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InInNo. 14ABriefBrief- November 2006 Overview of the regional EPA negotiations Central -EU Economic Partnership Agreement

The purpose of this InBrief series is to provide a synthesis of the main elements and issues at stake for the 6 African, , and Pacific (ACP) groupings negotiating an Economic Partnership Agreement (EPA) with the European Union (EU). Each InBrief offers an overview of the economic and regional integration dynamics influencing the structure, pace, and outcome of the EPA negotiation process for each . It also focuses on the main issues and challenges to be tackled by each region in order to make the new trade arrangement a development oriented instrument. Each regional InBrief is complemented by an update on the ongoing EPA negotiation process. Every 6 months until the conclusion of the EPAs, a new update will be produced. www.ecdpm.org/inbrief14a

Introduction Central African economies are poorly diver- domestic product (GDP). The tertiary sector sified and highly dependent on natural (administration, commerce and transport Central Africa covers a vast geographical resources (oil, forests) for their exports and services in particular) plays a central role area with a population of roughly 32 million economic growth. In Equatorial and across the whole of the region, while agri- inhabitants. Despite diversity in size, popu- the Republic of Congo, for instance, the oil culture is significant in , the lation density and economic profile, the sector accounts for more than half of gross and . Economic region’s eight countries1 share a number of distinctive features and challenges. A major common concern is the high poverty inci- Central Africa-EU EPA regional configuration dence, which has not declined over the past decades. All countries but Cameroon and are classified as least developed. ECCAS (8)* Social and human development indicators CEMAC (6) also show very low levels, especially in the (These CEMAC countries are two landlocked countries (Chad and the also members of ECCAS) Central African Republic), which the United Chad Nations Development Program (UNDP) clas- sifies as “low human development”. In these two countries, all social indicators are below the sub-Saharan Africa average. Centr. Afr. Rep. Cameroon Despite a favourable natural resources endowment, economic growth in the region has been low and volatile, though slight Democratic improvements have been made since the Gabon ongo Republic of Sao Tome & Principe Congo devaluation of the franc de la Communauté ep. C Financière Africaine (FCFA) currency and R related reforms initiated in 1994.2 The politi- cal situation remains highly instable due to * Other countries member of ECCAS but not part of the Central Africa-EU both internal conflicts in Chad, the Central EPA are , and . African Republic and the Republic of Congo ECCAS= Economic Community of Central African States and the adverse effects of conflicts in neigh- CEMAC= Communauté Economique et Monétaire de l'Afrique Centrale/ Economic and Monetary Community bouring countries. of the Central African Countries

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insignificant. In 2004, it accounted for Key priorities for CEMAC are the progressive CEMAC barely 0.28% of EU exports and 0.35% of EU elimination of the remaining internal trade (plus Sao Tome and Principe and imports. barriers and the consolidation of the the Democratic Republic of Congo) customs union, including a possible revision Trade in Goods with the of the CET to bring it into line with the one European Union, 2005 The Central African regional adopted by the West African Economic and integration process Monetary Union (UEMOA). In December Trade flows 2004, CEMAC members signed a trade • EU-bound exports: !5,393 million In Central Africa, two main regional integra- agreement with Sao Tome and Principe, and (growth 2004-2005:23.7%) tion processes are under way. The first is the together they form the regional configura- • Imports from the European Union: Economic and Monetary Community of the tion currently negotiating an EPA with the !3,421 million (growth 2004-2005: Central African Countries (CEMAC),5 which European Union. 9,8%) was established in 19946 to give new impe- • Trade balance: !-1,972 million tus to economic integration in the region. Central Africa’s second main regional inte- Taking over from its predecessor, the Union gration process is the Economic Community Share of agriculture in trade Douanière et Economique de l’Afrique Centrale of Central African States (ECCAS).8 ECCAS • EU-bound exports: 10% (UDEAC) founded in 1964, CEMAC has was created in 1983 with the ambitious • Imports from the European Union: 15% adopted an agenda including the conver- mandate to foster political dialogue, gence and monitoring of national macroeco- sectoral cooperation and trade integration Participation in EU trade: nomic policies; the creation of a single at the regional level. The organisation • EU-bound exports: 0.32% market based on the free movement of remained largely inactive during its first • Imports from the European Union: goods, services, capital and persons; and the fifteen years, due to financial difficulties and 0.46% coordination of sectoral policies. The Union institutional weaknesses as well as conflicts has also defined an action programme cover- in the Great Lakes area. Its activities were Main trade partners (2003): ing a fifteen-year period (1999–2014) to reach re-launched at the Conference in • Exports: United States (34%), European these objectives. In terms of institutional 1999 with a specific focus on conflict Union (33%), China (14%), other (19%) setting, the CEMAC Regional Executive prevention and peace consolidation, both • Imports: European Union (54%), United Secretariat is the main supranational body, in essential prerequisites for the creation of a States (9%), other (32%) charge of legislative as well as management Central African common market. activities. Since 2002, CEMAC has been Source: Comext (2005), EU declarations and IMF (2004) financed through an autonomous financing mechanism based on the collection of an International trade disparities among the countries are signifi- integration communitarian tax.7 negotiations cant: Cameroon and Gabon,3 accounting respectively for around 50% and 25% of the Looking specifically at trade and economic In addition to their own regional economic region’s total GDP, are relatively large integration, the CEMAC zone is first of all a integration process, Central African coun- economies, while Chad and the Central monetary union with a common monetary tries are involved in several external trade African Republic are among the poorest in policy, managed by the Banque des Etats negotiations. All of the countries, except for the world, with per capita gross national d’Afrique Centrale (BEAC), and a common Equatorial Guinea, are members of the WTO incomes not exceeding US $300. currency, the FCFA, pegged to the euro. In and therefore participate in the ongoing December 2000, CEMAC also formally Doha Development Round. Moreover, these Despite regional integration initiatives, became a free-trade area (FTA), though countries are signatories of the Cotonou intra-regional trade flows are still limited.4 many tariff and non-tariff barriers have Partnership Agreement, which requires an As for external trade, Central African remained. This, combined with serious phys- Economic Partnership Agreement (EPA) to economies are very open to the interna- ical constraints to transport and lack of be negotiated with the European Union by tional market. Though with market volatility economic complementarity, hampers the end 2007. The Democratic Republic of Congo over the years, total exports (in dollar terms) development of intra-regional trade. Finally, (DRC), previously negotiating an EPA in the have risen by some 50% over the twenty- the CEMAC region is a formal customs East and Southern Afirca-EU EPA configura- year period up to 2000, to reach almost union notified to the World Trade tion, joined the CEMAC configuration at the !9.5 million in 2003. The European Union, Organization (WTO), with WTO observatory end of 2005. Furthermore, with two excep- especially France, is the region’s major trad- status since 2000. Regional integration tions,9 Central African countries benefit ing partner, although the United States also measures progressively adopted since 1994 from preferential and non-reciprocal access receives a significant share of its exports include major tax and customs reforms; to the US market for a significant share of (see box). Central African exports are common rules on investment and competi- their exports under the African Growth concentrated in just a few sectors. Oil is the tion; regionally harmonised value-added Opportunity Act (AGOA). These various liber- main determinant of the region’s trade taxes; a common external tariff (CET) with alisation initiatives are meant to be conver- performance, holding about a two-thirds four rates (5%, 10%, 20% and 30%); and a gent and complementary, contributing share of total exports since 1990. This is common regime of customs valuation and towards the integration of the Central Africa followed by wood and some agricultural rules of origin. Some of these reforms are into the world economy. products (bananas, cocoa beans, cotton and still in the process of implementation. ). Despite liberalisation efforts, Central However, progress is slow and their effective Africa’s participation in world trade remains application remains largely incomplete.

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EPA Negotiations focus on sectors most likely to be affected tions and related financial assistance. In by the EPA and by regional integration fact, the issue of development support to In previous ACP-EU cooperation agreements, processes. These capacity-building reinforce production capacity and competi- all ACP countries enjoyed non-reciprocal programmes, by improving the business tiveness and provide compensation for fiscal tariff preferences for their exports to the EU environment and providing appropriate losses remains highly contentious. Since the market. Under the Cotonou Agreement, this direct support to enterprises, should help launching of the negotiations, Central Africa will change after 2008, when reciprocal free Central Africa to maximise the potential has asked for the inclusion of these matters trade arrangements negotiated between benefits generated by the EPA and enable in the formal EPA negotiation process. The the European Union and the six ACP the region’s countries to attune their European Union, however, maintains that will replace the previous preferential trade economies to the liberalisation process. In the negotiations should focus on trade regime. These new agreements are to be terms of financial coverage, both parties aspects only, and capacity-building support compatible with the rules of the WTO, devel- agree that all of the instruments and proce- is best dealt with by the various Cotonou opment-oriented and build upon ACP dures available in the Cotonou Agreement instruments in the context of the RPTF. regional integration initiatives. The new will be brought to bear, along with possible trade regime is also to incorporate and complementary resources obtained from co- Significantly, the participatory approach improve upon the Lomé/Cotonou instru- financing provided by EU member states agreed upon for the conduct of the negotia- ments regarding access to the EU market for and other development partners. tions provides a key role for the private the ACP countries. sector and civil society. In principle, they are to be kept informed of the evolution of the Negotiating structure negotiations and consulted to express their Central Africa-EU EPA Negotiation concerns and defend their interests. Principles Negotiation of the Central Africa-EU EPA is taking place at three levels: the political The Central Africa-EU EPA negotiations are level (Comité Ministériel Commercial Key issues and challenges guided by a number of principles, as detailed conjoint), the senior officials’ level (Comité in a joint road map agreed in July 2004. des Négociateurs) and the level of the tech- Regional integration process nical experts (groupes des experts). Regional integration could be a driving force First, the negotiations foresee the creation for enhanced growth and economic effi- of an FTA between the two regional blocks The Comité Ministériel Commercial is ciency in Central Africa as well as an impor- starting in January 2008, in order to fully composed of the trade ministers of the tant factor for political stability and peace. Its comply with WTO requirements. Once the CEMAC countries and of Sao Tome and completion, particularly the consolidation of EPA negotiations are concluded, the princi- Principe. It supervises the negotiations. On the CEMAC customs union and its extension ple of reciprocity will be progressively intro- behalf of the region, it monitors the func- to Sao Tome and Principe, is therefore a duced over an indicative period of twelve tioning of the negotiating structure, central objective of the EPA negotiations. The years. approves the results of the negotiations and process however is far from completion. provides strategic direction. At the senior There is a huge gap between the existing Another key negotiation principle is that the officials’ level, the negotiations are led by community legislation, which is quite EPA should support and foster the regional the Comité des Négociateurs, chaired by the comprehensive, and its effective application integration process in Central Africa, based Executive Secretary of CEMAC and vice- by the individual member states. Although on the priorities defined by the region. chaired by the Assistant General Secretary the CEMAC zone has officially been an FTA These encompass, most notably, harmonisa- of ECCAS. This Committee is in charge of since December 2000, intra-regional linkages tion and implementation of sound macro- conducting the EPA negotiations at the remain limited and a wide range of political economic and sectoral policies as well as technical level, assisted by the groupes des obstacles and administrative barriers still establishment of a monitoring system for experts, which are chaired by the directors in impede the free circulation of goods, services, the regional FTA. Specific attention is also to charge of trade of CEMAC and ECCAS. At capital and labour. Furthermore, many deci- be given to the effective implementation of their first joint negotiation meeting held in sions related to the customs and tax regimes the CEMAC customs union (which remains December 2004, senior officials from both have not yet been entirely implemented, problematic) as well as to the trade agree- sides agreed to establish four technical leading to problems of double taxation, ment between CEMAC and Sao Tome and negotiating groups: (i) for the customs exonerations and misclassification. Further, Principe. The pace of bilateral trade liberali- union and trade facilitation; (ii) for technical harmonised policies in trade-related areas sation with the European Union is to be barriers to trade and sanitary and phytosan- such as competition, investment, intellectual flexible and asymmetric, depending on the itary (SPS) measures; (iii) for other trade- property rights, technical barriers to trade degree of regional integration achieved related issues; and (iv) for services and and SPS measures are either nonexistent or within Central Africa itself. investment. not respected in practice. Also, a large variety of other obstacles and challenges, both inter- In line with the goals and principles stated Parallel to this formal negotiating structure, nal and external, continue to hamper Central in the Cotonou Agreement, the Central Central Africa and the European Africa’s economic integration: political insta- Africa-EU negotiations towards the EPA Commission (EC) have set up a joint contact bility and inter-country rivalry; lack of human must, above all, accord priority to the group to provide secretarial and follow-up and financial resources; weak institutions promotion of sustainable development and services and support to the negotiations. In and enforcement mechanisms; large poverty reduction in the region. This is to be addition, the joint Regional Preparatory Task economic disparities between landlocked ensured particularly through competitive- Force (RPTF) was created to facilitate links and coastal countries; and serious infrastruc- ness-upgrading programmes, with specific and coherence between the trade negotia- tural constraints.

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Supply-side constraints Figure 1. CEMAC-EU EPA configuration and overlapping regional and sub-regional economic The main objective of the Central Africa-EU integration groupings EPA negotiations is development and poverty reduction in the region. Clear evidence however shows that market access in itself does not automatically lead to economic diversification and growth. Given the scarcity of private investment and the serious supply-side constraints the region is facing, sound internal reforms and timely development support measures to improve the business climate and enhance the private sector’ supply and export potential will be crucial for Central Africa’s economies to concretely benefit from trade liberalisa- tion and attract foreign investment. Here, priority areas for reform and support include institutional capacity building and good governance, macroeconomic stabilisa- tion, public infrastructure (especially trans- port, energy and communication), regional integration, human resources development, and upgrading and enhancing the competi- tiveness of local enterprises.

Reciprocity The impact of offering EU imports and investors improved access to the Central African market is another key issue for the negotiations. Firstly, tariffs form an impor- tant source of revenue for the region’s governments, making up from 28% to 65% of national budgets. Dismantling these tariffs is likely to lead to a significant drop in government resources, with severe conse- quences for public expenditures, to the possible detriment of social sectors such as health and education. To offset tax revenue Countries in italic are LDCs losses in the short term compensation * DRC has left the ESA -EU EPA configuration end of 2005. mechanisms, as well as effective application of adequate and stable fiscal reforms, might be needed. Moreover, liberalising trade with cannot be expected to wholly address the Democratic , repre- the European Union will have important trade needs of Central Africa’s exporters. senting the second largest -forest zone consequences in terms of greater competi- Due consideration must also be given to in the world after the Amazon. Logging in tion within Central Africa’s domestic local entrepreneurs’ capacity to comply with this area constitutes a major source of fiscal markets. While overall benefits are expected EU policies related to SPS, technical barriers revenue, export earnings and employment. related to consumer welfare and market to trade and rules of origin. The EPA process, most notably through efficiency (e.g. decreased production costs regional integration, market liberalisation and greater competitiveness), many local Key sectors: Natural resources, agri- and improvement of the business climate, producers and firms might be unable to culture, fisheries and services could further boost the development of compete with EU products and be forced Central Africa is well endowed with and these sectors while helping to mitigate out of business, worsening employment and extremely dependent on natural resources. potential negative social and environmental poverty conditions. Firstly, it has vast reserves of petroleum, impacts of their exploitation (e.g. deforesta- both off-shore (in Cameroon, Gabon, Congo tion and loss of biodiversity). At the same Access to the EU market and Equatorial Guinea) and inland (in Chad), time, the EPA could stimulate economic Except for Cameroon and Gabon, all Central as well as deposits of minerals and metals, diversification by fostering foreign invest- African countries are in the least developed including gold, tin, bauxite, uranium and ment and competitiveness of industry in the category. It is therefore reasonable to ore. Oil in particular dominates the region. assume that the region will be granted an economic and trade performance of the “Everything but Arms”-type duty and quota- region, accounting for close to 25% of Two-thirds of Central Africa’s population free access to the EU market. Nonetheless, CEMAC’s total GDP and 70% of its exports. lives in rural areas. Therefore, agriculture tariff preferences, already steadily eroded in Another valuable natural resource is the (including agro-industry) continues to play a the context of multilateral liberalisation, dense forests the region shares with the key economic and social role, particularly in

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Cameroon, Chad and the Central African Fishing is a sector with significant potential lations as well as the inertia of other Republic. The sector, however, is mainly in terms of trade and food security in the economic sectors. The EPA, by fostering characterised by low-productivity subsis- region, especially in the coastal countries. Its regional integration and improving market tence activities and is vulnerable to negative development could be boosted through the access, could bolster the development of effects of the EPA. For example, the agree- EPA process. service sectors such as tourism (notably eco- ment could open the door to cheap agricul- tourism thanks to the rich fauna and flora tural imports or stimulate further rural Finally, the services sector is central to most of the Central African forest), telecommuni- exodus. Due consideration is needed for the Central African economies, contributing cations and finance. potential detrimental effects of trade liber- more than 49% of GDP in Chad. Services, alisation in this sector, taking into account furthermore, show promise for the future the impact of the EU Common Agricultural although its expansion is currently hindered Policy (CAP) as well as EU enlargement. by weak institutions and lack of sound regu-

List of acronyms

ACP African, Caribbean and Pacific EPA Economic Partnership SADC Southern African AGOA African Growth Opportunity Agreement Development Community Act EU European Union SPS Sanitary and Phytosanitary BEAC Banque des Etats d’Afrique FCFA Franc de la Communauté measures Centrale Financière Africaine STP Sao Tome and Principe CAP Common Agricultural Policy FTA Free Trade Agreement TBT Technical Barriers to Trade CEMAC Communauté Economique et GDP Gross Domestic Product TF Trade Facilitation Monétaire d’Afrique Centrale GNI Gross National Income TNG Technical Negotiating Group CET Common External Tariff IMF International Monetary Fund UDEAC Union Douanière et COMESA Common Market for Eastern IPRs Intellectual Property Rights Economique de l’Afrique and LDC Least Developed Country Centrale CU Customs Union MU Monetary Union UNDP DDA Doha Development Agenda NTBs Non-Trade Barriers Development Program DRC Democratic Republic of ROO Rules of Origin US United States Congo RPTF Regional Preparatory Task WTO World Trade Organization EAC Force EC European Commission SACU Southern African Customs ECCAS Economic Community of Union Central African States

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Notes

1 Cameroon, the Central African Republic, Chad, Equatorial Guinea, Gabon, the Republic of Congo, Sao Tome and Principe, and the Democratic republic of Congo (DRC). 2 The period 1994–2000 showed a GDP growth of 0.7% per year to reach a total of more than US $20 billion in 2004. 3 Gabon is the only country in the region to be defined as a “middle-income economy”. 4 Trade flows among Central African countries are still less than 5% of total trade in the region. These figures, however, do not take into account informal trade, for which no data are available. 5 CEMAC includes six countries: Cameroon, the Central African Republic, Chad, Equatorial Guinea, Gabon and the Republic of Congo. 6 The treaty instituting CEMAC was signed in 1994 but formally ratified only in 1999 in Malabo, Equatorial Guinea. 7 This tax consists of a percentage fee on the c.i.f value of imports from outside the CEMAC region. 8 ECCAS is made up of the following countries: Angola, Burundi, Cameroon, the Central African Republic, Chad, the Democratic Republic of the Congo, Equatorial Guinea, Gabon, the Republic of Congo, Rwanda and Sao Tome and Principe. 9 Central African Republic and Equatorial Guinea.

Key References Mballa, Godfroy. 2003. The regional Economic Partnership Agreement between CEMAC and the EU: Making an EPA sustainable for the CEMAC Centre Africain pour les politiques commerciales (CAPC), Evaluation de region. Cameroun :TETRA Stratégie et Conseil. l'impact de l'Accord de Partenariat Economique entre les pays de la CEMAC et l'Union européenne,Travail en cours,No.15,Commission TETRA Stratégie et Conseil. 2003. Etude régionale sur la compatibilité des économique pour l'Afrique, United Nations, December 2004, politiques commerciales des pays de la Communauté Economique et www.uneca.org/atpc Monétaire de l’Afrique Centrale (CEMAC). 30 May. Cameroun:TETRA Stratégie et Conseil. CEMAC. 2004. Feuille de Route de Négociations des Accords de Partenariat Economique (APE) entre l’Afrique Centrale et l’Union Européenne.16 July Zafar, Ali and Keiko Kubota. 2003. Regional integration in Central Africa: http://trade-info.cec.eu.int/doclib/docs/2004/july/tradoc_118214.pdf Key issues. (African Region Working Paper Series No. 52). June. Washington, D.C.:World Bank. _ GRET et CIRAD, Impact sur l' agriculture de la CEMAC et Sao Tomé et http://www wds.worldbank.org/servlet/WDSContentServer/WDSP/IB/2 Principe dun Accord de Partenariat économique avec l'Union européenne, 003/09/02/000160016_20030902114702/Rendered/PDF/266570AFR0wp Rapport d'étude definitive, Projet 095-CEMAC No.3, March 2006. 52.pdf www.gret.org/ressource/pdf/07724.pdf

Jadot,Yannick, L'UEMOA et la CEMAC face à l'accord commercial de Additional Sources Cotonou, November 2000. www.acp-eu-trade.org • CEMAC www.cemac.cf Mballa, Godfroy. 2003. La CEDEAO et la CEMAC prêtes à négocier leur • Portal on ACP-EU trade matters www.acp-eu-trade.org APE? Enjeux et perspectives. Eclairage sur les Négociations De Doha à • European Commission's website, DG Trade, EPA Regional negotiations: Cotonou. 2(4) August: 4–5. www.acp-eu-trade.org http://ec.europa.eu/trade/issues/bilateral/regions/acp/regneg_en.htm http://trade.ec.europa.eu/doclib/cfm/doclib_section.cfm?sec=148&lev =2&order=date

Overview of regional EPA negotiations InBrief series for 2006-2008.

The purpose of this InBrief series is to allow a wide range of ACP and related provisions of free trade agreements (FTAs) recently concluded EU stakeholders to have a clear overview on the structure, phasing, by the EU with developing countries (www.ecdpm.org/ftainbriefs). key challenges and main developments in the negotiations of economic partnership agreement (EPA) by each of the six ACP negoti- The ECDPM acknowledges the generous support of the Swiss Agency ating regions: the Caribbean,, Central Africa, East and for Development Cooperation, the Ministry of Foreign Affairs in Southern Africa, Southern Africa and the Pacific. For each ACP EPA Sweden and the Netherlands for the production of this series. regional grouping, reference is made to other international trade negotiations and their regional economic integration processes. In addition, each InBrief will be complemented by a regular Update that The InBriefs are available online at www.acp-eu-trade.org and summarises the current state of negotiations. www.ecdpm.org/regionalepainbriefs

The Overview of Regional EPA Negotiations InBrief series is part of the This Overview of Regional EPA Negotiations InBrief series is an initiative effort by ECDPM to provide regular information and analysis related to by the European Centre for Development Policy Management with the EPA negotiations. Other contributions include the Negotiating EPA contributions of Sanoussi Bilal, Camille Donnat, Nicolas Gerard, InBrief series which provides non-techincal overviews and syntheses of Francesco Rampa and Kathleen Van Hove (ECDPM) under the editorial specific issues that are to be addressed in the EPA negotiations supervision of Sanoussi Bilal ([email protected]) and Kathleen Van Hove (www.ecdpm.org/epainbriefs), and the Comparing EU FTA InBriefs ([email protected]). series which provides a detailed overview of the trade and trade-

'InBrief' provides summarised background information on the main policy debates and European Centre for Development Policy Management activities in ACP-EC cooperation. These complementary summaries are drawn from consultative Onze Lieve Vrouweplein 21 processes in which the European Centre for Development Policy Management (ECDPM) engages with numerous state and non-state actors in the ACP and EU countries. The Centre is a non-parti- NL-6211 HE Maastricht san organisation that seeks to facilitate international cooperation between the ACP and the EC. The Netherlands Information may be reproduced as long as the source is quoted.

The ECDPM acknowledges the support it receives for the InBrief from the Ministries of Foreign Tel +31 (0)43 350 29 00 Fax +31 (0)43 350 29 02 Affairs in Finland, Luxemburg, the Netherlands and Sweden, the Directorate-General for [email protected] www.ecdpm.org Development Cooperation in Belgium, Irish Aid, the Swiss Agency for Development and Cooperation, the Instituto Português de Apoio ao Desenvolvimento in Portugal, and the Department for International Development in the United Kingdom. ISSN 1571-7542