NORTH-SOUTH CORRIDOR CONFERENCE: WILL COMMITMENTS

UNCLAS SECTION 01 OF 04 LUSAKA 000312

SENSITIVE
SIPDIS

DEPARTMENT PASS TO USTR (BILL JACKSON)
DEPARTMENT PASS TO USAID (FRANKLIN MOORE)

E.O. 12958: N/A
TAGS: EAID ECIN ELTN ENRG ETRD WTO XA ZA
SUBJECT: NORTH-SOUTH CORRIDOR CONFERENCE: WILL COMMITMENTS
CATALYZE COOPERATION AND CREATE CONNECTIVITY?

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1. (SBU) Summary. Following a tripartite summit in October
2008, and as part of a pilot Aid for Trade initiative, three
regional economic communities (RECs) - Common Market for
Eastern and Southern Africa (COMESA),East African Community
(EAC),and Southern African Development Community (SADC) -
organized the high-level and well-attended North-South
Corridor Conference, held on April 6 and 7, in Lusaka.
Participants discussed issues and options for the development
of transport and power systems along the trade corridors
between South Africa and DR Congo/Tanzania, in order to
facilitate commerce between eight African countries and to
improve access to and efficiency of ports in eastern and
southern Africa. In particular, the bilateral donor and
multilateral agencies pledged a sum of USD 1.2 billion for
the program, including the only new commitment of GBP 100
million (USD 150 million) over the next five years from the
United Kingdom's Department for International Development
(DfID),which sponsored the conference. Despite high-level
political will and funding, inadequate strategic direction
and programmatic coordination within and between eastern and
southern African countries may impede the development of the
North-South corridor. End summary.

Background


2. (U) Most eastern and southern African countries face
major constraints to trade due to poor infrastructure and an
inadequate regulatory environment. These constraints, which
inhibit productivity and competitiveness, include weak
transport networks, inadequate power generation, and
disparate policies. As part of a long-term vision to
establish a common market, the three RECs convened heads of
state and government from their member countries on October
22, 2008, in Kampala, to discuss infrastructure development
and regulatory reform for economic integration. In response
to the final communique from this tripartite summit, as well
as the broader Aid for Trade initiative from the Doha
Development Round, the three RECs launched the North-South
Corridor Pilot Program to improve road and rail links between
DR Congo, Malawi, Mozambique, Namibia, South Africa,
Tanzania, Zambia, and Zimbabwe. The program also endeavors
to increase access to ports in eastern and southern Africa
for greater intra-regional and international trade.

Profile of the conference


3. (U) On April 6 and 7, Zambian President Banda hosted the
North-South Corridor Conference, organized by the three RECs
and financed by DfID. This conference convened over 1,000
participants, including three other African presidents (from
Kenya, South Africa, and Uganda),over 20 ministers of
commerce, finance, industry, trade, and transport from
eastern and southern African countries, high-level
representatives from bilateral donors and multilateral
agencies, and attendees from the private sector. Franklin
Moore, USAID's Deputy Assistant Administrator (DAA) for the
Africa Bureau, headed the nine-member U.S. delegation from
State and USAID. The conference began with statements by the
four African presidents, who collectively characterized the
need for infrastructure improvements and the role of the
tripartite process. Following a 15-minute film presentation
on the concept of the North-South corridor, a pledging forum
called upon the bilateral donor and multilateral agency
representatives, with little warning, to describe how and to
what extent their organizations would support the program.
During the next two days, participants engaged in sessions on
transport, power, and Aid for Trade, as well as a workshop on
the social impact of increased transportation.

Pledges of commitment and cooperation


4. (SBU) During the pledging session, numerous bilateral
donor and multilateral agencies offered their financial and
technical support to the North-South Corridor Pilot Aid for
Trade Program. Together, these agencies pledged a sum of USD
1.2 billion for the program, mostly consisting of
pre-existing funding commitments. However, the total also
includes an additional GBP 100 million (USD 150 million)
proposed by DfID for disbursement over the next five years
(with an intent to disburse two-thirds of this new pledge
within the first two years).


5. (U) With the exception of the UK, other donor countries
described their support for the development of the
North-South corridor without making new financial commitments:

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--Finland, France, Germany, and the Netherlands will continue
to support relevant activities in institutional capacity
building, private sector development, and road construction
and maintenance. These countries have channeled much of
their funding through the European Commission and/or trust
funds, but are considering the option of contributing to the
North-South corridor program directly.

--Japan will continue to develop one-stop border posts and
improve roads and electrical power transmission along the
North-South corridor through concessional loans, with some
grant aid/technical cooperation projects.

--United States: DAA Moore said that the USG contributes to
physical infrastructure development in Africa primarily
through Millennium Challenge Corporation compacts. He noted
that through the compacts, the recipient countries themselves
determine their funding priorities. DAA Moore also noted the
importance of adding value in Africa of goods traded within
and exported from Africa.


6. (U) The multilateral agencies reaffirmed their existing
financial commitments to develop the North-South corridor and
other complementary corridors:

--The African Development Bank committed USD 380 million for
projects along the North-South corridor. Additionally, it
intends to invest USD 160 million on sections of the Nacala
corridor, which extends from the North-South corridor and
provides an alternative link to the sea (between Zambia,
Malawi, and the Nacala port in Mozambique).

--The European Commission committed EUR 115 million (USD 155
million) directly to the North-South corridor program.

--The World Bank committed USD 500 million for projects on
the North-South corridor and an equivalent amount for
projects on other complementary corridors.

Potential for connectivity through transport


7. (U) One technical session included presentations and
discussion on surface transport issues. First, the Regional
Trade Facilitation Program (launched with support from DfID
in 2003 to strengthen pro-poor trade arrangements and
institutions in southern Africa) presented its online mapping
and spatial statistical tool with a Geographic Information
System interface (available at www.rtfp.org) to analyze the
components and impacts of regional transport networks.
Second, SADC proposed and requested funding for its road (USD
7.4 billion for construction and maintenance over 20 years),
rail (USD 7.25 million for studies and consultations and USD
800 million for capital costs),and port (USD 3.55 million
for studies and consultations and USD 425 million for
infrastructure improvements in the Dar es Salaam port)
development projects.


8. (U) During the discussion, DfID urged donor agencies and
recipient country governments to deepen their partnerships,
fulfill mutual commitments, and accelerate program
implementation to mitigate economic losses. However,
according to the European Investment Bank, such acceleration
should not compromise efforts to build sustainability,
especially through strategic partnerships with the private
sector. In response to SADC's proposal of "hard"
infrastructure development projects, the U.S. led other
donors to advocate for a greater focus on the complementary
"soft" infrastructure improvements, such as expediting
inspections at border posts, examining the role of road
checkpoints, and strengthening linkages with agribusiness and
other sectors. Finally, while EAC reiterated DfID's call to
accelerate program implementation, it highlighted the lack of
appropriate institutional arrangements, such as regional
procurement mechanisms, to absorb donor funding.

Potential for connectivity through power


9. (U) Another technical session focused on power generation
and transmission. The Regional Electricity Regulators
Association (RERA) of Southern Africa, Eastern Africa Power
Pool (EAPP),and Southern Africa Power Pool (SAPP) described
major projects supported by donors and the private sector to
promote and support the energy supply industry, indicating
the relative abundance of investments, unlike the dearth for

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transport system development. However, each region faces a
set of specific challenges. For eastern Africa, EAPP can
neither attract nor retain fully qualified staff in its
Secretariat to carry out and coordinate cross-country
projects. According to RERA and SAPP, the electricity supply
industry in southern Africa cannot product enough power to
meet the demand in conjunction with the unprecedented
economic growth. Consequently, the industry has adopted
interim measures, such as rationing electricity to conserve
use for increasing energy efficiency and implementing
cost-reflective tariffs to attract new investments for
re-capitalizing current facilities and expanding power
capacity.


10. (U) During the discussion, the World Bank committed an
additional USD 570 million over the next five years for
energy projects in southern Africa and a minimum of USD 100
million over the next three years for such projects in
eastern Africa. Along with these commitments, the Bank
underscored the need to address tariff reform through
negotiations with governments. Both France and Norway
advocated for future regional projects to build renewable
energy systems that support "green development" and draw from
special financing mechanisms. In particular, Norway
emphasized the need to build the capacity of the three RECs
and regulatory authorities to oversee cross-border projects
and harmonize cross-border energy trading policies and
practices.

Potential for broader connectivity and cooperation through
Aid for Trade


11. (U) Given the conception of the North-South corridor
development as a pilot program under the Aid for Trade
initiative, the conference concluded with a session, which
reviewed the sub-regional implementation of this global
initiative. The African Development Bank mentioned its
development of the USD 1 billion Trade Finance Facility
during 2007 - 2008, characterized its focus on infrastructure
development (accounting for over 75 percent of trade
facilitation funding),and proposed the schedule for future
sub-regional reviews (west Africa in June 2009 and central
and north Africa during the second half of 2009). The United
Nations Economic Commission for Africa (UNECA) identified its
role in monitoring the flow of official development
assistance (ODA) and presented key trend data. Between 2002
and 2006, while ODA related to Aid for Trade grew by an
average of 13 percent, it fell behind total ODA (24%) and
non-trade ODA (28%). UNECA attributed this lag to the lack
of coherent strategies and action plans with well-coordinated
projects to implement Aid for Trade at the country and
regional levels. For a donor perspective, the U.S. presented
its activities through the Millennium Challenge Corporation,
USAID, and other agencies in support of Aid for Trade in
Africa, describing the development of infrastructure and
information technology as the bulk (85%) of trade-related
foreign assistance funding.

Comment


12. (SBU) The three RECs fulfilled the terms of the final
communique from the tripartite summit in October 2008, and
generated the highest level of buy-in from the beneficiary
countries for the North-South Corridor Pilot Aid for Trade
Program through the conference. While donor countries
acknowledged the need and extended their support for this
effort, they reached and articulated a broad consensus on
three main obstacles to complete the effective implementation
of the program. First, in terms of strategic direction,
while the program embraces an ambitious agenda of
infrastructure development, it does not prioritize regulatory
reform to minimize rent-seeking behaviors within countries
and to harmonize standards and policies between countries.
Such reform will complement and maximize the achievement of
results from the infrastructure development efforts. Second,
in terms of programmatic coordination, the three RECs lack
the institutional capacity and mechanisms to maintain proper
oversight of donor funding and to support cross-border
transport and power projects. Third, while the three RECs
have conceptualized the development of the North-South
corridor as a pilot program for the sub-regional
implementation of the global Aid for Trade initiative, they
have yet to capitalize on the program to engage eastern and
southern African countries individually and collectively in
the formulation of coherent Aid for Trade strategies and

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action plans.

BOOTH