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StudyStudy on on existingexisting regulationsregulations and and levelslevels of of liberalisationliberalisation in West in West AfricaAfrica

Seminar on Seminar on servicesservices and and establismentestablismentinin EPA EPA contextcontext

Praia, March 2010Praia, March 2010

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Objectives of study• Assist West African states, ECOWAS, WAEMU in assessment

of regulatory framework and designing an offer for EPA.

– identify a series of data on the existing regulations and national and regional policies on services and investment

– identify the actual level of trade liberalisation, comprising any barriers to market access to services and more generally to foreign direct investment (in the senseof GATS arts XVI and XVII);

– provide West African countries with a comprehensiveoverview in order to facilitate the development of a regional offer on trade in services.

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Geographic coverage of study

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Focus of study

• rules on investment in manufacturing, mining and agriculture and establishment in services

• existing national & regional regulations in selected service sectors: – professional services– construction services– distribution services– financial services– telecommunication services– transport services (especially maritime transport

services)

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Some details of the project

• Desk stage, Nov. 2008 to Jan. 2009Online study of GATS commitments, regional

rules of ECOWAS and WAEMU and national regulations of all 16 countries

• Field stage, Jan. 2009 – April 2009 Dakar meeting and visits to selected countries

by team members

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Foreign direct investment regime

• Overall « on paper » an open environment in majorityof countries but still very selective systems

• Restrictions in mining sector: Benin, Burkina Faso, Ghana local participation required), Mali, Niger, Senegal

• Restrictions in agricultural sector: Benin, Mali• Almost no restrictions to manufacturing• Restrictions on foreign land ownership: Ghana, Liberia,

Mali, Sierra Leone, Togo, Cape verde• Restrictions on transfer of capital: many countries,

sometimes dependent on financial limits, sometimes destination , sometimes sector

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Foreign direct investment regimes

• Restrictions to establishment in certain services sectors: financial services (MRT, CIV, GHA, NGA), telecommunications, construction, transport

• Many joint venture requirements & capital requirements

• Very few evident restrictions but not clearlyenforced rules either

• Often opaque approval processes for investors: prior government approval needed but no transparency about types of authorization

• Uncertainty main problem. Very difficult to fullyestablish the rules

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Constrains on FDI in SSA*

1. Corruption (72%)2. Weak infrastructure (70%)3. Economic outlook, incl inflation (68%)4. Crime (68%)5. Access to finance (67%)6. Regulatory framework (63%)7. Policy uncertainty and/or political instability

(62%)

*Based on 4 studies by World Bank, UNCTAD and CREFSA of MNE’s present in region

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Problems identified by economicresearch (UNCTAD, 2008)

• Legal and judicial system• Financial system• Taxation• Labour relations• Investment procedures• Land tenure• Customs administration• Weak property rights• Red tape• Corruption

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Criteria for choosing a host country (ESF)• Cost and benefit analysis (short, medium and long term)• Potential market (size, local demand), incl in region and

simplicity and cost of export• Existing competition on the market• Cost of entry (entry barriers) incl discrimination• Good governance and regulatory certainty (level of

corruption, transparency and implementation of the regulations, independent regulatory authority etc)

• FDI incentives (special zones, tax incentives, corporate tax, etc.)

• Availability of inputs (HR, financial and communication services, transport, infrastructure)

• Country Risk Assessment: political stability, international commitments that lock MA

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Lessons of study

• Investors need legal security. Competition for FDI in world is high

• De facto the level of openness in manyWest African countries high esp. In manufacturing but also in many services sectors

• Pay attention to both Mode 3 establishment in services and non-services establishment

• No secure binding of openness: Need to select priority sectors where investmentneeded (infrastructure) and bind in EPA

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Services: overall findings

• Diverse picture of GATS commitments• GATS does not reflect actual situation• Much more openness already reality• Commiting openness and inscribing

precise limitations would strengthenlegal certainty

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Services Sector Commitments No commitments

Tourism BEN, BF, CVE, CIV, GMB, GHA, GIN, GNB, MLI, MRT, NER, NGA, SEN, TGO SLE

Transport BEN, CVE, CIV, GMB, GHA, GIN, NER, NGA, SEN, SLE BF, GNB, MLI, MRT, TGO

Financial BEN, CIV, CVE, GMB, GHA, NGA, SEN, SLE BF, GIN, GNB, MLI, MRT, NER, NGA, TGO

Business services

BEN, CIV, CVE, GMB, GIN, SEN, SLE BF, GHA, GNB, MLI, MRT, NER, NGA, TGO

Communication CIV, CVE, GMB, GHA, NGA, SEN, SLE BEN, BF, GIN, GNB, MLI, MRT, NER, TGO

Construction CIV, CVE, GMB, GHA, SLE, TGO BEN, BF, GIN, GNB, MLI, MRT, NER, NGA, SEN

Education CVE, GMB, GHA, MLI, SLE BEN, BF, CIV, GIN, GNB, MRT, NER, NGA, SEN, TGO

Recreation CVE, GMB, GNB, SLE, TGO BEN, BF, CIV, GHA, GIN, MLI, MRT, NER, NGA, SEN

Distribution CVE, GMB, SEN BEN, BF, CIV, GHA, GIN, GNB, MLI, MRT, NER, NGA, SLE, TGO

Environment CVE, GMB, GIN BEN, BF, CIV, GHA, GNB, MLI, MRT, NER, NGA, SEN, SLE, TGO

Health GMB, GIN BEN, BF, CVE, CIV, GHA, GNB, MLI, MRT, NER, NGA, SEN, SLE, TGO

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National legislation identified as implementing liberalisationNotes: * Not yet in operation ** No, but evidence of effective liberalisation

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Professional services• Degree of opening and common rules in

WAEMU countries (accountants, architects, medical and dental)

• GATS commitments: CIV, SNG, CPV, GAM, SLE• Regional and bilateral agreements for

recognition of qualifications• Conclusion:

– Extend common rules to all ECOWAS countries– scope for more commitments due to de facto

openness subject to limitations such as registration with a professional associations

– Need to closely involve professional associations in consultation and regulatory audit

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Telcommunications• Significant liberalisation across region in past 10

years• Growth of mobile phone market & advent of internet• Regulatory integration reality: WAEMU will

implement common rules for market access & end to monopolies

• ECOWAS common future rules agreed for future but still divergence across countries

• Only CDI, SGL, CPV, GAM, GHA, NGA have GATS commitments but many limitations such as exclusive rights, equity caps etc.

• Other countries de facto open in many areas already– Key sector: Needs regulation in line with investment

strategy – how many licenses can a market support– Independent regulation & competition llaws

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Telecommunciations• Key sector for economic performance and overall

development. Directly and indirectly influences the profitability of majority of trade activities

• Mobile penetration in West Africa almost 40 percent. Revolution for trading & mobile banking (less than 10 percent have access to banks)

• Number of Internet service providers and websites as increased sharply! But limited reach to population in landlocked countries & expensive

• Regional level cooperation on regulatory issues• Economic literature suggests mode 3 commitments for

value added services (internet etc)• Strengthen infrastructure investment!

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Construction services• General openness suffers from national treatment

restrictions (procurement, joint venture)• Ban on land ownership in some countries a huge

deterrant• Permits, authorisations, qualifications requirements

restrictive• But: Common rules in WAEMU have opened region• Actual level of openness in BEN, BF, GUI, GUIB,

MAL, MAUR; SGL high which could be translated into commitments

• Actual presence of European and Chinese companies very high

• Very difficult to assess the actual market situation and regulatory picture in this sector

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Construction • Many small construction companies, majority of big

projects taken by few• However, main contractors use a lot of subcontracting

in the sector• Lack to access to credit, unfavourable tax regime,

corruption• Specialization by sector and size of projects• Trade-off between discriminatory public procurement

or market access rules and quality and availability of service needs taken into account to ensure safe buildings

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Distribution services

• Very few existing commitments in GATS

• De facto a high level of presence of foreign operators

• Lack of formal rules in sector make it hard to assess full status quo

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Financial Services: Banking• Essential for all other sectors• In West Africa only 10 percent of population has access

to the banking sector (much lower in rural areas). • Foreign banks have wide range of good quality services• Fierce competition will decrease inefficiency• Market regulation important and naturally very

developed in WAEMU• Rules outside WAEMU vary widely and many restrictions;• Despite different treatment of foreign banks large

presence: de facto high degree of liberalisation• Economic literature suggests restricted mode 1 combined

with significant liberalisation of mode 3 while regulatory capacity is week

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Financial services: Insurance

• WAEMU part of Inter-African Insurance Market Conference: strong regional integration

• But restrictive rules & no common approach to international opening through GATS (only CDI, CPV, NGA, SLE have commitments)

• Limitations could be translated into schedules with further opening to foreign companies in future

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Financial Services: Insurance• Strong insurance sector promotes stability, hence

fosters economic activities in environments that may be perceived as risky

• Risk for government – that insurance company does not have enough reserves: Needs regulatory oversight

• Big internationals have know-how, technical capacity and global reserves

• Incorporation often required by WTO members, combined with capital requirements

• Trade-off between ensuring consumer security with access to different kind of services

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Transport• Transport costs increase cost of merchandise

trade and travel• Important factors:

• Infrastructure is important factor• Regional cooperation important for transit

corridors• Productivity for cargo handling important• Speed and simplicity of customs procedures

• EU suggests a regulatory chapter on international maritime transport

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Transport services

• A sector that needs a common regional approach

• Already part of Cotonou agreement to promote liberalisation

• Traditionally a very open market• Little legal opening but only de facto• Many countries are open but have not

taken GATS commitments

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Conclusions

• Overall much scope for binding existing openness to creat legal certainty (telecommunications)

• More thorough regulatory audit is needed to assess existing limitations which should stay in place in commitments

• Special attention needs to be paid to Mode 3 for investment and increasingly cross-border trade through Mode 1