investment
relationships with the countries of Africa
The continent of Africa, second only to Asia in both
landmass and population, is diverse geographically, culturally, linguistically,
and economically. Comprising 54 sovereign states, nine territories, and two
de-facto independent states, Africa is home to over 1.2 billion people. This
number is increasing sharply, however, with African nations boasting some of
the youngest and most rapidly growing populations in the world.
Submissions emphasised the importance of recognising that
Africa cannot be described or analysed as a single market but is comprised of
discrete economies with separate opportunities.
In its submission to the inquiry, the Department of Foreign
Affairs and Trade (DFAT) provided information on trade between Australia and
individual African economies. This data indicates that the goods trade with
South Africa is, by a wide margin, Australia’s most valuable trade relationship
with an African country. In 2016, Australia’s trade with South Africa was
valued at over $2 billion.
Australia also maintains trade relationships with several
other African countries that, in 2016, were valued at over $100 million. These
include Algeria, Egypt, Gabon, Ghana, Mauritius, Mozambique, Nigeria, and
Republic of the Congo.
Australia’s major merchandise exports to Africa, in 2016,
were largely concentrated in the primary industries, with aluminium ores,
wheat, coal, vegetables, meat and wool all featuring in the top 10 exports.
Civil engineering equipment and parts, and specialized machinery, together
formed 12 per cent of merchandise exports to Africa.
The top five export destinations for Australian goods to
Africa in 2016 were:
- South
Africa: aluminium ores; coal; machinery and parts.
- Egypt:
vegetables; wheat; wool.
- Mozambique:
aluminium ores; wheat.
- Nigeria:
wheat; edible products.
- Ghana:
civil engineering equipment and parts; machinery and parts.
Australia’s major merchandise imports from Africa, in 2016,
were concentrated in crude petrol and passenger motor vehicles which accounted
for 84 per cent of imports. The top five goods import sources from Africa
in 2016 were:
- South
Africa: passenger motor vehicles, ores and concentrates.
- Gabon:
crude petroleum.
- Algeria:
crude petroleum.
- Republic
of the Congo: crude petroleum.
- Equatorial
Guinea: Liquefied propane & butane.
Barriers and impediments to trade and investment
The African context
The Department of Foreign Affairs and Trade (DFAT) noted in
its submission that a range of factors attributed to African society, culture
and systems of governance may form a barrier to Australian trade and
investment. These factors, which DFAT has collectively termed the ‘African
context,’ include:
Local conditions, including traditional leadership
structures, land ownership, expectations around remuneration and the broader
social responsibility of companies…
DFAT highlighted land ownership as a particular barrier,
owing to intersecting systems of ownership at different levels of society: Land
ownership in particular can be difficult to consolidate due to competing levels
of government (national, state and local), traditional ownership claims,
particularly where sites intersect lands of different groups, often with
different ownership structures (patrilineal, matrilineal, collective and/or
individual) all of which add complexity to large-scale mining, infrastructure
and agriculture projects. As is the practice in other developing countries,
local landowners may expect mining companies to build roads and schools as part
of the company’s Corporate Social Responsibility, in addition to royalties and
other land fees being paid to government.
DFAT’s submission also drew attention to the economic
systems in place in many African countries as a barrier to trade and
investment, noting that the historical factors that shaped these systems are
often unlike those of Western countries: Many of the governments of Africa could
be best described as taking a state centric, command economy approach to
economic development. This can be seen as deriving both from a colonial
heritage that utilised resources to enrich foreign elites and the Marxist
ideologies of liberation movements with centralised social and economic
planning approaches. Unlike the reforms of the last century which have seen a
decreasing role for government in markets for liberal democracies, for most
African nations the role of government remains central to economic development.
DFAT recommended that businesses draw on the experience of a
local partner or consultant in order to navigate these challenges.
Governance and regulation
In its submission, DFAT noted that ‘uncertainty around
regulatory regimes can have a chilling effect on potential Australian
investment across all sectors’ and issues such as opaque and unfamiliar
tendering practices can also deter Australian companies from bidding for
government contracts and advantage competitors.
With particular reference to the extractive industry, Oxfam also noted the risks associated with a poorly
regulated environment: Poorly regulated environments, as is often the case in
natural resource governance, are also conducive to corruption which in turn
forms an obstacle to legitimate business sectors developing. Community conflict
as a result of unregulated, negative impacts of EI [extractives industry]
companies, or a perceived lack of community benefits, can increase business
risk as they may be subject to sudden business disruption. There are
significant human rights risks in mining, including labour rights
transgressions, impacts on women’s security and health, and the displacement of
local people to make way for new mines.
To address these issues, Oxfam suggested:
The Australian government and EI companies should be
investing in building regulatory capacity in the host country to improve the
regulation of EI sectors, in order to increase investment certainty and a more
enabling business environment.
Infrastructure
DFAT identified inadequate infrastructure as a barrier:
Inadequate infrastructure adds to the cost of doing business in Africa, and has
led to the failure of major mining projects in the past. Poor road and
transport networks, intermittent power and inefficient ports are common
challenges across Africa. Technical barriers to trade and underdeveloped
logistics networks, such as onerous customs procedures and inefficient ports
act much in the same way as poor transport in adding to costs.
Opportunities to expand trade and investment
According to a recent paper from Future Directions International, most of the world’s
population growth in the 21st century will occur in Africa. By 2050, it is
estimated that the population of Africa will have more than doubled from its
current 1.2 billion people to nearly 2.5 billion. This population growth is
expected to be coupled with rapid urbanisation. The Future Directions paper
anticipates that, by 2100, five of the world’s 10 largest cities will be on the
African continent.
Africa also lays claim to the world’s youngest population,
with more than 50 per cent of the population of Africa younger than 20 years
old. Due to increased life expectancy and reduced infant mortality rates it is
expected that Africa will have access to a young and plentiful workforce.
Regarding trade and integration, a Continental Free Trade
Area is being established under the auspices of the African Union. Negotiations
started at the beginning of 2017 and all 55 African Union members are involved.
The Department of Foreign Affairs and Trade (DFAT) pointed out that ‘enhanced
African economic integration with a common set of rules and procedures would assist
Australian business that generally operate across borders and various African
countries’.
There are specific areas where Australia is well placed with
relevant expertise beyond mining capabilities. For example Windlab and Carnegie
Clean Energy drew attention to the export potential of Australia renewable
energy technology to meet a significant energy shortage in large areas of
Africa. Carnegie Clean Energy drew particular attention to the potential for
leveraging Australia’s mining capability to include power and water solutions.
Grame Barty and Associates also highlighted opportunities
for Australian business:
…particularly in the areas of infrastructure, resources and
energy, food and agribusiness, international health, advanced manufacturing,
technology and services.
DFAT indicated that Australian trade and investment in
Africa has recently seen growth in non-extractive sectors in some regions:
Traditionally, most Australian investment in Africa has centred on the mining,
oil and gas industries. More recently, we have seen investment in the
infrastructure and construction industries, as well as telecommunications,
agriculture and retail, financial and banking sectors. Expanded trade and
investment links are expected for Australian companies operating out of
Morocco, servicing North Africa in food and agriculture; infrastructure
planning and sustainable development; mining, oil and gas; and health services.
However, in its submission, DFAT noted that recent DFAT and
Austrade analysis indicates:
…the most realistic and immediate commercial opportunities
for Australian companies in Africa are in mining and related equipment,
technology and services; education; agribusiness and food and infrastructure.
The Export Council of Australia stated that ‘Africa is a
natural destination for all the products and services related to mining and
agriculture in particular’. Other areas of expertise include: infrastructure
and construction and related services, financial and professional services,
tourism, education, and advanced manufacturing. The top ten growth sectors in
Africa are: resources, wholesale and retail, agriculture, transport and
communications, manufacturing, financial services, public administration,
construction, real estate and business services, and tourism.
Broadening commercial interests
As noted above, with Australian companies well established
in the extractive industries, submissions highlighted the need for Australia to
broaden commercial interests beyond the mining industry. This was recognised by
the Minister for Foreign Affairs, the Hon. Julie Bishop MP in her speech at the
Africa Down Under Conference in Perth on 8 September 2017. The Minister
emphasised the broadening of Australia’s commercial interests from the already
strong base in extractives and mining services, infrastructure and energy into
retail and professional services. The Minister stated that ‘[t]he opportunity
for mutual growth in our economic partnerships in these and other sectors is
enormous’.
Emerging free trade area
Her Excellency Ms Christelle Sohun, High Commissioner of
Mauritius, informed the committee that:
A few weeks ago, on 21 March 2018 in Kigali, Rwanda, an
agreement was reached for the establishment of an African Continental Free
Trade Area. This will create a single African market for the elimination of
barriers to trade in goods and services – one billion people and a total GDP of
over US$3 trillion, practically on your doorstep. Australia can now engage
constructively with African countries to seize the numerous untapped trade and
investment opportunities available in Africa.
High Commissioner Sohun added that it was signed by 44
countries. DFAT provided further detail that what was signed on 21 March 2018
was the framework to establish the Continental Free Trade Area which then would
need to be ratified by 22 countries before coming into effect and this may take
some time:
My expectation is that if the negotiations are completed and
the ratification process happens, which could be many years in the making…
However, DFAT welcomed this as a very positive development
with the potential to create one of the largest free trade areas in the world
which would present opportunities for foreign companies and investors. The
agreement has the potential to allow Australian companies with a presence in
one African market broader access to new markets on the African continent
without the burden of existing trade barriers such as tariffs.
Conclusions and recommendations
While the terms of reference for this inquiry cover Africa
in its totality, at the outset, the committee wishes to recognise the key point
that Africa is a continent and not a country. Its countries have a great deal
of diversity in geography, history, culture, economic capacity and markets.
The African continent is in the midst of significant
economic, technological and population growth and this inquiry has provided the
opportunity to revisit current settings to ensure that Australia is in the best
possible position to take advantage of these changes for trade and investment
and contribute skills to facilitate this development.
While noting the already well-developed relationships in the
mining industry, demographic, economic and technological changes will provide
other opportunities for expansion of the relationship with Africa.
Australia is well-positioned to use its expertise in a range
of sectors to contribute to development outcomes in many African countries. Our
knowledge and skills in area such as agriculture, the mining sector, education,
and technology are highly regarded, and this knowledge will be in high demand
in a growing and developing Africa.
The committee notes that overall it will be important for
the Australian Government to ensure Australian businesses have broad access to
African markets, and that a strong mutual understanding of the importance of
the Australia-Africa relationship is cultivated on both sides. Business and
trade Emerging free trade area.
The emerging African Continental Free Trade Area would establish
one of the largest free trade areas in the world and provide opportunities for
foreign companies and investors. The committee was pleased to hear that DFAT is
actively monitoring these developments. Although it may take some time to come
into effect the committee is of the view that Australia should actively
position itself to take advantage of it. Preliminary steps should be taken to
ensure that Australian companies operating in, or seeking to enter, African
markets are kept informed of the benefits that this agreement will provide in
terms of ease of business and enhanced market access.
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