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The IMF, World Bank Spring Meetings begin tomorrow:
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The schedule of IMF events, starting with the launch of the World Economic Outlook
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WBG president David Malpass: This will be a critical week for the debt relief agenda. “It will be discussed at the G7 and G20 meetings of Finance Ministers and Central Bank Governors, as well as at the World Bank/IMF Development Committee meeting on Friday, where we think there will be broad endorsement.”
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G20 finance ministers and central bank governors will, on Wednesday, discuss joint actions to stabilise markets and support businesses
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The IMF’s new external advisory group met this morning: ActionAid International’s chair joins IMF advisory group
The Chairperson of the African Union, President of the Republic of South Africa Cyril Ramaphosa has appointed Dr Ngozi Okonjo-Iweala, Dr Donald Kaberuka, Mr Tidjane Thiam and Mr Trevor Manuel as Special Envoys of the AU to mobilise international support for Africa’s efforts to address the economic challenges African countries will face as a result of the COVID-19 pandemic. President Ramaphosa: “In the light of the devastating socio-economic and political impact of the pandemic on African countries these institutions need to support African economies that are facing serious economic challenges with a comprehensive stimulus package for Africa, including deferred debt and interest payments. The impact of the coronavirus pandemic has been global in both scale and reach, and this necessitates coordinated international action to capacitate all countries to respond effectively, but most particularly developing countries that continue to shoulder a historical burden of poverty, inequality and underdevelopment.”
Ngozi Okonjo-Iweala, Brahima Coulibaly: Africa needs debt relief to fight COVID-19 (Project Syndicate)
But the key challenge is the availability of resources. Africa needs an initial $100bn in financial support, because sharp declines in commodity prices, trade, and tourism – a direct result of the pandemic – are causing government revenues to dry up fast. Meanwhile, investor pullback from risky assets has pushed up the cost of borrowing in financial markets, limiting viable options for resource mobilization. Unsurprisingly, therefore, the average fiscal-support package announced by African governments so far amounts to a meager 0.8% of GDP, one-tenth the level in advanced economies. And, beyond the near term, the continent’s additional financing needs could rise to $200bn.
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Jamie Drummond, Tidjane Thiam: Arming Africa with a debt, aid and open digital delivery partnership
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Joe Bavier, Cheng Leng, Andrea Shalal: China in the driver’s seat amid calls for Africa debt relief
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Klaus Schwab, Guido Vanham: What we must do to prevent a global COVID-19 depression
World Bank’s latest Africa Pulse: COVID-19 drives Sub-Saharan Africa toward first recession in 25 years
The analysis shows that COVID-19 will cost the region between $37bn and $79bn in output losses for 2020 due to a combination of effects. They include trade and value chain disruption, which impacts commodity exporters and countries with strong value chain participation; reduced foreign financing flows from remittances, tourism, foreign direct investment, foreign aid, combined with capital flight; and through direct impacts on health systems, and disruptions caused by containment measures and the public response. While most countries in the region have been affected to different degrees by the pandemic, real gross domestic product growth is projected to fall sharply particularly in the region’s three largest economies – Nigeria, Angola, and South Africa – as a result of persistently weak growth and investment. In general, oil exporting-countries will also be hard-hit; while growth is also expected to weaken substantially in the two fastest growing areas – the West African Economic and Monetary Union and the East African Community – due to weak external demand, disruptions to supply chains and domestic production. The region’s tourism sector is expected to contract sharply due to severe disruption to travel.
The Sub-Saharan Africa region paid $35.8bn in total debt service in 2018, 2.1% of regional GDP, of which $9.4bn was paid to official bilateral creditors (about 0.7% of the regional GDP). Given that the region may need an emergency economic stimulus of $100bn – including an estimated $44bn waiver for interest payments in 2020 – the report (pdf) notes a debt moratorium would immediately inject liquidity and enlarge the fiscal space of African governments. [South Asia Economic Focus, Spring 2020: The cursed blessing of public banks; Moving up the ladder: an analysis of IDA graduation policy]
2020 Financing for Sustainable Development Report (UN)
Beyond the immediate crisis response, the COVID-19 pandemic should be the impetus to sustain the gains and accelerate implementation of long-overdue measures to set the world on a more sustainable development path and make the global economy more resilient to future shocks. The 2020 Financing for Sustainable Development Report (pdf) contains key actions needed for this purpose:
- accelerate long-term investment in resilient infrastructure for sustainable development, through public investment and incentives for the private sector;
- increase investment in risk management and preparedness;
- strengthen social protection;
- enhance regulatory frameworks, e.g. to discourage excessive private borrowing when debt is not intended for productive investments (vs. increasing shareholder returns);
- strengthen the international financial safety net and framework for debt sustainability.
The report also provides policy options to harness the potential of digital technologies. These technologies have come to the forefront amid the COVID-19 outbreak, with lockdowns and physical distancing becoming the norm. Digital communication tools have also helped sustain interaction and continuity in vital economic and educational activities. However, access to digital technologies remains highly unequal within and between countries. Almost half the global population (46.4 per cent of people) does not have access to the Internet.
pdf The potential impact of COVID-19 on GDP and trade: a preliminary assessment (1.28 MB) (World Bank)
A baseline global pandemic scenario sees GDP fall by 2 percent below the benchmark for the world, 2.5 percent for developing countries, and 1.8 percent for industrial countries. The declines are nearly 4 percent below the benchmark for the world, in an amplified pandemic scenario in which containment is assumed to take longer and which now seems more likely. The biggest negative shock is recorded in the output of domestic services affected by the pandemic, as well as in traded tourist services. Since the model does not capture fully the social isolation induced independent contraction in demand and the decline in investor confidence, the eventual economic impact may be different. This exercise is illustrative, because it is still too early to make an informed assessment of the full impact of the pandemic. But it does convey the likely extent of impending global economic pain, especially for developing countries and their potential need for assistance.
Kenya: Two month trade deficit narrows (Business Daily)
Kenya’s trade deficit for the first two months of year narrowed by Sh17.16 billion to Sh175 billion from Sh192 billion reported over the similar period last year, data from the CBK shows. The 9% reduction in the deficit was a result of a growth in export receipts followed by a slowed down import bill. Total export receipts over the period grew by 10 percent to a new high of Sh114.2 billion from Sh104 billion in the first two months of 2019. [Fitch Ratings: Kenya coronavirus measures lead to faster increase in debt]
Angola: COVID-19 affirms urgency of trade facilitation reforms (UNCTAD)
UNCTAD is supporting, through a project funded by the European Union, the government’s efforts to diversify the economy. The Train For Trade II programme for Angola helps authorities identify promising non-oil sectors, train entrepreneurs and business owners, weigh investment promotion policies and improve trade infrastructure. Tying all the work together is the project’s trade facilitation component. “Diversifying Angola’s economic structure away from its heavy dependence on oil is key to boosting competitiveness and will help the country reduce its vulnerability to external shocks,” said Paul Akiwumi, director of UNCTAD’s division for Africa and least developed countries. Angola is ranked 177 out 190 countries in the 2020 edition of the World Bank’s Doing Business report, according to which export procedures in the country cost $240 and take 98 hours, compared to an average of $173 and 72 hours for sub-Saharan Africa. Many of the reforms necessary to improve conditions for Angolan businesses, such as automating customs procedures or creating a single window, are addressed by the WTO’s Trade Facilitation Agreement, which Angola ratified in April 2019.
Lesotho: AfDB’s Country Strategy Paper, 2020-2024
Lesotho’s private sector accounts for only 20% of GDP and is mostly inward-oriented with 71% of the firms involved in commerce (wholesale and retail). The private sector is hamstrung by weak capacity, low productivity, high levels of fragmentation, inadequate access to credit, lack of product standardization, and inadequate infrastructure and resources to develop products to the required global standards, among others. Micro and small firms account for 97% of all local enterprises; yet over half of private sector employment is generated by relatively large (mostly South African) firms. Domestic private sector activity is concentrated in a few firms in sectors such as agriculture and mining as well as textiles and construction with very low value addition along the value chains. The apparel industry accounts for a significant amount of exports (especially to the USA under the AGOA). In order to revitalize the sector, several initiatives are underway. These include the establishment of a PPP unit, formulation of a PPP Policy and framework in support of the PPP financing modality. In addition, the legal and regulatory framework for SEZs will be developed. Value chain development by the private sector in the agro-processing industry to take advantage of the regional market opportunities remains a daunting challenge on account of declining productivity in the agriculture sector compounded by prolonged droughts. Horticulture presents notable opportunities for the country to scale up participation in regional value chain and agro-processing. However, this has not been developed on a large scale owing to reasons cited in paragraph 19 above.
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AU Chair appoints Special Envoys to mobilise international economic support for continental fight against COVID-19
The Chairperson of the African Union, President of the Republic of South Africa His Excellency Cyril Ramaphosa has appointed Dr Ngozi Okonjo-Iweala, Dr Donald Kaberuka, Mr Tidjane Thiam and Mr Trevor Manuel as Special Envoys of the African Union to mobilise international support for Africa’s efforts to address the economic challenges African countries will face as a result of the COVID-19 pandemic.
The Special Envoys will be tasked with soliciting rapid and concrete support as pledged by the G20, the European Union and other international financial institutions.
President Ramaphosa says: “In the light of the devastating socio-economic and political impact of the pandemic on African countries these institutions need to support African economies that are facing serious economic challenges with a comprehensive stimulus package for Africa, including deferred debt and interest payments.
“The impact of the coronavirus pandemic has been global in both scale and reach, and this necessitates coordinated international action to capacitate all countries to respond effectively, but most particularly developing countries that continue to shoulder a historical burden of poverty, inequality and underdevelopment,” President Ramaphosa said.
President Ramaphosa added: “The sentiment expressed in two recent letters written to the G20 by a group of world leaders and a team of esteemed economists underscore the importance of bolstering health systems in poorer countries; this can only be done with the support of the international community.”
Dr Okonjo-Iweala is an internationally respected economist and development expert and served two terms as Minister of Finance of the Federal Republic of Nigeria. She has also served as Managing Director of the World Bank.
Dr Kaberuka is an economist and former President and Chairman of the Board of Directors of the African Development Bank (AfDB). He is the former Finance Minister of Rwanda and in 2016 was appointed as a Special Envoy of the African Union on sustain-able financing for the AU and funding for Peace in Africa.
Mr Manuel was the longest-serving Minister of Finance in the Republic of South Africa and formerly headed the country’s National Planning Commission. In 2018 he was appointed as an Investment Envoy by South African President Cyril Ramaphosa to engage domestic and international investors as part of the country’s national investment drive.
Mr Thiam is a banker and businessman. He is the former Chief Executive Officer of Credit Suisse and also served as Chief Financial Officer and CEO of Prudential. He also has a background in management consulting and worked for McKinsey and Company.
The AU Chair said the appointment of the special envoys would expedite the process of securing economic support to enable countries on the continent to respond swiftly to this grave public health emergency. President Ramaphosa said the envoys brought with them a wealth of experience and enjoyed longstanding relationships in the international financial community.
“The African Union is immensely encouraged by the support that has been extended by the international community thus far. It is an affirmation that as nations of the world, we are all in this together. We must now focus on efforts to marshal every resource at our disposal to ensure that this pandemic is contained, and does not result in the collapse of already ailing economies and financial systems on the continent,” President Ramaphosa said.
Issued by the Presidency of the Republic of South Africa and Chairperson of the African Union.
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Financing for Sustainable Development Report 2020
60 International agencies urge rapid, coordinated response as pandemic threatens to destabilize poor countries’ finances
Governments must take immediate steps to prevent a potentially devastating debt crisis and address the economic and financial havoc wrought by the COVID-19 pandemic – says a new report from the United Nations-led Inter-Agency Task Force on Financing for Development.
The UN System’s 2020 Financing for Sustainable Development Report outlines measures to address the impact of the unfolding global recession and financial turmoil, especially in the world’s poorest countries. Its recommendations are based on joint research and analysis from the UN System, the International Monetary Fund, World Bank Group, and more than 60 UN agencies and international institutions.
Even before the outbreak of COVID-19, one in five countries – home to billions of people living in poverty – were likely to see per capita incomes stagnate or decline in 2020. Now, billions more are likely to be affected as governments struggle to cope with the pandemic.
“The global community was already falling behind in efforts to end poverty, take climate action and reduce inequalities,” said Deputy Secretary-General of the United Nations Amina Mohammed. “COVID-19 is the first of its kind development emergency and all countries must rise to the challenge to save lives and safeguard livelihoods in our response and recovery. We have one chance to build back better together for people and for the planet.”
Due to the COVID-19 crisis, global financial markets have witnessed heavy losses and intense volatility over the last month. Investors have moved around $90 billion out of emerging markets – the largest outflow ever recorded.
Particularly alarming is the prospect of a new debt crisis, compounded by tumbling prices for oil and other key commodities. Many Least Developed Countries (LDCs) were already at high risk of debt distress – and the fall-out from the current crisis could significantly increase the number.
The 2020 Financing for Sustainable Development Report calls for the following urgent actions:
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Prevent a debt crisis by immediately suspending debt payments from LDCs and other low-income countries that request forbearance. Official bilateral creditors must lead, and others should consider similar or equivalent steps to provide new finance;
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Reestablish financial stability by providing sufficient liquidity, and strengthening the global financial safety net, especially for emerging markets;
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Contain the sharp fall in economic activity and support countries most in need through a globally coordinated response: expanding public health spending; social protection; keeping small businesses afloat; government transfers; debt forbearance and other national measures – and significantly increasing access to concessional international financing.
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Promote trade and stimulate inclusive growth by eliminating trade barriers that restrict supply chains.
Despite enormous domestic pressures, donors should immediately reverse the decline in official development assistance (ODA), particularly to LDCs, who may be hard hit by both social and economic impacts of COVID-19, and for whom ODA remains essential. In 2018, ODA declined by 4.3 per cent and ODA to LDCs fell by 2.2 per cent in real terms.
“We are far from having a global package to help the developing world to create the conditions both to suppress the disease and to address the dramatic consequences in their populations,” said UN Secretary-General, António Guterres, during the recent launch of his Report on the Socioeconomic Impact of COVID-19.
“What is needed is a large-scale, coordinated and comprehensive multilateral response amounting to at least 10 per cent of global GDP,” he added.
Beyond the immediate crisis response, the COVID-19 pandemic should be the impetus to sustain the gains and accelerate implementation of long-overdue measures to set the world on a more sustainable development path and make the global economy more resilient to future shocks.
The 2020 Financing for Sustainable Development Report contains key actions needed for this purpose:
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accelerate long-term investment in resilient infrastructure for sustainable development, through public investment and incentives for the private sector;
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increase investment in risk management and preparedness;
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strengthen social protection;
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enhance regulatory frameworks, e.g. to discourage excessive private borrowing when debt is not intended for productive investments (vs. increasing shareholder returns);
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strengthen the international financial safety net and framework for debt sustainability.
The report also provides policy options to harness the potential of digital technologies. These technologies have come to the forefront amid the COVID-19 outbreak, with lockdowns and physical distancing becoming the norm. Digital communication tools have also helped sustain interaction and continuity in vital economic and educational activities. However, access to digital technologies remains highly unequal within and between countries. Almost half the global population (46.4 per cent of people) does not have access to the Internet.
The COVID-19 crisis provides a timely example of the potential of digital technologies, but also highlights gaps and new challenges and risks. Many workers in the platform or ‘gig economy’ are poorly protected against massive income losses in a recession, with social protection systems often ill-equipped to address their needs. The report addresses these gaps and other opportunities and challenges of digital finance.
These and other policy responses should be sustained, sustainable and equitable, to avoid a rerun of the protracted and slow recovery from the 2008 crisis – and ensure implementation of the Addis Ababa Action Agenda, Paris Agreement and achievement of the Sustainable Development Goals.
“Only a collective response, inspired by shared responsibility and solidarity, will suffice to address the unprecedented challenges of the COVID-19 pandemic,” said Liu Zhenmin, Under-Secretary-General for Economic and Social Affairs and Chair of the Task Force that issued the report. “Governments, development partners, the private sector and other stakeholders must work together to combat COVID-19 and support every effort to address its social and economic impacts,” he added.
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COVID-19 (Coronavirus) drives Sub-Saharan Africa toward first recession in 25 years
For Sub-Saharan Africa, Coronavirus crisis calls for policies for greater resilience
Growth in Sub-Saharan Africa has been significantly impacted by the ongoing coronavirus outbreak and is forecast to fall sharply from 2.4% in 2019 to -2.1 to -5.1% in 2020, the first recession in the region over the past 25 years, according to the latest Africa’s Pulse, the World Bank’s twice-yearly economic update for the region.
“The COVID-19 pandemic is testing the limits of societies and economies across the world, and African countries are likely to be hit particularly hard,” said Hafez Ghanem, World Bank Vice President for Africa. “We are rallying all possible resources to help countries meet people’s immediate health and survival needs while also safeguarding livelihoods and jobs in the longer term – including calling for a standstill on official bilateral debt service payments which would free up funds for strengthening health systems to deal with COVID 19 and save lives, social safety nets to save livelihoods and help workers who lose jobs, support to small and medium enterprises, and food security.”
The Pulse authors recommend that African policymakers focus on saving lives and protecting livelihoods by focusing on strengthening health systems and taking quick actions to minimize disruptions in food supply chains. They also recommend implementing social protection programs, including cash transfers, food distribution and fee waivers, to support citizens, especially those working in the informal sector.
The analysis shows that COVID-19 will cost the region between $37 billion and $79 billion in output losses for 2020 due to a combination of effects. They include trade and value chain disruption, which impacts commodity exporters and countries with strong value chain participation; reduced foreign financing flows from remittances, tourism, foreign direct investment, foreign aid, combined with capital flight; and through direct impacts on health systems, and disruptions caused by containment measures and the public response.
While most countries in the region have been affected to different degrees by the pandemic, real gross domestic product growth is projected to fall sharply particularly in the region’s three largest economies – Nigeria, Angola, and South Africa – as a result of persistently weak growth and investment. In general, oil exporting-countries will also be hard-hit; while growth is also expected to weaken substantially in the two fastest growing areas – the West African Economic and Monetary Union and the East African Community – due to weak external demand, disruptions to supply chains and domestic production. The region’s tourism sector is expected to contract sharply due to severe disruption to travel.
The Sub-Saharan Africa (SSA) region paid $35.8 billion in total debt service in 2018, 2.1% of regional gross domestic product (GDP), of which $9.4 billion was paid to official bilateral creditors (about 0.7% of the regional GDP). Given that the region may need an emergency economic stimulus of $100 billion – including an estimated $44 billion waiver for interest payments in 2020 – the report notes a debt moratorium would immediately inject liquidity and enlarge the fiscal space of African governments.
“Due to deteriorating fiscal positions and increased public debt, governments in the region do not have much room for wiggle in deploying fiscal policy to address the COVID-19 crisis,” said Albert Zeufack, Chief Economist for Africa at the World Bank. “Africa alone will not be able to contain the disease and its impacts on its own; there is urgent need for temporary official bilateral debt relief to help combat the pandemic while preserving macroeconomic stability in the region.”
The COVID-19 crisis also has the potential to spark a food security crisis in Africa, with agricultural production potentially contracting between 2.6% in an optimistic scenario and up to 7% if there are trade blockages. Food imports would decline substantially (as much as 25% or as little as 13%) due to a combination of higher transaction costs and reduced domestic demand.
Several African countries have reacted quickly and decisively to curb the potential influx and spread of the coronavirus, very much in line with international guidelines. However, the report points out several factors that pose challenges to the containment and mitigation measures, in particular the large and densely populated urban informal settlements, poor access to safe water and sanitation facilities, and fragile health systems. Ultimately, the magnitude of the impact will depend on the public’s reaction within respective countries, the spread of the disease, and the policy response. And these factors together could lead to reduced labor market participation, capital underutilization, lower human capital accumulation, and long-term productivity effects.
“In addition to containment measures, we have seen that in responding to COVID-19, countries are opting for a combination of emergency fiscal and monetary policy actions with many central banks in the region taking important actions like cutting interest rates and providing extraordinary liquidity assistance,” said Albert Zeufack, Chief Economist for Africa at the World Bank. “However, it is important to ensure that fiscal policy builds in space for social protection interventions, especially targeting workers in the informal sector, and sows the seed for future resilience of our economies.”
“Short-term fiscal policy should aim at redirecting government expenditure to increase the capacity of the health system to protect and equip the already scarce the medical personnel, and to provide adequate and affordable medical attention to the people affected by COVID-19 pandemic,” said Cesar Calderon, World Bank Lead Economist and lead author of the report. “But at this time it is also important to consider that most workers in the region are engaged in the large informal sector where they lack benefits such as health insurance, unemployment insurance, and paid leave. They usually need to work every day to earn their living and pay for their basic household necessities. A prolonged lockdown would put their basic survival at great risk.”
African countries urgently need to take on a customized short-term policy approach that takes into consideration the structural features of the region: (1) the size of informal employment in the region accounting for 89% of total employment; (2) the precariousness of most SSA jobs, (3) the predominance of small and medium-sized enterprises which constitute 90% of business units and are the drivers of growth in the region, and (4) the ineffectiveness of monetary stimulus due to the reduced labor supply and closed businesses, and in the recovery phase due to weak monetary transmission in countries with underdeveloped financial markets.
The report recommends a fiscal-policy approach with two primary objectives – to save lives and protect livelihoods. Immediate actions to consider include:
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Focusing on strengthening health systems. The availability and allocation of financing for the health sector is still a major concern in Sub-Saharan Africa. The medical personnel in the region should be protected and properly equipped.
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Implementing social protection programs to support workers, especially those in the informal sector. This calls for cash transfers, in-kind transfers (food distribution), social grants to disabled people and the elderly, wage subsidies to prevent massive layoffs, and fee waivers for basic services (e.g. electricity tariffs and mobile money transactions)
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Minimize disruptions within countries and in the critical intra-African food supply chains, and keeping logistics open to avert a looming food crisis in the region.
The report also encourages African policymakers to think about the exit strategy from COVID-19.
“Once the containment and mitigating measures are lifted, economic policies should be geared towards building future resilience,” the report says. “Economies still need to design policy pathways to achieve sustainable growth, economic diversification and inclusion.”
“The immediate measures are important but there is no doubt there will be need for some sort of debt relief from bilateral creditors to secure the resources urgently needed to fight COVID-19 and to help manage or maintain macroeconomic stability in the region,” said Calderon.
Due to the COVID-19 pandemic, economic circumstances within countries and regions are fluid and change on a day-by-day basis. The macroeconomic analysis in the report is based on data available by the first quarter of March 2020.
The World Bank Group is taking broad, fast action to help developing countries strengthen their pandemic response, increase disease surveillance, improve public health interventions, and help the private sector continue to operate and sustain jobs. It is deploying up to $160 billion in financial support over the next 15 months to help countries protect the poor and vulnerable, support businesses, and bolster economic recovery.
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COVID-19: The global food supply chain is holding up, for now
The unfolding COVID-19 pandemic is so far having little impact on the global food supply chain, but that could change for the worse – and soon – if anxiety-driven panic by major food importers takes hold, the World Food Programme (WFP) warned on Friday.
In a new report, “COVID-19: Potential impact on the world’s poorest people: A WFP analysis of the economic and food security implications of the pandemic”, the UN agency said that global markets for basic cereals are well-supplied and prices generally low.
However, it said, given the highly globalized nature of food production and supply, commodities need to move from the world’s ‘breadbaskets’ to where they are consumed – and COVID-19-related containment measures are starting to make this more challenging.
“Disruptions are so far minimal; food supply is adequate, and markets are relatively stable,” said WFP Senior Spokesperson, Elizabeth Byrs, noting that global cereal stocks are at comfortable levels and the outlook for wheat and other staple crops is positive for the rest of this year.
“But we may soon expect to see disruptions in food supply chains”, she said, explaining that if big importers lose confidence in the reliable flow of basic food commodities, panic buying could ensue, driving prices up.
‘Behavioural change’ could rock markets
Elaborating, a seasoned grain market analyst at the Food and Agriculture Organization (FAO), quoted anonymously in the report, said the problem is not supply, but “a behavioral change over food security”.
“What if bulk buyers think they can’t get wheat or rice shipments in May or June? That is what could lead to a global food supply crisis,” the analyst said.
For low-income countries, the consequences could be devastating, with long-term repercussions, with coping strategies coming at the expense of such essential services as health and education.
It recalled that when a food price crisis struck in 2008, the world’s poorest households – which typically spend the largest share of income on food – suffered disproportionately.
Using the economic pillar of the Proteus food security index - and taking into account dependency on primary commodities such as fuel, ores and metals for export earnings - the report said that countries in Africa and the Middle East are most vulnerable.
Africa most vulnerable
Africa accounts for the majority of the almost 212 million people in the world who are chronically food insecure and the 95 million who live amidst acute food insecurity, the report noted.
Ms. Byrs added that labour shortages could disrupt the production and processing of labour-intensive crops in particularly, especially in vulnerable countries in sub-Saharan Africa.
Other potential sources of disruption include blockages along transport routes – a particular concern for fresh produce – and quarantine measures that could impede farmers’ access to markets, he explained.
Going forward, the WFP report said that it is essential to monitor food prices and markets, and to transparently disseminate information – thus helping to strengthen government policies while also averting public panic, and social unrest.
It added that in places where food insecurity is caused by restricted access, rather than lack of availability, cash-based transfers – which can often be made through contactless solutions – should be considered as a standard response.
“Planning in-kind food assistance is essential”, the report continued, noting that supply chain disruptions are likely to affect higher-value items first. Such items involve more tiers of suppliers, human interaction and dependency on few suppliers – putting specialized nutritious food more at risk than staples.
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Communiqué of the African Ministers of Finance Second online meeting on 31 March 2020
Immediate call for $100 Billion support and agreement the crisis is deep and recovery will take much longer
In the context of the outbreak of the coronavirus in Africa, the second online meeting of the African Ministers of Finance took place on 31 March 2020, following the first meeting on 19 March 2020. At that time, 633 cases of the virus were confirmed, in 35 countries with 17 deaths. As at 31 March 2020, that number had risen to 5,318 confirmed cases and 175 deaths across 46 countries. Algeria, Egypt and South Africa are the three countries most affected.
The Ministers confirmed that appropriate measures were being put in place to mitigate the spread and negative effects of corona virus disease 2019 (COVID-19). They emphasized that the priority was to save lives by continuing efforts to raise awareness, managing the social consequences of social distancing and lockdowns, focusing on the most vulnerable population groups.
The meeting focused on five main issues, the health and human crisis; the need for debt relief and fiscal stimulus for all countries; liquidity relief to the private sector and in particular the service sectors, tourism, airlines and SMEs; call for coordinated trade policy environment; and finally the use of ICT to better manage the crisis from awareness, to support, to accountability and transparency.
The Health and Human Crisis
Ministers agreed that, the most significant steps to be undertaken were to ensure that countries were providing adequate support to front-line health workers, such as nurses and doctors, and that countries had access to adequate supplies, including testing kits, masks, isolation facilities and ventilators. It was agreed that the experience of countries and regions where the virus had already had a devastating impact sharpened the necessity of a response that embraced a “whole of society and economy” approach.
The Ministers called upon African leadership, solidarity and creativity from all walks of life, including from representatives of the public and private sectors, civil society, faith leaders, media and social influencers, to share public health messages that were accurate and responsible and to provide clear information on necessary responses.
Ministers supported the call to fund the WHO and other health initiatives including procurement, research, vaccines, manufacturing logistics and curative care and health systems strengthening. It was agreed that the effort would require strengthened coordination between all rapid-response institutions, in particular the African Regional Office of the World Health Organization (WHO) and African Union Centres for Disease Control and Prevention (Africa CDC), and all global networks such as GAVI, the Global Fund and others. The Ministers reiterated that, to meet the challenge of coordinating the global health response across the areas of vaccines, data, research and procurement of essential drugs, vital COVID19 infrastructure such as test kits and ventilators and masks a central procurement hub could be set up to manage the process working with WHO.
The Ministers also supported the call by the African Union for a continental coordinated response to COVID-19, including efforts to boost global production and improve the availability of medical products and equipment. The COVID-19 responses announced by the Bureau of the Assembly of Heads of State and Government of the African Union supported the implementation of the African Union-Africa CDC Joint Continental Strategy for the COVID-19 Outbreak, which would be led by the Africa Task Force for Coronavirus (AFTCOR) and the Africa CDC incident management system.
Debt relief and fiscal stimulus for all countries
The Ministers emphasized the heavy toll that the global economic slowdown will have on the African economy, with urgent need for fiscal stimulus to contain the crisis. They welcomed the IMF and World Bank’s call for official bilateral creditors to provide breathing space to countries at this time when the global and African economies have come to a stand-still. Such relief should be extended to countries across the region and by other creditors during this exceptional period.
They therefore called for the urgent and immediate release of the US$ 100 billion of which US$ 44 billion will go towards debt relief for all African countries. The Ministers also suggested that if the crisis were to continue, an additional $50 billion may be needed for the building back process in 2021. This will include continued stay on interest payments.
The Ministers specifically called on the IMF to support the need for additional resources, recognizing that the IMF plans to double access under its emergency financing facilities. In addition, Ministers urged the Fund to make such additional financing necessary as countries are likely to continue requesting for further support from the IMF in the near-term.
Taking note that the Poverty Reduction and Growth Trust (PRGT) would require a substantial increase in its loan resources, the Ministers called upon the Fund members who do not need their Special Drawing Rights (SDRs) for liquidity purposes to use them to replenish the PRGT loan accounts.
Given the urgency with which the resources are required, the Ministers suggested that the US$ 100 billion could be disbursed in the following manner:
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For the public sector, the Ministers recommend to use disbursements for public sector debt and interest payments, including on sovereign bonds. This would provide countries with immediate fiscal space and liquidity. The US$ 44 billion disbursements should be pooled-in into a global special purpose vehicle (SPV) to be used for external debt service for effective management purposes till economic recovery takes hold and agreement can be reached with creditors. This would ensure no default by countries while providing them with the fiscal space needed to respond to the crisis.
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As a possible instrument to support this process but also provide additional liquidity particularly for the procurement of basic commodities, food, fuel, pharmaceuticals, and essential medical supplies the Ministers urged the IMF in particular to raise Special Drawing Rights (SDRs) availability for African countries over the next two to three years. This would not only service the debt relief SPV facility, but also provide much needed liquidity for countries and corporates.
The Ministers noted that the average economic stimulus package announced by African countries was equivalent to 0.8 per cent of their gross domestic product (GDP), or one tenth the average level of stimulus of developed countries, which stood at 8 per cent of their GDP.
Liquidity relief to the private sector and in particular the service sectors, tourism and airlines
The Ministers emphasized the fragility of the private sector, especially the SMEs who account for over 70 percent of Africa’s private sector and also emphasized the importance of the tourism airline industries and other service sectors and called for special efforts to address the needs of these sectors. They further emphasized the need for a collective voice for African airline companies and the need to preserve and protect them, given their significant contribution to the GDP of Africa.
The Ministers called on the G20, the European Union and all Development Finance institutions to support a refinancing, re-scheduling, implementation of guarantee schemes and liquidity facilities for Africa’s private sector
Over 50 million jobs could be at risk if we start closing down the agriculture sector as well. Ministers noted that the crisis continued to take a toll on jobs and employment prospects; even jobs in the agricultural sector were increasingly being threatened, owing to their linkages to the service and manufacturing sectors. The Ministers recognized that, while development finance institutions aimed to supplement other financing sources, their efforts had not been sufficiently counter-cyclical in past crises. The Ministers called for a change in this approach and encouraged development finance institutions to accelerate their support for the private sector, in particular small and medium-sized enterprises, to mitigate the impact of the crisis.
The Ministers urged Development Finance Institutions to allow for some repayments to be postponed and to create a “bounce back better” facility, to save companies and workers from bankruptcy and to protect previous economic transformation efforts, so that the recovery would be both faster and better. In this regard, the Ministers called for the European Union in particular to use its guarantee and refinancing facilities, which amount to more than $7 billion, to support trade credits and guarantees and debt and interest rescheduling for the private sector. This could be done as part of the already announced liquidity facility of the European Central Bank, with support from the European Investment Bank and through other bilateral mechanisms.
Coordinated trade policy environment
Ministers noted that trade would remain an important part of the resilience framework and would also need to be part of the strategy to make it possible for countries to bounce back faster. To ease the delivery of the equipment and supplies needed to fight COVID-19, and in order to limit the adverse impact that the pandemic was having on African economies, ports and transport corridors across the continent required enhanced facilitation measures, including ‘green lanes for rapid customs clearance of medical supplies, support for transport workers and measures to reduce customs red tape.
To that end, the Ministers asked ECA, the United Nations Conference on Trade and Development, the World Bank and all partners for support in keeping trade open, and called upon countries to:
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Urgently to suspend tariffs on imports of essential COVID-19 medical supplies;
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To provide trade and humanitarian corridors to allow for continuous trade;
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To make a diplomatic case against the imposition of export limits by certain countries on essential COVID-19 medical supplies.
The Ministers further called for countries to collaborate in supporting the potential contribution of the African private sector to the fight against COVID-19 by:
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Promptly communicating changes to health procedures and implementing those procedures in a unified manner;
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Ensuring the international movement of critical health and technical experts;
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Assisting African companies in gaining access to emergency medical intellectual property;
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Pooling and sharing medical quality standards to expedite testing and safety approval, including through the African Organization for Standardization;
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Launching emergency public-private partnerships for medical supplies;
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Endeavouring to keep transport links open.
ICT to empower policy makers and citizens in support of enhanced transparency accountability and efficiency
The Ministers acknowledged the importance of having strong Internet and telecommunications facilities and asked the Economic Commission for Africa to work with telecommunications operators to explore how those platforms could be used to improve the provision of information, to raise awareness about the importance of social distancing and, most important, to provide better targeted assistance to the most vulnerable. All those measures must be programmed through open budgets and open contract processes based on best practices, with a key space provided to African civil society and the private sector to help track the flow of funds through open budgets, with a view to building partnerships and ensuring that the funds reached their intended recipients.
In addition to these measures aimed at supporting small and medium-sized enterprises and the private sector, there is a need to scale up social safety nets, including digital, cash and in-kind transfers, with a view to boosting resilience in these times of shared and cumulative stress. Ministers called upon partners in the financial technology sector in Africa and globally to help to streamline technology, financial services and digital delivery tools aimed at addressing the present emergency head on.
The Ministers asked ECA to work with the private sector to alleviate the difficulties that the sector is facing, in particular the airlines and tourism industries. That would require, among other measures, engaging the private sector in work on finance guarantee mechanisms.
NEXT STEPS
The Ministers emphasized that, by 12 April 2020, the measures which they called for must be in place and part of the outcomes of the following events, at which support for Africa would be formalized:
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The World Bank stakeholders’ initiative, to be discussed during the meeting of the World Bank Development Committee on 15 April 2020, to announce additional support for developing countries;
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The IMF stakeholders’ initiative, to be addressed at the meeting of the International Monetary and Financial Committee on 15 April 2020, to extend macroeconomic support to countries in difficulty.
Ministers in conclusion thanked all the African citizens and health care workers already at the frontline for their sacrifice and dedication – the real heroines of the continent.
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African Development Bank Group unveils $10 billion Response Facility to curb COVID-19
The African Development Bank Group on Wednesday announced the creation of the COVID-19 Response Facility to assist regional member countries in fighting the pandemic.
The Facility is the latest measure taken by the Bank to respond to the pandemic and will be the institution’s primary channel for its efforts to address the crisis. It provides up to $10 billion to governments and the private sector.
Akinwumi Adesina, President of the African Development Bank Group, said the package took into account the fiscal challenges that many African countries are facing.
“Africa is facing enormous fiscal challenges to respond to the coronavirus pandemic effectively. The African Development Bank Group is deploying its full weight of emergency response support to assist Africa at this critical time. We must protect lives. This Facility will help African countries to fast-track their efforts to contain the rapid spread of COVID-19,” Adesina said, commending the Board of Directors for its unwavering support.
The Facility entails $5.5 billion for sovereign operations in African Development Bank countries, and $3.1 billion for sovereign and regional operations for countries under the African Development Fund, the Bank Group’s concessional arm that caters to fragile countries. An additional $1.35 billion will be devoted to private sector operations.
Commenting on the Facility, Acting Senior Vice-President Swazi Tshabalala said: “The setting up of the Facility required a collective effort and courage by all our staff, Board of Directors and our shareholders.”
Two weeks ago, the Bank launched a record-breaking $3 billion Fight COVID-19 Social Bond, the world’s largest US dollar-denominated social bond ever on the international capital market. Last week, the Board of Directors also approved a $2 million grant for the World Health Organization for its efforts on the continent.
“These are extraordinary times, and we must take bold and decisive actions to save and protect millions of lives in Africa. We are in a race to save lives. No country will be left behind,” Adesina said.
African Development Bank launches record breaking $3 billion “Fight COVID-19” Social Bond
The African Development Bank (AAA) has raised an exceptional $3 billion in a three-year bond to help alleviate the economic and social impact the Covid-19 pandemic will have on livelihoods and Africa’s economies.
The Fight Covid-19 Social bond, with a three-year maturity, garnered interest from central banks and official institutions, bank treasuries, and asset managers including Socially Responsible Investors, with bids exceeding $4.6 billion. This is the largest dollar denominated Social Bond ever launched in international capital markets to date, and the largest US Dollar benchmark ever issued by the Bank. It will pay an interest rate of 0.75%.
The African Development Bank Group is moving to provide flexible responses aimed at lessening the severe economic and social impact of this pandemic on its regional member countries and Africa’s private sector.
“These are critical times for Africa as it addresses the challenges resulting from the Coronavirus. The African Development Bank is taking bold measures to support African countries. This $3 billion Covid-19 bond issuance is the first part of our comprehensive response that will soon be announced. This is indeed the largest dollar social bond transaction to date in capital markets. We are here for Africa, and we will provide significant rapid support for countries,” said Dr. Akinwumi Adesina, President of the African Development Bank Group.
The order book for this record-breaking bond highlights the scale of investor support, which the African Development Bank enjoys, said the arrangers.
“As the Covid-19 outbreak is dangerously threatening Africa, the African Development Bank lives up to its huge responsibilities and deploys funds to assist and prepare the African population, through the financing of access to health and to all other essential goods, services and infrastructure,” said Tanguy Claquin, Head of Sustainable Banking, Crédit Agricole CIB.
Coronavirus cases were slow to arrive in Africa, but the virus is spreading quickly and has infected nearly 3,000 people across 45 countries, placing strain on already fragile health systems.
It is estimated that the continent will require many billions of dollars to cushion the impact of the disease as many countries scrambled contingency measures, including commercial lockdowns in desperate efforts to contain it. Globally, factories have been closed and workers sent home, disrupting supply chains, trade, travel, and driving many economies toward recession.
Commenting on the landmark transaction, George Sager, Executive Director, SSA Syndicate, Goldman Sachs said: “In a time of unprecedented market volatility, the African Development Bank has been able to brave the capital markets in order to secure invaluable funding to help the efforts of the African continent’s fight against Covid-19. Not only that, but in the process, delivering their largest ever USD benchmark. A truly remarkable outcome both in terms of its purpose but also in terms of a USD financing”.
The Bank established its Social Bond framework in 2017 and raised the equivalent of $2 billion through issuances denominated in Euro and Norwegian krone. In 2018 the Bank was designated by financial markets, ‘Second most impressive social or sustainability bond issuer’ at the Global Capital SRI Awards.
“We are thankful for the exceptional level of interest the Fight Covid-19 Social Bond has raised across the world, as the African Development Bank moves towards lessening the social and economic impact of the pandemic on a continent already severely constrained. Our Social bond program enables us to highlight our strong development mandate to the investor community, allowing them to play a part in improving the lives of the people of Africa. This was an exceptional outcome for an exceptional cause,” said Hassatou Diop N’Sele, Treasurer, African Development Bank.
Fight Covid-19 was allocated to central banks and official institutions (53%), bank treasuries (27%) and asset managers (20%). Final bond distribution statistics were as follows: Europe (37%), Americas (36%), Asia (17%) Africa (8%,) and Middle-East (1%).
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SADC adopts regional Guidelines for harmonising and facilitating movement of critical goods and services across the region during the COVID-19
The Council of Ministers of the Southern African Development Community (SADC) held their emergency virtual meeting on 6th April, 2020 where, among others, the Ministers adopted the regional Guidelines for the harmonisation and facilitation of movement of critical goods and services across SADC during the COVID-19 pandemic.
In his remarks, the Chairperson of the SADC Council of Ministers, Hon. Professor Palamagamba John Kabudi, Minister of Foreign Affairs and East African Cooperation of the United Republic of Tanzania, hailed the adoption of the Guidelines as an important milestone in coordinating regional response that addresses the health and socio-economic aspects of the COVID-19 pandemic.
Hon. Prof. Kabudi called on Member States to strengthen their solidarity to contain the spread of the virus while maintaining movement of essential goods and services across regional borders.
The adopted Guidelines are aimed at, among others, limiting the spread of COVID-19 through transport across borders; facilitating the implementation of transport related national COVID19 measures in cross-border transportation; facilitating flow of essential goods such as fuel, food and medicines; limiting unnecessary and mass movement of passengers across borders; and harmonising and coordinating transport-related national COVID-19 policies, regulations and response measures.
The Guidelines call for the simplification and automation of trade and transport facilitation processes and documents, information sharing and provide guidance on the services to be provided by Governments, Transport Operators and Transport Operators Associations during the COVID-19 pandemic.
In line with section 3.4 (xv) of the Guidelines, Member States are required to establish or assign National Transport and Trade Facilitation Committee (NTTFC) or structures with similar mandates. The responsibility of the NTTTFC is to coordinate the implementation of these guidelines and, in particular, to facilitate the resolution of operational issues at borders or road blocks during the COVID-19 pandemic.
The Secretariat has also with immediate effect, operationalised a Regional COVID 19 Trade and Transport Facilitation Cell (RTTFC) in order to assist Member States with the coordination of cooperation in implementing trade and transport related measures during COVID19 pandemic. The RTTFC will liaise with respective NTTTFC or similar structures.[1]
During the meeting, the Council of Ministers urged Member States to urgently take all necessary measures to slow further spread and to avoid their health systems becoming overwhelmed as a result of seriously ill patients with COVID-19.
On the Disaster Risk Management, the Council of Ministers called on Member States to establish national Emergency Operations Centres to facilitate coordination of logistics and stockpiling for disasters at the national level; and to establish National Emergency Trust Funds and National Resource Mobilization Strategies to facilitate mobilization of financial resources for national disaster responses, including for responding to COVID-19.
On 4April, 2020, following the national measures to combat COVID-19 in SADC region, the Executive Secretary of SADC, Her Excellency Dr Stergomena Lawrence Tax commended SADC Member States for responding swiftly and putting in place drastic measures to contain the COVID-19 pandemic. H.E. Dr Tax also paid tribute to all the people on the frontlines of the fight against the pandemic for risking their lives to save lives.
[1] The Cell can be reached through Mr Lovemore Bingandadi, RTTFC Coordinator; Email: This email address is being protected from spambots. You need JavaScript enabled to view it. or This email address is being protected from spambots. You need JavaScript enabled to view it., Telephone +267 3641956 and mobile number +267 71 828 493; SADC website: www.sadc.int.
Related News
tralac’s Daily News selection
tralac’s Special Edition Newsletter on COVID-19 was posted today: explore nine articles, touching on various trade policy issues and sectors (pdf)
Explore tralac’s COVID-19 Resources Page
Explore the IMF’s Special Series on COVID-19
WTO analysis posted today: Trade set to plunge as COVID-19 pandemic upends global economy
World trade is expected to fall by between 13% and 32% in 2020 as the COVID 19 pandemic disrupts normal economic activity and life around the world, according to a new analysis by the WTO. The wide range of possibilities for the predicted decline is explained by the unprecedented nature of this health crisis and the uncertainty around its precise economic impact. But WTO economists believe the decline will likely exceed the trade slump brought on by the global financial crisis of 2008‑09 (Chart 1). Estimates of the expected recovery in 2021 are equally uncertain, with outcomes depending largely on the duration of the outbreak and the effectiveness of the policy responses.
Future trade performance as summarized in Table 1 is thus best understood in terms of two distinct scenarios: (i) a relatively optimistic scenario, with a sharp drop in trade followed by a recovery starting in the second half of 2020, and (ii) a more pessimistic scenario with a steeper initial decline and a more prolonged and incomplete recovery. These should be viewed as explorations of different possible trajectories for the crisis rather than specific predictions of future developments. Actual outcomes could easily be outside of this range, either on the upside or the downside.
Services trade may be the component of world trade most directly affected by COVID-19 through the imposition of transport and travel restrictions and the closure of many retail and hospitality establishments. Services are not included in the WTO’s merchandise trade forecast, but most trade in goods would be impossible without them (e.g. transport). Unlike goods, there are no inventories of services to be drawn down today and restocked at a later stage. As a result, declines in services trade during the pandemic may be lost forever. Services are also interconnected, with air transport enabling an ecosystem of other cultural, sporting and recreational activities. However, some services may benefit from the crisis. This is true of information technology services, demand for which has boomed as companies try to enable employees to work from home and people socialise remotely. [UNCTAD: International trade in services, 2019 Quarter 4 (pdf)]
World Bank analysis posted today: pdf Trade responses to the COVID-19 crisis in Africa (277 KB)
Countries in Africa should strive to maintain trade flows during the crisis to secure access to medical goods and services, and food and other essential items such as farm inputs. This requires keeping borders open to the largest extent possible and avoiding measures such as export bans or taxes. Countries should take action to reduce taxes and duties on trade, to streamline trade procedures and to support transport and logistics services in maintaining cross-border and international value chains. By joining together, countries in Africa can implement coordinated trade measures that result in better responses to the crisis. Joint actions include bilateral cooperation on border management, joint information campaigns, coordinated purchasing of medical equipment, partnering on repurposing production to produce medical goods, and management of health specialists to deal with emerging hotspots on the continent. Development partners should support coordinated actions by regional institutions through analysis, technical assistance and perhaps operational projects. Identifying the appropriate level (sub-national, national, regional, continental) for interventions and the most effective institutions, in terms of relevance and capacity, to manage coordinated actions will be essential. There are a range of areas where coordination on trade and COVID-19 in Africa would support a superior response relative to countries acting alone, including coordinating:
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To enhance management of border crossings during the crisis. As with the Ebola outbreak, strong coordination between governments and officials at the local level can allow for borders to remain open for trade while instituting effective measures to contain the spread of infectious diseases. Governments can share strategies and coordinate measures for border management and virus containment. For example, in the Ebola crisis the Government of Rwanda shared with counterparts in the DRC the design of automated washing stations which allowed for much faster procurement of these mechanisms in the DRC.
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Establishing COVID-19 “container clinics” along Africa’s transport corridors. COVID-19 has spread through the largest nodes in the global transport network. One of the lessons from the HIV/AIDS epidemic in Africa was that it spread along the main transport corridors. In response, the World Bank and other partners designed corridor-centric interventions targeting drivers (e.g. AbidjanLagos Corridor Organization in West Africa) – including setting up container clinics – as they are prone to become critical vectors of transmission. [The authors: Paul Brenton, Vicky Chemutai]
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A reposting: pdf The ATPC’s recent analysis of trade policies for Africa to tackle Covid-19 (1.20 MB)
pdf SADC guidelines on harmonisation and facilitation of cross-border transport operations during the COVID-19 pandemic (390 KB)
Domestic, interstate and international travel have proven to be one of the main ways the COVID-19 virus is spreading among communities, nations and globally. There is therefore a need to limit travelling and freight movements to the absolutely essential only. The objectives of these guidelines are to:
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Limit the spread of COVID-19 through transport across borders
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Facilitate the implementation of transport related national COVID19 measures in cross border transportation
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Facilitate interstate flow of essential goods such as fuel, food, medicines and agricultural inputs
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Limit unnecessary and mass movement of passengers across borders, and
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Balance, align, harmonise and coordinate COVID-19 response measures with the requirements for trade and transport facilitation.
Southern Africa Business Council: pdf Communique on responses to COVID-19 (77 KB)
The Directors of National Private Sector Apex Body and Regional Business Body Associations in the SADC region held an online meeting on 1 April 2020 to discuss and exchange notes on the regional and national preparedness and responses to the outbreak of Coronavirus disease (COVID-19) in the SADC region and to recommend government and private sector interventions at national and regional level to minimize economic impact during the Covid-19 emergency and support the quick recovery of businesses post the Covid-19 emergency. Recommendations on cross-border logistics:
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Utilize rail as a preferred transport solution to minimize human contact and quarantine dwell time during the movement of regional cargo.
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Facilitate easy visa clearance for truck drivers moving essential cargo across the region.
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Prioritize clearance of essential cargo freight at border posts and protection of drivers.
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Introduce duty free facilities for importation of COVID-19 related equipment and materials.
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Waiver storage fees for bonded products held indefinitely during the period of lock down.
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Essential border stations shall remain open to facilitate the movement of cargo subject to the customs laws and guidelines.
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Customs warehouses and facilities must remain open to enable clearance of cargo subject to the customs guidelines.
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Customs at regional level to urgently create interface between neighboring/corridor countries to reduce paperwork delays at entry points and reduce driver idle time at borders.
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Stringent measures taken by a corridor country should be informed in advance to neighboring/corridor countries for contingency and pre alert measures to be provided to service providers (freight forwarders and transporters).
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Urge principles of shipping businesses to consider waiving demurrage costs.
IATA: 25 million jobs at risk with airline shutdown
Globally, the livelihoods of some 65.5 million people are dependent on the aviation industry, including sectors such as travel and tourism. Among these are 2.7 million airlines jobs. In a scenario of severe travel restrictions lasting for three months, IATA research calculates that 25 million jobs in aviation and related sectors are endangered across the world: 11.2 million jobs in Asia-Pacific, 5.6 million jobs in Europe, 2.9 million jobs in Latin America, 2.0 million jobs in North America, 2.0 million jobs in Africa, and 0.9 million jobs in the Middle East. In the same scenario, airlines are expected to see full year passenger revenues fall by $252bn (-44%) in 2020 compared to 2019. The second quarter is the most critical with demand falling 70% at its worst point, and airlines burning through $61bn in cash.
Stefan Dercon: Ebola-era lessons for the private sector (IFC Insights)
From my experience with the Ebola crisis in Sierra Leone and Liberia, I saw how important it is to collect data to discover how the crisis is working through the economy, and then respond quickly and flexibly to that data. For example, in Sierra Leone, we saw the farmers were not really affected in the way many had predicted, and agricultural markets remained intact while the urban sector was more strongly affected. This real-time data produced better responses from the public sector but also from the private sector, showing where opportunities were. Avoiding the “grand gesture” in favor of a tailored action informed by data is key. We can do this now, better than often is assumed, because of new ways of collecting information—including telephone surveys, mobile phone data, and other digital data. The message to the private sector is to document locally in developing countries how the value chains are affected and where the biggest bottlenecks are, and respond by changing your focus as you go.
UNCTAD: Defending competition in the markets during COVID-19
Under normal circumstances competition is needed in markets to keep prices low, but with the COVID-19 crisis wreaking havoc on markets the world over, collaboration has taken precedence. The pandemic’s sweeping economic impact has left governments balancing between defending competition, so prices do not become prohibitive, and granting exemptions to competition rules to ensure the survival of entire economic sectors. UNCTAD recommends that governments take five key actions to protect competition in the markets during the COVID-19 crisis:
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Ensure equal conditions between companies for a level playing field that remains relevant even in a crisis period
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Temporarily allow cooperation arrangements necessary to ensure the supply and distribution of affordable products to all consumers to prevent a shortage of essential products
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Closely monitor markets of essential products such as disinfectants, masks and gels to ensure their availability, if necessary, through temporary prices caps to protect the health of consumers during the pandemic
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Vigorously enforce competition law against companies that take advantage of the crisis by creating cartels or abusing their market power, and
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Adapt competition procedures and deadlines to the extraordinary circumstances created by the pandemic. [UNCTAD: Firmer action needed to better protect consumers]
Trade set to plunge as COVID-19 pandemic upends global economy
World trade is expected to fall by between 13% and 32% in 2020 as the COVID 19 pandemic disrupts normal economic activity and life around the world.
The wide range of possibilities for the predicted decline is explained by the unprecedented nature of this health crisis and the uncertainty around its precise economic impact. But WTO economists believe the decline will likely exceed the trade slump brought on by the global financial crisis of 2008-09 (Chart 1).
Estimates of the expected recovery in 2021 are equally uncertain, with outcomes depending largely on the duration of the outbreak and the effectiveness of the policy responses.
"This crisis is first and foremost a health crisis which has forced governments to take unprecedented measures to protect people’s lives," WTO Director-General Roberto Azevêdo said.
"The unavoidable declines in trade and output will have painful consequences for households and businesses, on top of the human suffering caused by the disease itself.”
“The immediate goal is to bring the pandemic under control and mitigate the economic damage to people, companies and countries. But policymakers must start planning for the aftermath of the pandemic,” he said.
“These numbers are ugly – there is no getting around that. But a rapid, vigorous rebound is possible. Decisions taken now will determine the future shape of the recovery and global growth prospects. We need to lay the foundations for a strong, sustained and socially inclusive recovery. Trade will be an important ingredient here, along with fiscal and monetary policy. Keeping markets open and predictable, as well as fostering a more generally favourable business environment, will be critical to spur the renewed investment we will need. And if countries work together, we will see a much faster recovery than if each country acts alone."
Chart 1 - World merchandise trade volume, 2000‑2022
Index, 2015=100
Source: WTO Secretariat.
Trade was already slowing in 2019 before the virus struck, weighed down by trade tensions and slowing economic growth. World merchandise trade registered a slight decline for the year of ‑0.1% in volume terms after rising by 2.9% in the previous year. Meanwhile, the dollar value of world merchandise exports in 2019 fell by 3% to US$ 18.89 trillion.
In contrast, world commercial services trade increased in 2019, with exports in dollar terms rising by 2% to US$ 6.03 trillion. The pace of expansion was slower than in 2018, when services trade increased by 9%. Details on merchandise and commercial services trade developments are presented in Appendix Tables 1 through 4 and can be downloaded from the WTO Data Portal at data.wto.org.
Outlook for trade in 2020 and 2021
The economic shock of the COVID-19 pandemic inevitably invites comparisons to the global financial crisis of 2008-09. These crises are similar in certain respects but very different in others. As in 2008-09, governments have again intervened with monetary and fiscal policy to counter the downturn and provide temporary income support to businesses and households. But restrictions on movement and social distancing to slow the spread of the disease mean that labour supply, transport and travel are today directly affected in ways they were not during the financial crisis. Whole sectors of national economies have been shut down, including hotels, restaurants, non-essential retail trade, tourism and significant shares of manufacturing. Under these circumstances, forecasting requires strong assumptions about the progress of the disease and a greater reliance on estimated rather than reported data.
Future trade performance as summarized in Table 1 is thus best understood in terms of two distinct scenarios: (1) a relatively optimistic scenario, with a sharp drop in trade followed by a recovery starting in the second half of 2020, and (2) a more pessimistic scenario with a steeper initial decline and a more prolonged and incomplete recovery.
These should be viewed as explorations of different possible trajectories for the crisis rather than specific predictions of future developments. Actual outcomes could easily be outside of this range, either on the upside or the downside.
Under the optimistic scenario, the recovery will be strong enough to bring trade close to its pre-pandemic trend, represented by the dotted yellow line in Chart 1, while the pessimistic scenario only envisages a partial recovery. Given the level of uncertainties, it is worth emphasizing that the initial trajectory does not necessarily determine the subsequent recovery. For example, one could see a sharp decline in 2020 trade volumes along the lines of the pessimistic scenario, but an equally dramatic rebound, bringing trade much closer to the line of the optimistic scenario by 2021 or 2022.
After the financial crisis of 2008-09, trade never returned to its previous trend, represented by the dotted grey line in the same chart. A strong rebound is more likely if businesses and consumers view the pandemic as a temporary, one-time shock. In this case, spending on investment goods and consumer durables could resume at close to previous levels once the crisis abates. On the other hand, if the outbreak is prolonged and/or recurring uncertainty becomes pervasive, households and business are likely to spend more cautiously.
Under both scenarios, all regions will suffer double-digit declines in exports and imports in 2020, except for “Other regions” (which is comprised of Africa, Middle East and Commonwealth of Independent States (CIS) including associate and former member States). This relatively small estimated decline in exports stems from the fact that countries from these regions rely heavily on exports of energy products, demand for which is relatively unaffected by fluctuating prices. If the pandemic is brought under control and trade starts to expand again, most regions could record double-digit rebounds in 2021 of around 21% in the optimistic scenario and 24% in the pessimistic scenario – albeit from a much lower base (Table 1). The extent of uncertainty is very high, and it is well within the realm of possibilities that for both 2020 and 2021 the outcomes could be above or below these outcomes.
Chart 2 - Ratio of world merchandise trade growth to world GDP growth, 1990‑2020
% change and ratio
Source: WTO Secretariat for trade and consensus estimates for historical GDP. Projections for GDP based on scenarios simulated with WTO Global Trade Model.
Two other aspects that distinguish the current downturn from the financial crisis are the role of value chains and trade in services. Value chain disruption was already an issue when COVID‑19 was mostly confined to China. It remains a salient factor now that the disease has become more widespread. Trade is likely to fall more steeply in sectors characterized by complex value chain linkages, particularly in electronics and automotive products. According to the OECD Trade In Value Added (TiVa) database, the share of foreign value added in electronics exports was around 10% for the United States, 25% for China, more than 30% for Korea, greater than 40% for Singapore and more than 50% for Mexico, Malaysia and Vietnam. Imports of key production inputs are likely to be interrupted by social distancing, which caused factories to temporarily close in China and which is now happening in Europe and North America. However, it is also useful to recall that complex supply chain disruption can occur as a result of localized disasters such hurricanes, tsunamis, and other economic disruptions. Managing supply chain disruption is a challenge for both global and local enterprises and requires a risk-versus-economic efficiency calculation on the part of every company.
Services trade may be the component of world trade most directly affected by COVID-19 through the imposition of transport and travel restrictions and the closure of many retail and hospitality establishments. Services are not included in the WTO's merchandise trade forecast, but most trade in goods would be impossible without them (e.g. transport). Unlike goods, there are no inventories of services to be drawn down today and restocked at a later stage. As a result, declines in services trade during the pandemic may be lost forever. Services are also interconnected, with air transport enabling an ecosystem of other cultural, sporting and recreational activities. However, some services may benefit from the crisis. This is true of information technology services, demand for which has boomed as companies try to enable employees to work from home and people socialise remotely.
The impact of the COVID-19 outbreak on international trade is not yet visible in most trade data but some timely and leading indicators may already yield clues about the extent of the slowdown and how it compares to earlier crises. Indices of new export orders derived from Purchasing Managers' Indices (PMIs) are particularly useful in this regard. The JP Morgan global PMI for March showed export orders in manufacturing sinking to 43.3 relative to a baseline value of 50, and new services export business dropping to 35.5, suggesting a severe downturn.
Chart 3: New export orders from purchasing managers indices, Jan. 2008 – Mar. 2020
Index, base=50
Note: Values greater than 50 indicate expansion while values less than 50 denote contraction.
Source: IHS Markit.
Trade developments in 2019
Global merchandise trade stalled in 2019 under the weight of persistent trade tensions, with trade turning down toward the end of the year. This is illustrated by Chart 4, which shows seasonally-adjusted quarterly merchandise trade volumes as measured by the average of exports and imports. Trade in the fourth quarter was down by 1.0% year-on-year and by 1.2% compared to the third quarter of 2019. The latter is equivalent to a 4.6% decline on an annualized basis.
Chart 4: World merchandise exports and imports, 2015Q1‑2019Q4
Index 2015Q1=100 and year‑on‑year % change
Source: WTO Secretariat and UNCTAD.
Chart 5 shows seasonally‑adjusted quarterly merchandise export and import volumes by region. South America and Other Regions posted large declines in exports in the second half of 2019, while Europe, North America, and Asia experienced either minimal growth or mild declines. Import volumes for South America experienced a sharp decline throughout 2019, with Europe, North America, and Asia also ending the year lower. Only imports for Other Regions continued rising with year‑on‑year growth for each quarter of between 1.9% and 4.9% in 2019.
Chart 5: Merchandise exports and imports by region, 2015Q1‑2019Q4
(Volume index, 2015Q1=100)
1 - Refers to South and Central America and the Caribbean.
2 - Other Regions comprise Africa, Middle East, and the Commonwealth of Independent States, including associate and former member States.
Source: WTO and UNCTAD.
Although services are not subject to tariffs in the way that goods are, world commercial services trade still slowed sharply in value terms in 2019 after recording strong increases in the previous two years. This is illustrated by Chart 6, which shows growth in the dollar value of services exports by major categories. The category of “Other commercial services” recorded the strongest growth with a 3% increase in 2019, followed by travel and goods-related services at 1%. A 0.5% drop in the value of transport service may have reflected weakness in goods trade as a result of trade frictions between major economies.
Monthly, quarterly and annual trade statistics can be downloaded from the WTO Data Portal at data.wto.org.
Chart 6: Growth in the value of commercial services exports by category, 2015‑2019
% change in US$ values
Source: WTO Secretariat, UNCTAD and ITC.
Table 1: Merchandise trade volume and real GDP, 2018-20211
Annual % change
1 - Figures for 2020 and 2021 are projections.
2 - Average of exports and imports.
3 - Other regions comprise Africa, Middle East and Commonwealth of Independent States (CIS) including associate and former member States.
Source: WTO Secretariat for trade and consensus estimates for historical GDP. Projections for GDP based on scenarios simulated with WTO Global Trade Model.
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Diarise:
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International Organisation of Employers digital conference, tomorrow, on the impact of COVID-19 on global trade, supply chains and employment
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The IMF will release its April 2020 World Economic Outlook on the 14 April and its April 2020 Fiscal Monitor the following day
Competition in Dar, Kenya sends Choppies out of East Africa (The East African)
Choppies—the Botswana-based supermarket chain that about four years ago embarked on an aggressive expansion drive across Africa—has beat a hasty retreat to cut mounting losses in new markets. The retail chain has, in a circular to shareholders, announced discontinuation of operations in several African countries, among them Kenya and Tanzania. Choppies Enterprises Ltd (CEL), which is listed on the Botswana Stock Exchange and cross-listed on the Johannesburg Stock Exchange, has also shut down its operations in Mozambique and placed its South African business on auction, with a plan to concentrate on growing its market share in its home country. It has also restructured its outstanding loan estimated at $56 million, as part of tactical measures intended to breathe life into a firm weighed down by deepening losses attributable to stiff competition in the retail space.
Kenya shields dairy farmers with import levy (The East African)
Kenya has introduced a 1% import levy on dairy products to protect the industry from unfair competition. The Ministry of Agriculture published dairy industry regulations that introduce stringent conditions for the importation of dairy products to stop dumping, particularly from Uganda. The government also plans to introduce price controls to protect farmers from exploitation by processors. “We have been pushing for predictable pricing for raw milk and farmers will not complain if the prices are set fairly,” Gideon Birgen, Kenya Dairy Farmers Association chief executive told The EastAfrican. Last week, Brookside Dairy adjusted raw milk prices upward by one shilling per litre to Ksh36 ($0.34) from Ksh35 ($0.33) to cushion farmers from the effects of the Covid-19 pandemic.
pdf WCO-WTO joint statement on COVID-19 related trade measures (51 KB)
Within our respective mandates, we have already invited Members to increase transparency by sharing information on new trade and trade-related measures introduced in response to the COVID-19 pandemic. To the extent appropriate, we are making such information publicly available through our respective websites. We are also willing to establish a coordinated approach in support of initiatives that facilitate cross-border trade in goods, in particular those key to combat COVID-19. This would allow that essential goods can quickly reach those most in need, including in least developed and land-locked countries.
As COVID-19 continues to spread globally and governments consider new measures to protect the health and well-being of their citizens, we urge Members to ensure that any new border action is targeted, proportionate, transparent and non-discriminatory — as agreed by G20 leaders. We stress that these measures should be temporary, and we encourage Members to rescind them once they are no longer needed, especially if they restrict trade. We welcome initiatives to facilitate and simplify cross-border procedures and urge our Members to prioritize those for exporting and importing essential goods.
Key food prices are surging after virus upends supply chains (Jakarta Post)
As the coronavirus pandemic penetrates more deeply into global supply chains, prices for key staples are starting to soar in some parts of the world. Rice and wheat – crops that account for about a third of the world’s calories – have been making rapid climbs in spot and futures markets. For countries that rely on imports, this is creating an added financial burden just as the pandemic shatters their economies and erodes their purchasing power. In Nigeria, for example, the cost of rice in retail markets soared by more than 30 percent in the last four days of March alone. It’s unclear what the biggest drivers were for the retail prices, whether it was a trickle-down effect from grain futures or local logistical choke points or panic buying, or a combination.
After Trump threat, India lifts export ban on COVID-19 treatment drug (Japan Times)
India has partially lifted a ban on the exports of a malaria drug after US President Donald Trump sought supplies for the United States, according to government officials with knowledge of the matter. Exports of hydroxychloroquine and paracetamol will be allowed depending on availability of stock after meeting domestic requirements and existing orders, said the government officials, who asked not to be identified citing rules. Shipments will be restricted and permission will be on humanitarian grounds, they added.
Employers call for mobilising resources for the UN-led global Covid-19 fund (IOE)
The global employer community, united in the International Organisation of Employers, supports UN Secretary-General António Guterres’ Covid-19 response plan to assist governments in safeguarding jobs, maintaining liquidity, avoiding bankruptcy of companies particularly SMEs, providing social protection and wage support schemes, and preparing for the swift resumption of economic activity and international trade as soon as the pandemic is under control. The UN and its related financial institutions must help all member states affected by the crisis. In the face of an unprecedented health emergency and economic collapse, the world must assist businesses, especially small and medium enterprises, and their workers, as well as the most vulnerable people, including the self-employed and non-permanent, casual and informal workers to prevent a humanitarian crisis.
Latin America: Multilateral entities coordinate response to the regional impact of COVID-19 (OAS)
The economic effects of the interruption of value chains in Latin American countries, the contraction of international trade and the decline of tourism in the Caribbean are seen as key problems. Taking into account this context, sources of support should be sought to protect employment and income, avoid the bankruptcy of MSME’s, and meet the needs of the population in poverty, which in its majority it does not have health coverage. It was requested that a joint regional voice be brought before the G20 and that middle-income countries also be taken into account when making loans more flexible. The countries of the Caribbean, despite the fact that most of them are classified as middle-income, have special vulnerabilities: the pressure of external debt and the recurrence of natural disasters. It is absolutely essential that they have financial relief to cope with the effects of the COVID-19 pandemic.
Participants warned that it will be necessary to have a financial package that can assist countries to address the crisis and that it is important that the region act in a unified manner to promote this approach. The situation of women was especially considered by the multilateral organizations gathered, given that they are multiply affected and extremely vulnerable to this crisis, firstly because they occupy the majority of jobs in the health sector and, therefore, are largely heroines because day-by-day they face the COVID-19 pandemic and are more exposed. [COVID-19 response calls for heightened ASEAN cooperation, mainstreaming biodiversity in health sector]
Sierra Leone: IMF concludes 2019 Article IV Consultation
While the Sierra Leonean economy has great potential, the immediate outlook is overshadowed by the rapidly unfolding global COVID‑19 pandemic. Based on programmed policies, growth was projected to average around 4.5% over the medium term. However, prospects for the remainder of 2020 are subject to considerable uncertainty. The magnitude of the impact will depend heavily on the extent of vital prevention and containment measures—nationally, regionally and globally—and the associated economic spillovers. With the fragile Sierra Leonean economy still recovering from the Ebola health crisis and past lax macroeconomic policies, the COVID‑19 shock will add to the country’s vast development challenges. Avoiding long‑lasting scarring and continuing the economy’s promising development trajectory will require significant support from development partners.
Covid-19: African competition authorities respond to crises (IOL)
The increase in confirmed Covid-19 cases in Africa has led to innumerable complaints of anti-competitive conduct from customers and consumers across the continent, who have expressed concerns over sudden price hikes of healthcare and hygiene products as well as identified essential products. Numerous competition authorities in Africa are aware of the effects of unjustified price hikes and excessive pricing on already vulnerable economies. They have responded by establishing specialised investigation teams, refocusing existing resources to Covid-19 specific complaints and introducing new competition regulations – as is the case in South Africa. African competition authorities have further noted that collaboration between themselves and consumer protection authorities, as well as between competing essential service providers, is essential in order to enable countries to adequately respond to the Covid-19 crisis. Unprecedented times appear to have called for unprecedented measures for competition authorities across Africa.
Carlos Lopes: The world in reset mode (Institut Amadeus)
The current crisis, provoking one of the most drastic economic contractions of the modern times, took about three weeks to get to the dramatic falls in economic throughput attained by the Great Depression in three years. Most developing countries depend on foreign income in a combination of exports of goods, tourism, investments and remittances: all are expected to collapse. Government revenues are linked to the formal sector of the economy. Tax revenue will equally fall while informal transactions will be purged by the social distancing imposed by Covid-19. In short, the flatter you want the contagion curve to be, the more you need to block your country. The larger fiscal space needed to mitigate the deeper recession that will result will be unreachable. At the same time, access to international financial markets will become prohibitive for developing countries as lenders and investors rush to the safety of assets issued by central economies. The ones that can afford to print money and give it away in historical stimulus packages based on the policy of “whatever it takes”. In other words, just when developing countries need to manage the pandemic, most have seen their fiscal space evaporate. Just when they need access to more external finance the doors close.
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Naresh Maharaj: The impact of Covid-19 on SA’s automotive industry
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BFAP: Potential implications of global trade policies for South Africa’s rice supply
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ICC issues two guidance notes to address COVID-19 disruptions: trade finance transactions, operations
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Launched: World Ports COVID-19 information portal
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COVID-19: WCO updates
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WEF: Supply chains have been upended – here’s how to make them more resilient
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Coronavirus crisis has had staggering impact on Australian businesses, data reveals
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African Union: Impact of the Coronavirus Covid-19 on the African economy
Based on the description of specific key indicators of the African economy three scenarios are constructed. Afterward, we assess the impact on the African economy for each of the scenarios and present some of key measures taken by selected African Union Member States. The paper ends with a conclusion and key policy recommendations. Africa, because of its openness to international trade and migration, is not immune to the harmful effects of COVID-19, which are of two kinds:
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The exogenous effects come from direct trade links between affected partner continents such as Asia, Europe and the United States; tourism; the decline in remittances from African Diaspora; Foreign Direct Investment and Official Development Assistance; illicit financing flows and domestic financial market tightening, etc.
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The endogenous effects occur as a result of the rapid spread of the virus in many African countries. On one hand, they are linked to morbidity and mortality. On the other hand, they lead to a disruption of economic activities. This may cause a decrease in domestic demand in tax revenue due to the loss of oil and commodity prices coupled with an increase in public expenditure to safeguard human health and support economic activities.
pdf Download the report (1.01 MB)
Extracts: Exports and imports of African countries are projected to drop by at least 35% from the level reached in 2019. Thus, the loss in value is estimated at around $270bn. To fight against the spread the virus and medical treatment will lead to an increase of public spending in Africa estimated to by at least $130bn.
Africa imports around 90% of its pharmaceutical products from outside the continent, mainly from China and India. Unfortunately, estimates show that the annual earnings from substandard and/or counterfeit drugs were over $30bn, according to the World Health Organization 2017 report of fake drugs trade. Africa has the highest disease burden of communicable and non-communicable disease that contributes to a significant market for the pharmaceutical industry. Therefore, with the establishment of the African Continental Free Trade Area regulation shall be critical to guaranteeing the protection of this 1.2 billion African market from fake, substandard, and counterfeit products and services. Moreover, the current pandemic has proven to the African continent that it cannot continue to depend on external suppliers for its internal demand in products as strategic as pharmaceuticals. Therefore, countries should use this opportunity to accelerate the implementation of the Pharmaceutical Manufacturing Plan of Africa and the establishment of African Medicine Agency by prioritizing investment for regulatory capacity development; pursuing the efforts towards convergence and harmonization of medical products regulation in RECs; allocating adequate resources for AMA as stipulated by the successive AU Assembly decisions on the matter. [Related: AUDA-NEPAD response to COVID-19 and other epidemics]
Southern African People’s Solidarity Network: statement on the COVID-19 pandemic
The threat posed by COVID-19 cannot be treated solely as a health risk but must be seen as a threat to the overall development of Southern Africa. In this regard we are calling on SADC governments to implement a debt moratorium and divert resources meant for debt repayments towards rebuilding the public health system and investing in critical social service sectors including energy, water, sanitation and housing infrastructure to build the resilience of SADC people to withstand the impact of the crisis. SADC, like many corporations must declare force majeure, i.e. the existence of unforeseeable circumstances which make it impossible to fulfil the terms of trade and investment agreements that stand in the way of local production of vital health equipment, medicines and other inputs necessary to address the pandemic. SADC cannot continue to be bound by the Trade-Related Aspects of Intellectual Property Rights (TRIPS) and Trade-Related Investment Measures (TRIMS) embedded in various trade regimes such as in the WTO and the Economic Partnership Agreements.
The COVID-19 crisis: Accentuating the need to bridge digital divides (UNCTAD)
The spread of the latest strain of the coronavirus (COVID-19) is disrupting economic and social life in multiple ways and dimensions. This crisis is unfolding at a time characterized by rapid digitalization, which is helping in the decision-making process regarding response and adaptations to the situation by governments, businesses and consumers. However, differences in digital readiness hamper the ability of large parts of the world to take advantage of these technologies. Multilateralism is vital in a world facing critical development challenges. Extract (pdf):
Most digital solutions are offered or supported by a relatively small number of mega-digital platforms, mainly originating in the US and China. The further shift towards the digitalisation is thus likely to strengthen their market positions. As noted in UNCTAD’s Digital Economy Report 2019, the top seven digital platforms already accounted for two-thirds of the value of the world’s digital platforms. They benefit from network effects and from their ability to extract, control and analyse data. These data are then transformed into digital intelligence that can be monetized in various ways.
Against this background, much more attention should be given to bridging existing and emerging digital divides to allow more countries to take advantage of digitalisation. If left unaddressed, the yawning gap between under-connected and hyper-digitalised countries will widen, thereby exacerbating existing inequalities. Differences in digital readiness and the high concentration of market power in the digital economy underline the need for new policies and regulations aimed at ensuring a fiar distribution of the gains from digital disruptions. As with the coronavirus crisis and other development challenges, the world will need a coordinated multilateral response to deal with the challenge of digitalisation. [Virtual meeting platforms record double growth]
In brief:
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ITC’s Dorothy Tembo: Africa’s failure would be the world’s failure
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American Chamber of Commerce Ghana: 50% of member firms severely impacted by coronavirus
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South Africa: Covid-19 had small effect on shipments to China in first quarter, Grindrod says
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BAT South Africa urges government to lift cigarette sale ban
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How Africa’s central banks are tackling the effects of Covid-19
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Budget deficit will reach world war levels, says SA Reserve Bank
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Oluwatosin Adeshokan: Coronavirus in Nigeria catalyst to changes in financial sector
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Dani Rodrik: Will COVID-19 remake the world?
Protecting the vulnerable and excluded in the financial sector: tralacBlog
As the global health crisis caused by the COVID-19 pandemic unfolds, it brings with it a global economic crisis. With economies only now beginning to properly recover from the global financial crisis of 2007/08, this economic crisis has potential to decimate Africa’s already fragile financial sector. While impacts will flow throughout the entire economy, it will be felt most by vulnerable members of society, including poorer households and small businesses. [The author: Ashly Hope]
Kenya: Safaricom, South Africa’s Vodacom acquire M-Pesa from Britain’s Vodafone (The Star)
Safaricom and Vodacom on Monday announced their complete acquisition of the M-Pesa brand, product development and support services from Vodafone through a newly-created joint venture. The Telecoms started a joint venture to acquire the intellectual property rights to M-Pesa mobile financial services platform from Britain’s Vodafone in 2019. “This is a significant milestone for Vodacom as it will accelerate our financial services aspirations in Africa. Our joint venture will allow Vodacom and Safaricom to drive the next generation of the M-Pesa platform – an intelligent, cloud-based platform for the smartphone age,” Shameel Joosub, Vodacom Group CEO, said in a statement. “It will also help us to promote greater financial inclusion and help bridge the digital divide within the communities in which we operate.” Michael Joseph, outgoing Safaricom CEO: “For Safaricom, we’re excited that the management, support and development of the M-Pesa platform have now been relocated to Kenya, where the journey to transform the world of mobile payments began 13 years ago.”
Mozambique looks for solutions to place cashews on the market (Macauhub)
Mozambique’s National Cashew Institute (Incaju) is seeking alternative markets, including the domestic market, to overcome the issue caused by the Indian government, which increased the import tax on cashew nut imports from 45% to 70%, said an Incaju official. Lúcia António, head of the Industrial section of Incaju, told daily newspaper Notícias that the Mozambican cashew industry is facing difficulties due to the decision, mainly because India, which is the main market and processor of cashews (around 1 million tonnes per year), is one of the main destinations of cashews from Mozambique.
Between 2017 and 2019, over 80,000 tonnes of raw cashew nuts were exported and the country netted US$116 million, and 76% of the total went to India and 24% to Vietnam. In the same period 24,000 tonnes of processed cashews were exported leading to revenues of $155m. Processed cashew nuts in Mozambique were sent to Europe (36%), the United States (30%), Lebanon (9.0%), South Africa (9.0%), Vietnam (10%) and India (6.0%).
Why is China investing in Africa? Evidence from the firm level (World Bank, Oxford University Press)
Micro data from MOFCOM’s database on registered Chinese firms investing in Africa between 1998 and 2012 provide a different perspective. Key words in project descriptions are used to code the investments into 25 sectors. This database captures (pdf) the small and medium private firms investing in Africa. Contrary to common perceptions, there are few projects in natural resource sectors. Most projects are in services, with a significant number in manufacturing as well. Country-sector-level regressions based on firms’ transaction-level data find that Chinese ODI, both horizontal and vertical, is profit-driven, like investment from other countries. In particular, regressions show that Chinese ODI is relatively more concentrated in skill-intensive sectors in skill-abundant countries but in capital-intensive sectors in capital-scarce countries. These patterns are mostly observed in politically unstable countries, suggesting stronger incentives to seek profits in tougher environments.
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Impact of the Coronavirus (COVID-19) on the African Economy
The COVID-19 crisis is affecting the entire world economy and that of Africa. Some key sectors of the African economy are already experiencing a slowdown as a result of the pandemic. Tourism, air transport, and the oil sector are visibly impacted. However, invisible impacts of COVID-19 are expected in 2020 regardless of the duration of the pandemic.
After the first infections in China at the end of 2019, the Coronavirus disease (COVID-19) has continued to spread across the world. No continent has been able to escape this virus, which has recorded average mortality of around 2.3% (according to the Chinese Center for Disease Control and Prevention). To date, there have been nearly 54,207 deaths, with more than 1,030,324 people infected and 219,896 recoveries across 204 countries and territories around the world and 2 international conveyances: the Diamond Princess Cruise ship harboured in Yokohama, Japan, and the Holland America’s MS Zaandam cruise ship, worldwide, thus portraying the severity of the virus globally (WHO Situational Report 3 April 2020, 10:00 am GMT).
Declared a pandemic by the World Health Organization (WHO) on 11 March 2020, COVID-19 has become a global emergency, given its impact on the entire world population and the economy. According to scenario simulations of the International Monetary Fund (IMF), global growth could fall by 0.5 for the year 2020. Several other sources are also predicting a fall in global growth due to the direct effects of the COVID-19 outbreak. The global economy may enter a recession at least in the first half of the year 2020, when adding the direct and indirect effects of the crisis (e.g. supply and demand shocks, commodity slump, fall in tourism arrivals, etc.). However, as the pandemic progresses slowly on the African continent, studies by international organizations have less addressed the economic impact on individual African countries. Indeed, Africa is not immunized from COVID-19. As of 3 April, according to COVID-19 Surveillance Update: 3 April 2020 9:00 am of Africa CDC, the spread of the virus has reached 50 African Union Member States: 7,028 cases, 561 recoveries and 284 deaths; and is showing no signs of slowing down.[1] Africa, because of its openness to international trade and migration, is not immune to the harmful effects of COVID-19, which are of two kinds: endogenous and exogenous.
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The exogenous effects come from direct trade links between affected partner continents such as Asia, Europe and the United States; tourism; the decline in remittances from African Diaspora; Foreign Direct Investment and Official Development Assistance; illicit financing flows and domestic financial market tightening, etc.
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The endogenous effects occur as a result of the rapid spread of the virus in many African countries. On one hand, they are linked to morbidity and mortality. On the other hand, they lead to a disruption of economic activities. This may cause, a decrease in domestic demand in tax revenue due to the loss of oil and commodity prices coupled with an increase in public expenditure to safeguard human health and support economic activities.
It is important to assess the socio-economic impact of COVID-19, although the pandemic is at a less advanced stage in Africa due to its lesser quantity of international migrants’ arrivals relative to Asia, Europe, and North America, and strong precautionary measures in some African countries. African economies remain informal and very vulnerable to external shocks. In this study, three scenarios are constructed based on the description of specific key economic indicators in order to evaluate the potential impact of the pandemic on various dimensions of African economies. The impact on the African economy for each of the scenarios is presented, with a discussion of some of the key measures being taken by selected African Union Member States to mitigate the negative effects.
Due to the difficulty of quantifying the real impact as a result of the uncertainty, the rapidly evolving nature of the pandemic, and scarcity of the data, the CDC’s work focuses on understanding the possible socio-economic repercussions in order to propose policy recommendations to respond to the crisis. The lessons learnt from the study will give more enlightenment on the way forward, as the continent is in a critical phase of the implementation of the African Continental Free Trade Area (AfCFTA).
[1] For the latest updates, see the African Union COVID-19 webpage.
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COVID-19: Communiqué of the African Union (AU) Bureau of Heads of State and Government Teleconference Meeting
President Cyril Ramaphosa of the Republic of South Africa, and Chairperson of the African Union (AU) convened a second and follow-up teleconference meeting of the AU Bureau of Heads of State and Government, on 3 April 2020, to discuss the African response to the Covid-19 pandemic.
The following members of the Bureau participated in the teleconference meeting: President Abdel Fattah al Sisi of the Arab Republic of Egypt, President Ibrahim Boubacar Keita of the Republic of Mali, President Uhuru Kenyatta of the Republic of Kenya, and President Felix Tshisekedi of the Democratic Republic of Congo, as well as the Chairperson of the African Union Commission Moussa Faki Mahamat .
President Paul Kagame of the Republic of Rwanda, Prime Minister Abiy Ahmed of the Federal Republic of Ethiopia, President Macky Sall of the Republic of Senegal, and President Emmerson Mnangagwa of the Republic of Zimbabwe also participated in the teleconference. The Bureau received presentations from Dr Tedros Adhanom Ghebreyesus the Director General of the World Health Organisation (WHO), Dr John Nkengasong, Director of Africa Centres for Disease Control and Prevention (CDC), and President Emmanuel Macron of France.
Chairperson Faki briefed the Bureau on actions undertaken by the Commission on recommendations from the Bureau meeting on Covid19 held on 26 March 2020.
Dr John Nkengasong, Director of Africa CDC gave a continental update which highlighted rapidly increasing Covid-19 infection rates across the continent.
Dr Tedros Ghebreyesus emphasised the importance of acting now to test and to guarantee equitable access to test kits, masks and personal protective equipment (PPEs), vaccines and therapeutics as soon as they become available.
The Bureau of Heads of State and Government commended the able stewardship of exemplary leadership of Dr Tedros in leading the global response to the pandemic.
The Heads of States highlighted the unprecedented threat that Covid-19 presents to the health of African citizens and to the continent’s hard-won developmental and economic gains. They also recognised the imperative to establish humanitarian and trade corridors in a spirit of African solidarity and integration.
Given the urgent need for medical supplies and equipment, the Heads of states called for international cooperation and support while up-scaling local production on the continent.
The Heads of States noted with satisfaction progress made in operationalising the African Union Covid-19 Response Fund established on 26 March 2020 to which members pledged the sum of US$12.5 million and an additional US$4.5million to the Africa CDC.
It was agreed to establish continental ministerial coordination committees on Health, Finance and Transport to coordinate in order to support the comprehensive continental strategy.
The Heads of States underscored the need for a comprehensive and coordinated continental approach, and to speak with one voice on Africa’s priorities.
Cognizant of the devastating socio-economic and political impact of the pandemic on African countries, the Bureau reiterated the need for rapid and concrete support as pledged by the G20 and other international partners, including the World Bank and the International Monetary Fund. It is critical that these institutions review their current disbursement policies to display flexibility and speed, including raising the availability of IMF Special Drawing Rights (SDRs). The Bureau also echoed the call for a comprehensive stimulus package for Africa, including, deferred payments, the immediate suspension of interest payments on Africa’s external public and private debt in order to create fiscal space for Covid-19 response measures.
Lifesaving supplies including PPEs, masks, gowns, and ventilators and other support devices are urgently needed. The Bureau commended the rapid action coordinated by Ethiopian Prime Minister Abiy Ahmed and the Jack Ma Foundation in mobilising and distributing, with the support of the World Food Programme (WFP) and Africa CDC, over one million diagnostic tests, six million masks and 600,000 PPE items to all African Union member states in less than a week.
The Heads of States and Government strongly urged for the immediate lifting of all economic sanctions imposed on Zimbabwe and Sudan to allow them to adequately respond to the pandemic and save lives. The African Union has repeatedly called for the lifting of these punitive sanctions, which the Bureau consider intolerable and inhumane in the present context.
It was noted that the Sahel region need special attention in the light of terrorist activity, and pledge solidarity with the countries in this region who have to fight the twin scourge of terrorism and COVID-19.
The Heads of States and Government thanked President Emmanuel Macron for his strong support for Africa during the Extraordinary G20 Summit. The Bureau expressed its support for the proposals he raised regarding a comprehensive approach to mobilising international support for Africa’s health, economic, humanitarian, and medical research priorities, which are aligned with the in African position. The Bureau also acknowledged the commitment of the People’s Republic of China for its support and solidarity with Africa.
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USTR’s 2020 National Trade Estimate: extracts on commentary for South Africa, Kenya, Nigeria
The Office of the United States Trade Representative has issued the 2020 National Trade Estimate Report, an annual report detailing foreign trade barriers faced by US exporters of goods and services and USTR’s efforts to reduce those barriers:
Extracts from the South Africa chapter: US exports face a disadvantage compared to EU goods in South Africa. South Africa’s tariffs applied to imports from the EU on TDCA-covered tariff lines average 4.5% based on an unweighted average. The MFN duty rate, which applies to imports from the United States, averages 18.4% for the same TDCA-covered lines. Key categories in which US firms face a tariff disadvantage include cosmetics, plastics, textiles, motor vehicles, and agricultural products and machinery. The EU-SADC EPA further erodes US export competitiveness in South Africa and the region due to the greater disparities in tariff levels that US exports will face under the EPA compared to the TDCA. The United States has raised concerns about the tariff disparity in bilateral discussions with South Africa noting the unilateral benefits the United States offers South African imports under the African Growth and Opportunity Act. In recent years, the South African government has encouraged domestic industry to appeal for increases up to the WTO bound tariff rates for those products where a lack of global competitiveness was a concern.
Extracts from the Kenya chapter: Kenya maintains complex, non-transparent, and costly requirements for importation of all meat, dairy, and poultry products including a standardized sanitary certification and a “Letter of No Objection to Import Permit” (no-objection letter) from the Department of Veterinary Services (DVS) under the Ministry of Agriculture, Livestock, and Fisheries. DVS requires an importer to explain the reason for importation through a “Letter of Application to Import” and specifically address the market need the import would meet before issuing a no-objection letter. DVS issues the no-objection letter for meat, dairy, and poultry products at its discretion on a case-by-case basis. Although Kenya purports to prohibit imports only on sanitary grounds, importers have reported that, in practice, DVS has at times provided them with other rationales for denying permits, such as the local availability of a certain product. DVS reportedly has never formally provided this guidance in writing to the permit applicants.
US firms have had limited success bidding on government tenders in Kenya. There are widespread reports that corruption often influences the outcome of public tenders, and many of these tenders are challenged in the courts. Foreign firms, some without proven track records, have won government contracts when partnered with well-connected Kenyan firms. All Kenyan tenders and procurement are required to be undertaken through the Integrated Financial Management Information System (IFMIS) as of January 2019.
Kenya’s Data Protection Act, 2019, passed in November, includes unclear and potentially restrictive provisions governing the cross-border transfer of personal information. The Act requires that data controllers provide “proof” that personal data will be secure as a condition for transferring the data outside Kenya, but does not describe what would constitute proof. The Act also requires consent of the data subject as a condition for the cross-border transfer of any “sensitive personal data,” a broad category of information. Such conditions may prove burdensome for firms that supply services on a cross-border basis or depend on data processing systems located abroad. Additionally, the Act empowers a political official to prohibit the cross-border transfer of certain categories of data, creating uncertainty for businesses operating in Kenya that depend on cross-border data flows. [CNBC Africa interview: Grant Harris (CEO, Harris Partners) on the Kenya, US trade agreement
Extracts from the Nigeria chapter: Nigeria uses nontariff measures in an effort to achieve “self-sufficiency” in certain commodities. These measures have made it difficult for US businesses to export the covered items to Nigeria and for Nigerian companies to source inputs needed for production. In December 2018, the CBN added fertilizer to the list of covered products and announced that the list could rise to as many as 50 products. In August 2019, the CBN further announced a ban on foreign exchange for milk, but without official guidance on its implementation. Representatives of US-based exporters have expressed concern over the implications of a ban on milk products, if it were to include all dairy. The U.S. Government has repeatedly raised concerns regarding the foreign exchange restrictions both bilaterally and in the WTO.
Nigerian customs practices continue to present major obstacles to trade. Importers report inconsistent application of customs regulations, lengthy clearance procedures, and corruption. These factors can sometimes contribute to product deterioration and result in significant losses for importers of perishable goods. Disputes between Nigerian government agencies over the interpretation of regulations often cause delays, and frequent changes in customs guidelines slow the movement of goods through Nigerian ports.
The Nigerian government has made modest progress on its pledge to conduct open and competitive bidding processes for government procurement. The BPP has made a variety of procurement procedures and bidding information publicly available on its website. Nigeria’s National Assembly operates its own procurement process that has not been subject to BPP oversight and that has lacked transparency. Although US companies have won contracts in a number of sectors, difficulties in receiving payment are common and can discourage firms from bidding. Supplier or foreign government subsidized financing arrangements appear in some cases to be a crucial factor in the award of government procurements. The Guidelines require ministries and development agencies to source and procure all computer hardware only from NITDA-approved OEMs. The Nigerian Oil and Gas Industry Content Development Act also mandates a maximum quota of five percent of all positions that can be allotted to expatriates and minimum host community requirements among other local content stipulations.
pdf Download the Report (3.99 MB)
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Fact sheet on major developments
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Fact sheet on agricultural measures
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Fact sheet on digital trade issues
pdf Zimbabwe: 2019 Article IV Consultation Staff Report (3.31 MB) (IMF)
Zimbabwe is experiencing an economic and humanitarian crisis. Macroeconomic stability remains a challenge: the economy contracted sharply in 2019, amplified by climate shocks that have crippled agriculture and electricity generation; the newly introduced ZWL$ has lost most of its value; inflation is very high; and international reserves are very low. The climate shocks have magnified the social impacts of the fiscal retrenchment, leaving more than half of the population food insecure. With another poor harvest expected, growth in 2020 is projected at near zero, with food shortages continuing. The government that came to office following the 2018 elections adopted an agenda focused on macro stabilization and reforms. This was supported by a Staff Monitored Program from the IMF, adopted in May 2019, but is now off-track as policy implementation has been mixed.
Policy uncertainty and missteps have limited the development of the economy - export diversification has not occurred and FDI remains well below peers (Text Figure 3). During 2009–18, gold, platinum, and tobacco accounted for about 60% of total export earnings. Further, about 66% of Zimbabwe’s exports were to South Africa. Annual FDI was 1.6% of GDP during 2004–2017, compared to the SSA average of 2.6% and well below similarly endowed peers - Zambia attracted 6% of GDP during 2004–2017. Weak institutions, policy inconsistencies, and fiscal indiscipline have eroded investors’ confidence.
There is a risk of a social backlash as the adverse exogenous shocks and stabilization policies needed to promote macro stability affect vulnerable sections of the population. The fiscal retrenchment and currency reform, followed by the sharp depreciation, exacerbated the disastrous effects of the climate shocks by cutting real wages, wiping out domestic savings, increasing poverty in both rural and urban areas, and generating fiscal drag on activity. Risks for another drought in 2020 are also high, which would weigh on the economy’s recovery and exacerbate food shortages and BOP pressures. If no additional donor support materializes in the first half of 2020, pressures for large central bank financing of the budget will increase further. A return to excessive money printing would result in further depreciation, high inflation, and further erosion in the confidence of the new currency (Annex II).
Note: On February 24, 2020, the Executive Board of the IMF concluded the Article IV consultation1 with Zimbabwe. As the Board meeting and the policy discussions with the authorities on which the staff report is based occurred before the COVID-19 became a pandemic, the staff report does not reflect the implications of this development. While highly uncertain at this stage, it is clear that COVID-19 will adversely impact the economic outlook for Zimbabwe and require additional health-related spending and international support. COVID-19 will make it even harder to balance the policies needed to restore macroeconomic stability with those to address urgent social needs.
Continuing our daily set of updates on the trade-related impacts and consequences of the COVID-19 pandemic:
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The WTO Secretariat has released a new report on trade in medical products critical for the global response to the COVID-19 pandemic. The report traces trade flows for products such as personal protective products, hospital and laboratory supplies, medicines and medical technology while providing information on their respective tariffs. Trade in medical products which have now been described as critical and in severe shortage during the COVID-19 crisis totalled about $597bn in 2019, accounting for 1.7% of total world merchandise trade according to the report. The ten largest supplying economies accounted for almost three-quarters of total world exports of the products while the ten largest buyers accounted for roughly two-thirds of world imports. Commitments made under various WTO negotiations and agreements have helped slash import tariffs on these products and improve market access, with the average tariff on COVID-19 medical products standing at 4.8%, lower than the 7.6% average tariff for non-agricultural products in general. The statistics show that 52% of 134 WTO members impose a tariff of 5% or lower on medical products. Among them, four members do not levy any tariffs at all: Hong Kong, China; Iceland; Macao, China; and Singapore. The report, however, also identifies markets where tariffs remain high. Tariffs on face masks, for example, can be as high as 55% in some countries. Extract (pdf):
World imports of medical products totalled $1011bn in 2019 (Table 1), a 5% increase from 2018. Together with exports, trade in these medical products amounted about $2 trillion and accounted for 5% of the total of merchandise trade in 2019. As shown in Chart 1, the largest category by value were the “medicines”, which represents 56% of the total value of medical product imports, followed in a distant second place by “medical supplies” with a share of 17%. “Medical equipment” and “personal protective equipment” have the lowest share with 14% and 13%, respectively.
During the last three years, the United States was the largest importer of medical products, accounting for 19% of total world imports in 2019. The ranking and shares are consistent during the 2017-2019 period. As shown in Table 1, Germany had a share of 9%, followed by China and Belgium (6%). The other importers who make up the top 10 importers include the Netherlands, Japan, UK, France, Italy, and Switzerland. In terms of the relative importance of medical goods vis-a-vis each country’s total imports, Belgium and Switzerland’s imports of medical goods represent around 13% of their total imports. Among the top 10 importers, this share is smallest for China, for which medical imports represent 3% of its total imports. Except for China, the shares of the Member in the top 10 are all higher than the global average share, 6%.
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UNCTAD’s latest Investment Policy Monitor shows that investment policy responses to the coronavirus pandemic vary from country to country. They include measures supporting investors and domestic economies in general and policies to protect critical domestic infrastructure and industries, particularly in the health sector. At the international level, the G20 and G7 leading economies have issued statements in support of investment and global value chains. The pandemic is expected to have a lasting impact on future investment policymaking. The IPM shows (pdf) that during the pre-crisis review period (November 2019 - February 2020), investment liberalisation, promotion and facilitation accounted for three-quarters of newly adopted policy measures - a ratio broadly in line with the longer-term policy trend. At the same time, a further increase in measures related to the screening of foreign investment for national security reasons was observed.
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The OECD’s Covid-19 Country Policy Tracker is compiling data, analysis and recommendations on a range of topics to address the emerging health, economic and societal crisis, facilitate co-ordination, and contribute to the necessary global action when confronting this enormous collective challenge. This new series brings together policy responses spanning a large range of topics, from health to education and taxes, providing guidance on the short-term measures needed in affected sectors and a specific focus on the vulnerable sectors of society and the economy. Beyond immediate responses, the content aims to provide analysis on the longer-term consequences and impacts, paving the way to recovery with co-ordinated policy responses across countries.
In brief:
IMF Executive Board approves $109.4m disbursement to Rwanda to address COVID-19 pandemic
IMF’s Catastrophe Containment and Relief Trust: policy proposals and funding strategy
As of March, more than 30 countries had introduced policies to support MSMEs: this ITC blog highlights measures that are of direct relevance to MSMEs engaged in trade or investment.
WFP: Africa, especially, at risk of food shortage due to Covid-19
Non-profit international organisation IFDC calls on ECOWAS not to subject fertilizers to any restrictions on importation, distribution or use within its 15 member countries during the coronavirus outbreak.
Covid-19 outbreak could be Indian pharma’s big opportunity in Africa
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Trade events to diarise:
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East Africa has been impacted by COVID-19. Cross border trade has especially declined. To discuss mitigation and trade strategies, TradeMark East Africa has assembled an illustrious panel for a conversation on Monday, 6 April 2.30PM-4.00pm, East Africa time.
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WTO’s 2020 Public Forum, 29 September - 2 October. Under the main theme Building on 25 years of the WTO, the Public Forum’s three sub-themes are: WTO - past, present and future, Innovation in the digital age, Collective action for sustainable trade”. The call for proposals will open soon. Registration is due to open on 4 May 2020.
WTO Accession Newsletter: selected country updates (pdf, WTO)
Ethiopia: Following the 4th meeting of the Working Party held on 30 January, over 160 written questions were received from two members. Currently, Addis is working on the responses to these questions. Once the responses are ready, an updated set of documentary inputs will be prepared for the next Working Party cycle.
Somalia: At the General Council meeting on 3 March, Ambassador Ebyan Mahamed Salah of Somalia announced the imminent submission of the Memorandum on the Foreign Trade Regime to the Secretariat. Accompanied by Chief Negotiator Maryan Hassan, she stressed that the Government of Somalia was committed to economic reforms and considered WTO accession as a crucial process to consolidate its reform efforts. She also informed the WTO membership that the IMF approved Somalia’s eligibility for debt relief under the HIPC Initiative.
Sudan: Following the Chair Visit by Mr Katsuro Nagai (Japan) in January, the Secretariat has been in touch with Khartoum regarding the preparation of updates to the Factual Summary of Points Raised which would take account of recent developments in economic and trade policies following the establishment of the Transitional Government in August 2019. In parallel, Sudan has been in touch with the Secretariat regarding the organisation of outreach activities involving the Council of Ministers and the private sector in the near future.
From isolation to integration: The borderlands of the Horn of Africa (World Bank)
The World Bank Group’s Horn of Africa Regional Initiative promotes resilience and economic opportunity in one of the world’s most challenging regions for security and development. Within the region, extreme poverty, vulnerability, fragility, and food insecurity are disproportionately concentrated in the arid and remote border regions. But despite its challenges, there are areas in the borderlands with real economic potential. For example, the region’s international borders have long allowed communities to benefit from price differentials through licit and illicit trade. Pastoralism and trade, the dominant livelihoods in the Horn of Africa, require the easy movement of people and goods within and across borders - and continue to heavily rely on cross-country clan and ethnic affiliations. Local institutions therefore still play a key role in regulating and facilitating economic activity and managing conflict, especially as the formal institutions are often weak or absent. Even in areas at the periphery of state control, the borderlands remain highly connected to circuits of global capital and exchange. Extract (pdf):
To unpack these observations and examine the analytical and policy implications of a borderlands perspective for the World Bank and other national and international policy makers, the World Bank commissioned five background papers, which are being published along with this overview. The remainder of this overview introduces each of the background papers; summarizes some of the drivers of fragility and sources of resilience in the region; discusses key themes that run across the papers, namely, livelihoods, mobility, and gender; sets out recommendations for action; and concludes by touching on some current World Bank initiatives that are relevant to issues identified in the background papers.
The geopolitical context in the Horn of Africa has changed markedly since the background papers were commissioned. A tentative peace deal has been agreed between the rival political groups led by President Salva Kiir and Riek Machar in South Sudan, while in Sudan a transitional civilian-led government has replaced the regime led by former President Omar al-Bashir (after nearly 30 years in power). Ethiopia remains in transition, but Prime Minister Abiy Ahmed Ali has made wide-ranging changes after being elected as prime minister by the ruling Ethiopian People’s Revolutionary Democratic Front (EPRDF) in April 2018. He began a rapprochement with Eritrea after nearly two decades of stalemate and regional proxy warfare, released political prisoners, pardoned and welcomed back armed groups and opposition members, apologized for human rights violations, and announced his intention to open up the Ethiopian economy. Finally, in Somalia, the federal government has taken notable steps to consolidate its control over regional governments, has undertaken economic reforms, and has also taken concrete steps toward debt relief. The longer-term impact of these geopolitical changes remains to be seen, but the broader structural challenges identified by the background papers continue to remain relevant to the region.
The World Bank has begun posting a series of Trade and COVID-19 Guidance Notes
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pdf Do’s and don’ts of trade policy in the response to COVID-19 (109 KB) . Experience from previous global and food crises provides some guidance for appropriate trade responses during the crisis and those that are likely to undermine effective national and global responses. However, the speed, scale and nature of this crisis are unprecedented which requires thinking outside of the normal box by analysts and exceptionally brave steps from policy-makers. There are however, some positive measures that governments can take to ameliorate the impact of the current crisis.
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pdf Trade in critical COVID-19 products (3.20 MB) . Using a new database on trade in covid-19 relevant products, this paper looks at the role of trade policy to address the looming health crisis in developing countries with highest numbers of recorded cases. It shows that export restrictions by leading producers could cause significant disruption in supplies and contribute to price increases. Tariffs and other restrictions to imports further impair the flow of critical products to developing countries. Extract:
Export policy is only part of the story. Many developing countries tax their own health care systems by imposing tariffs on imports of medical products. The effect of these measures is to increase the domestic price of essential products, thus further reducing welfare. Applied tariffs of key covid-19 products in the 20 developing countries with the highest number of cases are on average over 6% (Table 2). Personal protection equipment products such as aprons, medical masks and protective clothing are subject to tariffs over 10%. Severely affected countries such as Iran impose even higher import restrictions of key covid-19 products, especially for personal protection equipment. As recent data collected by the Global Trade Alert show, several of the 20 developing countries most affected by covid-19 have started implementing import reforms in the past days. For instance, Pakistan introduced tax and import duty exemption for medical and testing equipment, while Brazil eliminated tariffs on medical and hospital products. Many of these reforms are on a temporary basis: protection is suspended rather than eliminated. While this is a step in the right direction, exporters might be reluctant to enter markets if they perceive policy changes to be temporary. Locking-in tariff reductions and other policy changes in WTO commitments would be a more effective trade policy reform to address the covid-19 health crisis.
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Managing risk and facilitating trade in the COVID-19 pandemic. Maintaining trade flows as much as possible during the COVID-19 pandemic will be crucial in providing access to essential food and medical items and in limiting negative impacts on jobs and poverty. Some countries are closing border crossings and implementing protectionist measures such as restricting exports of critical medical supplies. Although these measures may in the short-term provide some immediate reduction in the spread of the disease, in the medium term they may undermine health protection, as countries lose access to essential products to fight the pandemic. Instead, governments should refrain from introducing new barriers to trade and consider removing import tariffs and other taxes at the border on critical medical equipment and products, including food, to support the health response. Trade facilitation measures can contribute to the response to the crisis by expediting the movement, release, and clearance of goods, including goods in transit. The World Bank Group provides guidance and technical assistance to developing and least developed countries to implement best practices to facilitate the free flow of goods. [ pdf Trade Facilitation Best Practices Implemented in Response to the COVID-19 Pandemic (174 KB) ]
Additional Guidance Notes:
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McKinsey: Tackling COVID-19 in Africa. To address these needs and help inform the response of leaders across the continent, this paper presents:
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An initial analysis of COVID-19’s economic impact, which finds that Africa’s GDP growth in 2020 could be cut by three to eight percentage points. We find that the pandemic and the oil-price shock are likely to tip Africa into an economic contraction in 2020, in the absence of major fiscal stimulus.
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A framework for near-term action by governments, the private sector, and development institutions to mitigate this impact. These actions are drawn from a global scan of economic interventions already being implemented or considered, plus our recent discussions with public- and private-sector leaders across Africa.
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AfDB approves $2m emergency assistance for WHO-led measures to curb COVID-19 in Africa. Specifically, the WHO Africa region will use the funds to bolster the capacity of 41 African countries on infection prevention, testing and case management. WHO Africa will also boost surveillance systems, procure and distribute laboratory test kits and reagents, and support coordination mechanisms at national and regional levels. The grant will contribute toward a $50 million WHO Preparedness and Response Plan, which other partners including the United Nations system, are also supporting. The Bank Group is expected to unveil a financial assistance package that will enable governments and businesses to undertake flexible responses to lessen the economic and social impact of this pandemic. Last Thursday, the Bank raised an exceptional $3bn in a three-year social bond, the proceeds from which will go to help alleviate the economic and social effects of the pandemic. It is the largest dollar-denominated social bond launched in international capital markets to date.
Ethiopia Poverty Assessment: Harnessing continued growth for accelerated poverty reduction (World Bank)
The poverty headcount in Ethiopia is falling. The share of the population below the national poverty line decreased from 30% in 2011 to 24% in 2016. This decrease was achieved in spite of the fact that the 2015-16 survey was conducted during the severe El-Nino drought. The observed reduction in poverty is robust to the use of alternative deflators. The fall in the poverty headcount was driven mainly by Ethiopia’s strong economic growth over that period. This poverty assessment focuses on the evolution of poverty and other social indicators in Ethiopia between 2011 and 2016. It uses data from a variety of sources, mainly the Household Consumption and Expenditure Survey, the Welfare Monitoring Surveys, the Ethiopia Socioeconomic Survey and the Demographic and Health Surveys, to observe trends in monetary and non-monetary dimensions of living standards and to examine the drivers of these trends, with a special focus on government programs. [Download: Summary report]
Environmental integrity and doing business in Zimbabwe: Challenges and engagement of sustainable enterprises (ILO)
Zimbabwe has a wealth of natural resources and is rich in biodiversity. The national Government is trying to achieve private sector led economic growth and the challenge to pursue both economic development and sound environmental management at the same time appears clear. The objective of this paper is to explore the views of different groups of the business community, including workers, managers and owners of the formal as well as of the informal economy, on how environmental integrity is being pursued in Zimbabwe. Both quantitative and qualitative/interpretative methods have been applied. The results of a perception survey have been explained through qualitative interviews with Zimbabwean experts. The paper concludes suggesting actions that the private sector can adopt to improve the existing situation and further strengthen its engagement towards environmental integrity in the country.
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South Africa: February 2020 trade surplus of R14.15bn (SARS)
The South African Revenue Service has released trade statistics for February 2020 which record a trade surplus of R14.15bn. The year-to-date (1 Jan - 29 Feb) trade surplus of R11.43bn is an improvement from the R9.40bn deficit for the comparable period in 2019. The February trade surplus is attributable to exports of R109.60bn and imports of R95.45bn. Exports increased from January 2020 to February 2020 by R8.71bn (8.6%) while imports decreased by R8.16 billion (7.9%).
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The main month-on-month movements for exports, by trade region: Europe (up 28.3%), Africa (up 16.0%), Oceania (up 14.6%).
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The main month-on-month movements for imports, by trade region: Africa (-14.0%), Oceania (-11.5%), Europe (-10.9%), Asia (-6.2%).
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The Top 5 countries South Africa exported to: China (10.5%), Germany (9.8%), US (7.5%), India (4.9%), Netherlands (4.6%).
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The Top 5 countries South Africa imported from: China (17.9%), Germany (9.9%), US (7.3%), India (5.4%), Saudi Arabia (5.3%).
Related commentary: ABSA’s South Africa Morning Sheet (pdf). Moving forward, it is fairly difficult to forecast whether South Africa will post a trade deficit or surplus in March because COVID-19 has affected both global supply and demand, as well as domestic demand for imported goods. Therefore, both exports and imports will likely be lower and hence making the merchandise trade balance depend on the relative declines. Notably, however, South Africa’s terms of trade should have improved, given the particularly steep fall in Brent crude oil prices, and higher gold prices.
Digital trade in MENA: Regulatory readiness assessment (World Bank)
A strong regulatory framework can provide essential tools for remote transactions and improve trust in digital trade. Yet, regulations can also introduce restrictions that hamper the conditions for digital markets. Based on a database of 20 Middle East and North Africa countries and 20 comparator countries around the world, this paper shows that the Middle East and North Africa region is falling behind in establishing a modern governance framework for the digital economy. The analysis focuses on a set of regulatory areas, including electronic documentation and signature, online consumer protection, data governance, cybersecurity, and intermediary liability regulations. It assesses each country’s domestic regulatory framework in light of recent international trends and regulatory models. The study shows that regulation of digital markets in countries in the region is still in its infancy, being mostly governed by general laws that were not originally intended for the digital era. Some countries have tried to support an export-oriented information technology sector by keeping an updated regulatory framework. However, regulation in most countries in the region, regardless of their level of development, still features some major loopholes that can limit consumer trust in digital markets or reduce certainty - and increase costs - for digital businesses.
Drivers for boosting intra-African investment flows towards Africa’s transformation (UNECA)
Against this backdrop, the Economic Commission for Africa has undertaken the present study (pdf) on appropriate drivers for boosting intra-African investment towards Africa’s transformation. This study responds to the outcomes of the continental investment dialogue of the AU, which was initiated in 2013, and which includes a recent request to undertake further research on intra-African investment flows and mechanisms to promote intra-African investment (African Union, 2013 and 2016). The study provides evidence of the complementarities between trade and investment in Africa. Given the trade potential of the AfCFTA and its likely implications for boosting intra-African trade and investment, there is a need for African countries to harness the area as a platform to boost intra-investment. Boosting intra-African trade through the area is instrumental in increasing productivity, enhancing competitiveness and supporting economic growth. This needs to be accompanied, however, by investment regulation and policies that unlock the associated joint benefits of trade and investment growth. It is therefore relevant to develop common rules on investment in the context of the area to lock in the expected dynamic and static effects of trade and investment flows on the continent.
Covid-19 and trade policy: selected commentaries, responses
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Coronavirus, food supply and demand constraints: panic-buying and logistics (tralacBlog)
As South Africa’s President announced various social distancing measures as part of a Covid-19 State of Emergency to curb the spread of the virus, numerous concerns about access to imports led people flocking to retailers to panic-buy and stock-up on various food and non-food items. This has led to various questions being raised about how secure South Africa’s food supply is in the time of the current pandemic. Initial concerns were related to the potential impact of the strict lockdown measures put in place in China but have subsequently increased as more countries implement similar measures. [The author: Willemien Viljoen]
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pdf Trade policies for Africa to tackle Covid-19 (1.20 MB) (ATPC)
The following recommended short, medium and longer term trade policy actions can fuel the African response to the Covid-19 pandemic. Recommended trade policy actions to be taken:
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Immediately
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Urgently suspend tariffs on essential Covid-19 imports
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Create customs ‘Green Lanes’ for super-fast clearance of medical supplies
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Coordinate diplomacy against the imposition of export limits on essential Covid-19 medical supplies
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Within weeks
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Identify Covid-19 medical supplies that can be produced with repurposed capacity within Africa
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Demand urgent access to medical intellectual property
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Ensure international movement of critical health and technical experts
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Pool and share medical quality standards and resources for the rapid approval of new medical products
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Launch emergency Public-Private Partnerships for medical supplies
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Within months
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Leverage the Regional Economic Communities and African Continental Free Trade Area for coordination
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Identify new means of increasing socially-distant work, including through digital trade in services
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The Bureau expressed concern about the possible shortages of medicines and vaccines as factories close or countries retain supplies for their own consumption. In this regard, the Bureau underscored the vital importance of coordinating efforts to increase global production and improve the availability of medical products and equipment. Given the limited health infrastructure in Africa and the reality that most of the pharmaceuticals and medical supplies consumed on the continent are imported, the Bureau called on the international community to encourage open trade corridors, especially for pharmaceuticals and other health supplies. [Eddie Ndopu (UNSG’s Advocate for the Sustainable Development Goals): The threat of coronavirus in Africa flags a deeper crisis of global solidarity; Neema Kaseje: Why Sub-Saharan Africa needs a unique response to COVID-19]
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The Covid-19 shock to developing countries: Towards a “whatever it takes” programme for the two-thirds of the world’s population being left behind (UNCTAD)
Employing our Global Policy Model, we estimate (pdf) a boost to the national incomes of advanced economies and China of about $1.4 trillion in 2020, substantially smaller than the headline values of the packages. This no doubt will have a positive impact not only on their own economies but the world economy as well. Developing countries, however, face distinct pressures and constraints which make it significantly harder for them to enact effective stimulus without facing binding foreign exchange constraints. And as these countries do not issue international reserve currencies, they can only obtain them through exports or sales of their reserves. What is more, exports themselves require significant imports of equipment, intermediate goods, know-how and financial business services. Finally, the financial turmoil from this crisis has already triggered sharp currency devaluations in developing countries, which makes servicing their debts and paying for necessary imports for their industrial activity far more onerous.
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The economic fallout from the Covid-19 shock is ongoing and increasingly difficult to predict but there are clear indications that things will get much worse for developing economies before they get better:
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It is therefore a matter of immediate urgency for the international community to co-ordinate appropriate economic rescue packages with a more global reach to address the looming financing gap which many developing countries are now imminently facing. These would have to include, as a minimum, the following [four] measures:
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pdf G20 Trade and Investment: ministerial statement (75 KB) (G20 Saudi Arabia)
We are concerned about the impact of COVID-19 on vulnerable developing and least developed countries, and notably in Africa and small island states. We are also concerned about the daunting challenges facing workers and businesses, particularly the most vulnerable ones. We will ensure our collective response is supportive of micro, small and medium-sized enterprises, and recognize the importance of strengthening international investment.
We will convene again as necessary, and we task the G20 Trade and Investment Working Group to address these issues closely and to identify additional proposed actions that could help alleviate the wide-range impact of COVID-19, as well as longer-term actions that should be taken to support the multilateral trading system and expedite economic recovery. The next Italian G20 2021 Presidency is committed to continue paying the highest attention to the international trade climate in the discussion of long-term actions. [G20 finance chiefs and central bankers met again yesterday on coronavirus]
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Agency chiefs issue call to keep food trade flowing: joint statement by QU Dongyu, Tedros Adhanom Ghebreyesus, Roberto Azevêdo (WTO)
Uncertainty about food availability can spark a wave of export restrictions, creating a shortage on the global market. Such reactions can alter the balance between food supply and demand, resulting in price spikes and increased price volatility. We learned from previous crises that such measures are particularly damaging for low-income, food-deficit countries and to the efforts of humanitarian organizations to procure food for those in desperate need. We must prevent the repeat of such damaging measures. It is at times like this that more, not less, international cooperation becomes vital. In the midst of the COVID-19 lockdowns, every effort must be made to ensure that trade flows as freely as possible, specially to avoid food shortage.
We must also ensure that information on food-related trade measures, levels of food production, consumption and stocks, as well as on food prices, is available to all in real time. This reduces uncertainty and allows producers, consumers and traders to make informed decisions. Above all, it helps contain ‘panic buying’ and the hoarding of food and other essential items. [DG Azevêdo welcomes G20 ministers’ commitment to notify WTO of COVID-19 related trade measures]
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Simon Evenett: 82 curbs on exports of COVID-19 medical supplies and medicines have been introduced this year by 68 governments. Where are Africa and other importers supposed to source their medical supplies from? This is not going to end well.
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IATA’s COVID-19 cash burn analysis presentation (IATA)
The International Air Transport Association has published new analysis showing that airlines may burn through $61bn of their cash reserves during the second quarter ending 30 June 2020, while posting a quarterly net loss of $39bn. This analysis is based on the impact assessment IATA released last week, under a scenario in which severe travel restrictions last for three months. In this scenario, full-year demand falls by 38% and full-year passenger revenues drop by $252bn compared to 2019. The fall in demand would be the deepest in the second quarter, with a 71% drop. The impact will be severe, driven by the following factors (pdf). [Remarks by IATA’s Alexandre de Juniac]
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World Bank’s April 2020 Economic Update for East Asia and the Pacific: East Asia and Pacific in the Time of COVID-19
In a rapidly changing environment, making precise growth projections is unusually difficult. Therefore, the report presents both a baseline and a lower case scenario. Growth in the developing EAP region is projected to slow to 2.1% in the baseline and to negative 0.5% in the lower case scenario in 2020, from an estimated 5.8% in 2019. Growth in China is projected to decline to 2.3% in the baseline and 0.1% in the lower case scenario in 2020, from 6.1% in 2019. Containment of the pandemic would allow for a sustained recovery in the region, although risks to the outlook from financial market stress would remain high. The COVID-19 shock will also have a serious impact on poverty. The report estimates that under the baseline growth scenario, nearly 24 million fewer people will escape poverty across the region in 2020 than would have in the absence of the pandemic (using a poverty line of US$5.50/day). If the economic situation were to deteriorate further, and the lower-case scenario prevails, then poverty is estimated to increase by about 11 million people. Prior projections estimated that nearly 35 million people would escape poverty in EAP in 2020, including over 25 million in China alone. [Summary: key recommendations, findings; Table of contents (extract): Part II. Slowing growth and trade tensions. Chapter I: Trends in growth, poverty, and policy; Chapter II: The impact of the China-US trade agreement]
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UN calls for $2.5 trillion coronavirus crisis package for developing countries
The consequences of a combined health pandemic and a global recession will be catastrophic for many developing countries and halt their progress towards the Sustainable Development Goals.
With two-thirds of the world’s population living in developing countries (excluding China) facing unprecedented economic damage from the COVID-19 crisis, the UN is calling for a US$2.5 trillion package for these countries to turn expressions of international solidarity into meaningful global action.
The speed at which the economic shockwaves from the pandemic has hit developing countries is dramatic, even in comparison to the 2008 global financial crisis, says a report – The Covid-19 Shock to Developing Countries: Towards a “whatever it takes” programme for the two-thirds of the world’s population being left behind – published on 30 March by UNCTAD, the UN trade and development body.
“The economic fallout from the shock is ongoing and increasingly difficult to predict, but there are clear indications that things will get much worse for developing economies before they get better,” UNCTAD Secretary-General Mukhisa Kituyi said.
Mounting economic damage
The report shows that in the two months since the virus began spreading beyond China, developing countries have taken an enormous hit in terms of capital outflows, growing bond spreads, currency depreciations and lost export earnings, including from falling commodity prices and declining tourist revenues.
On most of these measures the impact has cut deeper than in 2008. And with domestic economic activity now feeling the effects of the crisis, UNCTAD is not optimistic about the kind of rapid rebound witnessed in many developing countries between 2009 and 2010.
Portfolio outflows from main emerging economies surged to $59 billion in a month between February and March, calculations show. This is more than double the outflows experienced by the same countries in the immediate aftermath of the global financial crisis ($26.7 billion).
The values of their currencies against the dollar have fallen between 5% and 25% since the beginning of this year – faster than the early months of the global financial crisis (see the chart below).
The prices of commodities, on which many developing countries heavily depend for their foreign exchange, have also dropped precipitously since the crisis began. The overall price decline has been 37% this year, according to the report.
Currency movements against the dollar 2008Q3 vs 2020Q1 (percentage)
Source: UNCTAD secretariat calculations based on Thomson Reuters Eikon database.
Notes: Negative values refer to a depreciation of the domestic currency against the dollar. Data for 2020Q1 go until 25 March.
No magic money tree for developing countries
In recent days, advanced economies and China have put together massive government packages which, according to the Group of 20 leading economies (G20), will extend a $5 trillion lifeline to their economies.
This represents an unprecedented response to an unprecedented crisis, which will attenuate the extent of the shock physically, economically and psychologically.
The full details of these stimulus packages are yet to be unpacked, but an initial assessment by UNCTAD estimates that they will translate to a $1 trillion to $2 trillion injection of demand into the major G20 economies and a two percentage point turnaround in global output.
Even so, the world economy will go into recession this year with a predicted loss of global income in the trillions of dollars. This will spell serious trouble for developing countries, with the likely exception of China and the possible exception of India.
Given deteriorating global conditions, fiscal and foreign exchange constraints are bound to tighten further over the course of the year. UNCTAD estimates a $2 trillion to $3 trillion financing gap facing developing countries over the next two years.
Lacking the monetary, fiscal and administrative capacity to respond to this crisis, the consequences of a combined health pandemic and a global recession will be catastrophic for many developing countries and halt their progress towards the Sustainable Development Goals.
Even as advanced economies are discovering the challenges of dealing with a growing informal workforce, this remains the norm for developing countries, amplifying their difficulties in responding to the crisis.
“Advanced economies have promised to do ‘whatever it takes’ to stop their firms and households from taking a heavy loss of income,” said Richard Kozul-Wright, UNCTAD’s director of globalization and development strategies.
He added: “But if G20 leaders are to stick to their commitment of ‘a global response in the spirit of solidarity,’ there must be commensurate action for the six billion people living outside the core G20 economies.”
Four-pronged strategy
In the face of a looming financial tsunami this year, UNCTAD proposes a four-pronged strategy that could begin to translate expressions of international solidarity into concrete action:
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First, a $1 trillion liquidity injection; a kind of helicopter money drop for those being left behind through reallocating existing special drawing rights at the International Monetary Fund and adding a new allocation that will need to go considerably beyond the 2009 allocation made in response to the global financial crisis.
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Second, a debt jubilee for distressed economies. An immediate debt standstill on sovereign debt payments should be followed by significant debt relief. A benchmark could be the German debt relief administered after World War II, which cancelled half of its outstanding debt. On that measure, around $1 trillion should be cancelled this year overseen by an independently created body.
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Third, a Marshall Plan for a health recovery funded from some of the missing official development assistance (ODA) long promised but not delivered by development partners. UNCTAD estimates that an additional $500 billion – a quarter of the last decade’s missing ODA – largely in the form of grants should be earmarked for emergency health services and related social relief programmes.
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Finally, capital controls should be given their legitimate place in any policy regime to curtail the surge in capital outflows, to reduce illiquidity driven by sell-offs in developing country markets and to arrest declines in currency and asset prices.
The proposed package is similar in size to the amount that would have been delivered to developing countries over the last decade if countries in the Development Assistance Committee of the Organisation for Economic Co-operation and Development had met their 0.7% ODA target.
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Drivers for boosting intra-African investment flows towards Africa’s transformation
Africa is experiencing interesting times in an ever-changing and challenging global investment landscape
Global investment flows increased rapidly, from approximately $200 billion at the beginning of the 1990s to $1.43 trillion in 2017. The United Nations Conference on Trade and Development (UNCTAD) projected those flows to increase by 6 per cent, to $1.51 trillion, in 2018.
Notwithstanding efforts to attract greater investment by African countries, foreign direct investment (FDI) flows to the continent continued to decline in 2017, falling to $42 billion from $61 billion in 2015 amid low commodity prices. African countries therefore accounted for an estimated value of 3.2 per cent of global FDI in 2017, compared with approximately 5 per cent during the period 2012-2014. Equally, Africa held 11.4 per cent of the worldwide FDI capital flows in 2016, making the continent the second fastest-growing destination, signaling scope for greater opportunities in investment diversification within the continent, which may support the structural transformation initiatives.
Moreover, the level of FDI inflows in Africa varies highly throughout countries. For example, FDI inflows remain unequally distributed throughout the continent. In 2016, only five countries (Angola, Egypt, Ethiopia, Ghana and Nigeria) received nearly 57 per cent of the continent’s total inflows. This high level of heterogeneity observed at the national, sub regional and regional levels typically underlie a series of factors that need to be well understood. More fundamentally, this calls for a deeper analysis of what determines such flows to counter the root causes of decreasing investment and unlock its full potential in the continent.
Against this backdrop, the Economic Commission for Africa (ECA) has undertaken the present study on appropriate drivers for boosting intra-African investment towards Africa’s transformation. This study responds to the outcomes of the continental investment dialogue of the African Union, which was initiated in 2013, and which includes a recent request to undertake further research on intra-African investment flows and mechanisms to promote intra-African investment (African Union, 2013 and 2016). The present study attempts to respond to the call of the African Union Conference of Ministers of Trade and inform the debate on how Africa may better harness intra-African investment for its structural transformation.
Policy recommendations
The study provides evidence of the complementarities between trade and investment in Africa. Given the trade potential of the African Continental Free Trade Area and its likely implications for boosting intra-African trade and investment, there is a need for African countries to harness the area as a platform to boost intra-investment. Boosting intra-African trade through the area is instrumental in increasing productivity, enhancing competitiveness and supporting economic growth. This needs to be accompanied, however, by investment regulation and policies that unlock the associated joint benefits of trade and investment growth. It is therefore relevant to develop common rules on investment in the context of the area to lock in the expected dynamic and static effects of trade and investment flows on the continent.
Moreover, there is strong evidence supporting the notion that greater industrial trade on the continent may further attract investment, thereby promoting opportunities for vertical integration and value addition, which, in turn, may address the binding supply side constraints that are impeding Africa’s efforts to better integrate into regional and global value chains. The study corroborates that FDI openness promotes backward and forward integration. Boosting intra-African investment could also bolster the regional integration agenda at the regional economic community level and provide opportunities for alignment with the continental integration agenda. In this context, the African Continental Free Trade Area could resolve the challenges of multiple and overlapping regional economic community memberships.
The findings also point to the importance of a conducive business environment and trade logistics to attract greater intra-African investment. In addition, the study also confirms that boosting intraAfrican investment, especially in the industrial sector, could promote economic transformation and diversification. African countries wishing to promote economic growth by raising their total factor productivity must therefore pursue policies that improve the business environment and logistics performance.
Equally important is improving the quality of and access to education, given that doing so will raise the attractiveness of African economies, boost intra-African investment flows and promote associated technology and knowledge transfer. In this regard, it is critical to encourage the participation of women and men in the formal labour market to maximize the expected effects of intra-African investment through targeted and comprehensive strategies for young people and their employment, including at the regional level. In the context of the continental free trade area, this would also allow for greater flexibility and better planning of factor market mobility, an element that could also be incorporated into the negotiations on the movement of business persons to ensure that Africa generates jobs for the growing population of young people.
African Governments must further ensure that their investment laws are designed to spur national and regional investment. For example, investment laws should list priority investment sectors, including manufacturing and industrial ones. These sectors, rather than commodities, offer greater opportunities for regional integration and more strategic entry points at the higher levels of regional and global value chains.
The continent should also try to take advantage of transboundary investment opportunities, which benefit the subregions and regional economic communities. For example, if regulatory reforms are complemented by policies for public-private partnerships and blended finance that target investment for technology and innovation at the transboundary level, African countries could have much to gain from the spillover effects of intra-African investment.
Intra-African investment also has the potential to better integrate the continent’s regional value chains by relocating labour-intensive activities to Africa, including in manufacturing. Further integration, trade openness and regulatory predictability would send a powerful message to the African business community to invest in such activities, given that such measured would ease African investors’ entry into the continent and allow them to tap a larger good, services and factor market, while contributing to industrial transformation.
Lastly, promoting the private sector is also a key challenge to sustaining and enhancing the attractiveness and competitiveness of African markets, and its contribution to economic growth and employment is crucial. The financial sector therefore has a key role to play in supporting the private sector. There is a need to develop proactive financial sector policies that can help to channel investment to small and medium-sized enterprises. The African Continental Free Trade Area can constitute a vehicle to achieve these goals, provided that common rules for financial services actively support small and medium-sized enterprise development on the continent.
The present study was prepared under the overall leadership of Vera Songwe, Executive Secretary of the Economic Commission for Africa (ECA). The study was coordinated by Stephen N. Karingi, Director of the Capacity Development Division and Officer-in-Charge of the Regional Integration and Trade Division.
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Communiqué of the Bureau of the Assembly of the AU Heads of State and Government Teleconference on COVID-19
His Excellency President Matamela Cyril Ramaphosa, President of the Republic of South Arica, in his capacity as Chairperson of the African Union, convened a teleconference of the Bureau of the African Union Heads of State and Government, ahead of the G20 Leaders’ Summit video-teleconference on 26 March 2020.
The Bureau of the African Union Heads of State and Government is chaired by President Ramaphosa and consists of: His Excellency, President Ibrahim Boubacar, Keïta of the Republic of Mali, His Excellency, President Uhuru Muigai Kenyatta of the Republic of Kenya, His Excellency, President Félix Tshisekedi of the Democratic Republic of Congo and His Excellency, President Abdel Fattah el-Sisi of the Arab Republic of Egypt.
The Chairperson of the African Union Commission, Mr Moussa Faki Mahamat, and the Director of the Africa Centres of Disease Control and Prevention (Africa CDC), Dr John Nkengasong, also participated in the teleconference.
In his opening remarks, President Ramaphosa emphasised that a continental coordinated response was more important than ever before in order to arrest the rapid spread of the COVID-19 pandemic. He noted that the development and spread of the COVID-19 has stretched public health systems beyond limits and caused enormous global economic, social and humanitarian meltdown.
President Ramaphosa underscored the fact that poverty, poor sanitation, an existing disease burden, overstretched health systems and extreme urban population density mean that the pandemic could explode in an even more catastrophic way than has been seen thus far in Africa. Hence the need for urgent action in order to stem the tide. President Ramaphosa emphasised that the AU, Regional Economic Communities (RECs) and all health institutions should direct their efforts at stopping the spread of the virus.
The Bureau received a briefing from Dr John Nkengasong, the Director of the Africa Centres of Disease Control and Prevention (Africa CDC), who stated that the rapid spread of the COVID-19 is an unprecedented public health disaster. Dr. Nkengasong stated that the coronavirus has been spreading rapidly across the world, affecting 175 countries, with 470 000 confirmed cases and claiming more than 21,000 lives. He noted that 46 African countries have reported a combined total of 2,746 infections, 72 deaths, and 210 recoveries. He warned that the pandemic could explode in poor countries in an even more catastrophic way than has been seen elsewhere thus far.
The Bureau expressed grave concern about the rising local infections, in the context densely populated human settlements on the African continent.
Consequently, the Bureau underscored the importance of coordination across the continent and the necessity to exchange credible and real time information about the spread of the virus. The Bureau agreed to establish a continental anti-COVID-19 Fund to which member states of the Bureau agreed to immediately contribute US $12, 5 million as seed funding. African Union Member States, the international community and philanthropic entities are urged to contribute to this fund.
The Bureau noted the critical role of the Africa CDC, and its under-funding. In this regard Member States of the Bureau agreed to contribute an amount of $4.5 million towards boosting the capacity of the Africa CDC.
The Bureau expressed concern about the possible shortages of medicines and vaccines as factories close or countries retain supplies for their own consumption. In this regard, the Bureau underscored the vital importance of coordinating efforts to increase global production and improve the availability of medical products and equipment.
Given the limited health infrastructure in Africa and the reality that most of the pharmaceuticals and medical supplies consumed on the continent are imported, the Bureau called on the international community to encourage open trade corridors, especially for pharmaceuticals and other health supplies.
The Bureau urged the G20 to immediately provide African countries with medical equipment, testing kits, protective gear to combat the COVID-19 pandemic.
Additionally, the Bureau urged G20 countries to provide an effective economic stimulus package that includes relief and deferred payments. In this regard, the Bureau called for the waiver of all interest payments on bilateral and multilateral debt, and the possible extension of the waiver to the medium term, in order to provide immediate fiscal space and liquidity to governments.
The Bureau also urges the World Bank, International Monetary Fund, African Development Bank and other regional institutions to use all the instruments available in their arsenal to help mitigate against the scourge and provide relief to vital sectors of African economies and communities.
The Bureau expressed support and appreciation for endeavours of the Committee of African Health Ministers and paid tribute to the courageous efforts of all medical and health care officials on the continent engaged in combatting the COVID-19 pandemic.
The Bureau urge all citizens of Africa to abide by national measures implemented to curb the spread of the COVID-19 virus.
The Member States of the Bureau of the Assembly of AU Heads of State and Government expressed their deepest appreciation to the Chairperson of the Bureau, His Excellency President Cyril Ramaphosa for his timely convening of the meeting in order to develop a coordinated African response to curb and reverse the spread of the COVID-19 virus in Africa.
The Bureau of the Assembly of AU Heads of State and Government agreed to remain seized of this matter.