Note: This document may not always reflect the actual appropriations determined by Congress. Final budget allocations for USAID's programs are not determined until after passage of an appropriations bill and preparation of the Operating Year Budget (OYB).
AFRICA TRADE AND INVESTMENT POLICY (ATRIP) PROGRAM
FY 1997 FY 1998 FY 1999 Actual Estimate Request Development Assistance--- --- $30,000,000
Introduction.
As part of the President's Partnership for Economic Growth and Opportunity in Africa, announced in June 1997, USAID's Africa Trade and Investment Policy (ATRIP) program activities will help African private and public sector partners to design and implement policy reforms that will make their countries attractive to international trade and investment.
Development Challenge.
The strategic objective of the ATRIP program is to support African leaders who want to increase their "openness" to international trade and investment--a major ingredient in the recipe for economic progress and growth that has been demonstrated by historical experience of other developing countries from 1965 through 1990.
Economic reforms in Sub-Saharan Africa have accelerated in the 1990s. In many countries, policy reforms have significantly improved the overall economic environment, opened up domestic and foreign markets, increased competition, and improved the allocation of resources. Foreign investment has risen substantially, but Africa continues to have much higher obstacles to foreign investment and trade than other regions of the developing world.
During the 1970s and 1980s, slow progress on policy reform, and intermittent backsliding, were prominent features of African reform programs for a number of reasons. Limited African ownership of the reform process was a primary cause. The President's Partnership, and USAID activities within it, will focus US support primarily upon public and private sector leaders who are eager to take ownership of programs of deregulation, tax reform, privatization, and the breakdown of trade barriers.
Other Donors.
The IMF and the World Bank are extensively involved in parallel activities to improve macroeconomic policies (fiscal, monetary, exchange-market) and the "second-tier" policy problems that are the focus of the ATRIP program. USAID and the World Bank are jointly and separately conducting many "red-tape" or "investor roadmap" diagnostics to help recipient countries to pinpoint major policy reform needs. The British and German bilateral aid programs are assiting similar deregulatory, tax-reform, and privatization activities in the region.
FY 1999 Program.
The range of ATRIP program instruments that USAID intends to use may include:
-- technical assistance to help reform-oriented African countries to liberalize trade and improve the
investment environment for the private sector;
-- assistance to catalyze relationships between U.S. and African firms through business linkages and
business associations or networks; and
-- non-project assistance, as part of multi-donor commitments to help assist in the implementation of and reduce risks associated with the introduction of aggressive, market-friendly reforms.
For initial pilot activities in FY 1998, USAID is exploring with African leaders in both the public and private sector specific diagnostic and remedial interventions in:
-- red-tape and regulatory reforms to reduce the costs to investors (and the breeding ground for corruption) from excessive regulations and permits--such as company registration requirements, land-use permits, visas/work permits, or obsolete labor codes;
-- tax reforms to lessen dependence on trade taxes (often exceeding 25 percent of total tax revenue) that place a heavy burden on exporters;
-- opening trade opportunities among African countries -- such as through the USAID/Purdue advisory and training program for the Southern African Power Pool, providing impartial advice on hundreds of millions of dollars in potential annual gains from more-efficient and less-polluting investments in electrical power generation and transmission in the region over the next two decades;
-- opening trade opportunities with US companies -- such as through training and information services to dynamic medium-scale African enterprises that have no previous experience with standards, regulations, and market opportunities for trade with US partners.
AFRICA TRADE AND INVESTMENT POLICY (ATRIP) PROGRAM
FY 1999 PROGRAM SUMMARY
(in Thousands of Dollars)
USAID Strategic & Special Objectives
Economic
Growth &
AgriculturePopulation
& Health
Environment
DemocracyHuman Capacity Development
Humanitarian
Assistance
TotalSP01. Trade Development Initiative
- DA
30,000
---
---
---
---
---
30,000
Totals
- DA
30,000
---
---
---
---
---
30,000
Director, Office of Sustainable Development: Jerome Wolgin
ACTIVITY DATA SHEET
PROGRAM: AFRICA TRADE AND INVESTMENT POLICY (ATRIP)
TITLE AND NUMBER: Africa Trade and Investment Policy (ATRIP) Program, 698-0570
STATUS: New
PROPOSED OBLIGATION AND FUNDING SOURCE: FY 1999: $30,000,000 DA
INITIAL OBLIGATION: FY 1999; ESTIMATED COMPLETION DATE: FY 2006
Purpose: The "trade and investment" policy activities will help reform-oriented African private and public sector partners to design and implement policy reforms that will make their countries more attractive for international trade and investment.
USAID Role and Achievements to Date: As part of the President's Partnership for Economic Growth and Opportunity in Africa, announced in June 1997, USAID will help Africa integrate into the world markets through increased "openness" to international trade and investment--a major ingredient in the recipe for economic progress and growth that has been demonstrated by historical experience of developing countries during 1965-90.
Description: the Partnership includes the following USAID components:
-- technical assistance to help African governments liberalize trade and improve the investment environment for the private sector;
-- assistance to catalyze relationships between U.S. and African firms through a variety of business associations and networks, and
-- provision of non-project assistance (NPA) funds to help address budget problems that are associated with introduction of aggressive, market-friendly reforms. Non-project assistance will be provided only when it is part of a coordinated package of other donor or private sector resources.
Because the program is new the actual activities cannot be described in any detail; however, the following are examples of possible activities that are under consideration:
Electricity Trade in Southern Africa. A USAID funded study, implemented by Purdue University, has demonstrated that the Southern African region could benefit enormously by trading electrical power. Efficiency gains in the short-term are estimated to be as much as $60,000,000 per year. But this is the tip of the iceberg. The real gains are in the more efficient investment in electrical power generation in the region, investment that will total billions over the next two decades. Moreover, the models suggest that it is economically efficient to substitute hydropower for coal, thus reducing the region's carbon emissions.
The Electricity Trade Modelling Exercise has been working with the Southern Africa Power Pool (SAPP) to improve SAPP's capacity to model more efficient regional electricity trade. A two week workshop was held at Purdue involving nine SAPP participants from seven Southern African countries including South Africa, Mozambique, Zambia and Zimbabwe. As a result the Purdue models will be used by SAPP utilities in their daily operations. Efficiencies can be achieved by a decentralized power exchange in which a market clearing price is determined by supply and demand. For example, the model demonstrates that it is cheaper for Botswana to import electricity than to produce it domestically (due to the substantial transportation costs associated with importing coal).
ATRIP will fund the second phase of the study on how to optimize investments in power generation. Following that study, the Regional Center for Southern Africa will develop mechanisms for engaging key actors in the region in a dialogue aimed at moving from study results to an implementation plan. In addition to providing economic benefits of untold millions of dollars to the region, the program will
also provide enormous opportunities for U.S. firms involved in the manufacturing of electrical power transmission and generating equipment.
Impact measures may include:
-- cost of electricity generation
-- level of electricity trade
-- electricity generation and transmission investments made as a result of modelling
-- U.S. exports of electricity generating and transmission equipment to the region
Ghana Fiscal Reform: After years of being the brightest economic reform star in the African firmament, the bloom is off Ghana's rose, to terribly mix metaphors. The past few years have seen high fiscal deficits, a slowdown in growth and high inflation. In September of this year, USAID sponsored a national economic forum (this follows an extraordinary meeting USAID sponsored in North Carolina between Ghanaian government officials and entrepreneurs and U.S. counterparts). Over three hundred senior level public and private sector officials, including for the first time key opposition leaders, were present to discuss the future direction of Ghana's economy and prospects for growth.
Key conclusions of the Forum were that future growth was dependent on:
-- Reduction of the fiscal deficit from 10% of the gross domestic product in 1996 to zero by 2001;
-- Expenditure control through a series of institutional changes plus an agreement to relate real wages to productivity changes;
-- Revenue generation through the careful introduction of a value added tax (this was tried in 1995, but was withdrawn after three months of protest) and improved customs service operation;
-- Increased independence of the central bank; and
-- Improvements in capital markets to promote investment.
Under the President's Initiative, the World Bank and IMF are expected to devote more resources to supporting trade and investment reforms in a selected set of African countries. Under ATRIP, USAID would cooperate with the Bank and Fund in a comprehensive program to restart economic growth in Ghana. USAID would provide technical assistance and NPA under the AEPRP to support Ghanaian actions in one of the four areas listed above (government expenditures, government revenues, monetary policy, capital markets). USAID would also support the continuation of this public dialogue on economic policy.
Impact measures for a capital markets program may include:
-- Growth of private pension plans
-- Shift in the composition of assets of insurance companies and government pension plans from treasury bills to long term investments
-- Reduced "crowding out" by the public sector
Improving the Enabling Environment in Mozambique: In 1994, the Commercial Association of Beira launched a broadside through the independent media on government policy. Though the initial reaction of the Government was hostile, including raids by tax authorities, the end result was the development of a dialogue between the private sector and the Ministry of Mines, Industry and Tourism (MICTUR). One early result was a "Red tape Analysis" which shocked cabinet members -- for example, a company wishing to incorporate in Mozambique to invest $500,000 would spend at least six months and up to $50,000; incorporation in Delaware would take less than a month and cost $110.
By 1996, both the Working Group of Associations (CTA) and a government policy unit were established. Together they developed a policy matrix which was approved by the responsible ministries. Several reforms were implemented, but both sides have serious capacity constraints which will inhibit the pace of reform. USAID has been supporting this process by financing a Mozambiquan
professional coordinator for CTA; sponsoring two regional workshops and developing a Mozambiquan system for alternative dispute resolution. The World Bank and the UK are also sponsoring this dialogue.
The ATRIP program in Mozambique would have two phases: (1) support through the Business Partnerships program to the CTA; and (2) through an AEPRP and associated technical assistance to improve the enabling environment for private investment including revision of the current commercial code, streamlining of regulations of MICTUR, and development and implementation of a strategy to reduce the barriers to incorporation faced by the informal sector.
These actions will help sustain an economic reform program that is seeing growth of 6 to 7% annually and projected foreign investment of between $5 and $8 billion dollars. In particular, it will extend to Mozambiquan firms, particularly small and medium size enterprises, the same benefits that are being provided to large foreign firms such as Enron.
Impact measures for this activity in Mozambique may include:
-- Incorporation of small and medium size firms
-- Level of investment and employment in the small and medium enterprise sector
Host Country and Other Donors: Principal host countries will be determined during 1998; regional governmental and non-governmental entities (such as the Southern African Power Pool and the West African Enterprise Network) also will be supported. The World Bank, British, German, and other bilateral donors also are working in the trade and investment area, and USAID will closely coordinate all activities with other donors.
Beneficiaries: Employment and income benefits will be widely diffused throughout the five or more countries (total population exceeding 100 million) selected for USAID program activities.
Principal Contractors, Grantees, or Agencies: In addition to contractors and grantees not yet selected, the following are expected to participate: Associates for International Resources and Development, Harvard Institute for International Development, and their US and African policy research partners/subcontractors. Also, USAID may use interagency agreements with the Security Exchange Commission, Treasury Department, and/or Commerce Department, and grants to international organizations that may have specialized expertise in the field of individual activities.
Major Results Indicators: Indicators and targets for this new activity currently are being developed, but are likely to include the following:
- for trade and tax policy reform: reduction of tariffs and trade taxes as a share of total government revenue in countries assisted;
- for investment environment activities: reduction of complexity, cost, and number of regulatory approvals required to undertake foreign investment and to operate a business in countries assisted; regulatory issues would relate to settlement of business disputes, issuance of business licenses, site approvals, licensing of imports and exports, and similar matters; and
- for business associations and networks: increase in the annual value of bilateral trade between U.S. and host country businesses.
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