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The case for an integrated African market – the costs of ‘non-AfCFTA’
The signing of the African Continental Free Trade Agreement (AfCFTA) on March 21 in Kigali by 44 countries represented a milestone towards achieving the long-standing goal of creating a unified African market. Yet we are only halfway there, for a number of reasons.
First, there is a need to achieve 22 ratifications by March 2019 for the agreement to go into force – and so far, only seven countries have done so.
Second, because it is not enough to have political agreement – countries still need to win the hearts and minds of the private sector and civil society, who will be the true implementers of the AfCFTA.
In the late 1980s, the European Commission was confronted with an uphill struggle to persuade citizens and member states to support the implementation of their Single Market Programme.
There were plenty of naysayers at the time – many Europeans, particularly in the “periphery” (Greece, Spain, Portugal, and Ireland), were worried about the consequences of opening up their markets to the high productivity firms of northern Europe.
Echoing today’s concerns, there were also fears about the scale of intra-regional migration and capital flows.
In an effort to allay those fears, European researchers published a series of in-depth research papers on the costs of “Non-Europe,” to make clear what was at stake.
The resulting “Checcini Report,” published in 1988, made a strong case for the Single Market, paving the way for its eventual implementation on January 1, 1993.
Overnight, the border posts between member states disappeared and goods, services, investment and workers flowed freely across frontiers.
Subsequent research suggested that the Single Market raised intra-European trade by more than 100 per cent, and member states’ GDP by an average of 4.4 per cent.
Clear argument
African researchers, think tanks and policymakers need to make a similar, vigorous and clear case for the costs of a “non-AfCFTA.” What are those arguments?
Africa’s trade with the rest of the world over the past five or six decades has not delivered the promised diversification or development of economies.
Since the early 1970s, African countries have been beneficiaries of “preferential trading agreements,” whereby they were granted reduced tariffs to high-income countries’ markets.
While this is a good thing in principle, preferential market access has not led to a notably stronger export performance or more diversified economies.
The design of those preferential agreements is partly to blame, with strict rules of origin and unnecessarily tough phytosanitary and product standards. In addition, African firms have displayed a lacklustre response to the opportunities.
However, the Achilles heel of these agreements has been their impermanence – they are concessional and can therefore be suspended or simply not renewed (requiring as they do a special dispensation through the World Trade Organisation).
The recent suspension of Rwanda from certain provisions of the Africa Growth and Opportunity Act (Agoa) because of a disagreement over its policy designed to reduce the imports of secondhand clothing is one example.
But it is not the only case in the region: Madagascar was suspended from Agoa in 2010, and Kenya has been threatened in the past with suspension due to alleged rules-of-origin violations in its textile sector.
For the business community, suspensions or the threat of them make it difficult to make a long-term plans and invest in a beneficiary sector when it is uncertain whether preferential market access will still exist in the future.
Extra-African trade
Nor should we think that extra-African trade relations with other developing regions have brought better results.
For instance, EAC trade with India and China has soared over the past decade and a half. The EAC now sources a third of its imports from these two countries (nearly three times the imports from the entire European Union).
But exports from the EAC to India and China have performed poorly. The EAC now sustains a deficit of nearly $9 billion a year with the two Asian giants and, in a pattern reminiscent of trade relations with high-income countries, those exports have been mainly primary commodities.
This is despite the fact that for the past decade India and China have also had preferential market access for developing countries.
The AfCFTA is fundamentally different as the market access it provides is not concessional – and hence puts trade relations among African countries on a much firmer footing.
In stark contrast to the composition of our exports to the rest of the world (which are still essentially unprocessed primary commodities), as much as two thirds of intra-African trade is in industrial goods. So the AfCFTA could provide a significant boost to the industrialisation and diversification of our economies.
We also need to dispel the idea that the AfCFTA will detract from regional integration processes like the EAC.
The continental market should be seen as complementary – not a substitute – to regional integration efforts. While the EAC has achieved a relatively high share of intra-regional trade (at around 20 per cent of total trade), in recent years that share has fallen.
Last year, Kenyan exports to other EAC countries fell by 6 per cent.
UNECA’s preliminary simulation work suggests that the AfCFTA could help expand intra-EAC trade by 34 per cent. The continental agreement would integrate the EAC economy, as a bloc, into the wider African economy.
Our estimates suggest an increase of 66 per cent for EAC trade with the rest of Africa. Furthermore, the beneficiary sectors would principally be the employment-intensive manufacturing sectors like processed foods, light manufacturing and textiles.
One well-known definition of madness is to keep doing the same thing and expecting different results. Preferential market access from Africa to the rest of the world has been tried and tested, and it has been found wanting. The region is clearly in need of a new approach. That approach is the AfCFTA.
Andrew Mold is the Acting Director of the UNECA Subregional Office for Eastern Africa.
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LCCI: How to make ECOWAS trade liberalisation work
The Economic Community of West African States (ECOWAS) Trade Liberalisation Scheme is supposed to be the operational tool for promoting intra-regional trade and boosting economic activities.
However, some aspects of its implementation appear to have made the realisation of its objectives difficult, particularly for real sector operators. But the Lagos Chamber of Commerce & Industry has suggested ways to make the scheme work.
Members of the Lagos Chamber of Commerce & Industry (LCCI), particularly exporters, are literarlly up in arms against the ECOWAS Trade Liberalisation Scheme (ETLS) administration. Their grouse: the ETLS, under its current management by the Foreign Affairs Ministry, is not serving exporters’ and other real sector operators’ interests well.
They noted, for instance, the difficulties in exporting goods from Nigeria to other West African countries as a result of bureaucratic bottlenecks of product registration under the scheme, negate ETLS objective.
The ETLS is the main operational tool for promoting free trade within the West African sub-region. The scheme was in line with the regional trade bloc’s objective of establishing a common market through trade liberalisation by abolishing, among member states, Customs duties on imports and exports and abolishing non-tariff barriers.
It was envisaged that a free trade area will, among others, increase intra-regional trade, boost economic activities and increase the sub-region’s competitiveness in the global market. However, the administration of the scheme, under its current management of the Foreign Affairs Ministry, has come under criticisms by the LCCI and other real sector operators.
Some of them, who spoke with The Nation, lamented that bureaucratic bottlenecks have made product registration extremely difficult for exporters. They insisted that to mitigate exporters’ sufferings, ETLS’s administration should be moved from the Ministry of Foreign Affairs to the Ministry of Industry, Trade and Investment, specifically the Nigeria Investment Promotion Commission (NIPC) to serve exporters better.
LCCI President Mr. Babatunde Paul Ruwase, who pushed that the scheme’s administration be excised from the Foreign Affairs Ministry, however, identified other grey areas that needed to be smoothed if Nigerian exporters must benefit fully from the scheme. He said, for instance, that there is need to address the multiplicity of foreign exchange (Forex) rate in the economy.
Ruwase lamented that the gap between the Central Bank of Nigeria (CBN’s) N305 rate and other rates at N360 and above, has continued to create undue arbitrage for banks and transparency issues. “The supply side of electronic forex market, transfers and card transactions are still being compelled to surrender their forex at N305 rate instead of N360. This will continue to discourage forex supply through these channels,” he said.
The LCCI, according to him, therefore, recommends that this arbitrage opportunity be closed by applying Bureau de Change (BDC) rate to forex supply transactions in the inward transfer and card transactions segments.
Ruwase also said efforts should be made to build external reserves further to hedge against potential decline in the price of oil. “This can be achieved by attracting larger investment inflows from Nigerians in the Diaspora and foreign direct investors looking to participate in Brownfield and Greenfield infrastructure investment in Nigeria,” he added.
The LCCI president also drew attention to excise duty on locally-manufactured goods. While recalling that the government recently commenced the enforcement of the approved amendment to the excise duty rates for alcoholic beverages, spirits and tobacco in Nigeria, he expressed the Chamber’s worry over the move to extend the duty to cover several other basic items.
Ruwase lamented that the Nigerian Customs Service (NCS) excise duty list on its website was inclusive of many basic and essential products such as soap and detergent; toilet papers; cleansing or facial tissue and Spaghetti/Noodles.
Noting that these are products consumed largely by ordinary Nigerians, he, however, argued that any the imposition of excise duty on them would further aggravate the poverty situation in the country and undermine the welfare of citizens. This, according to him, is particularly so, considering the fact that poverty incidence in the country was already over 60 per cent.
He further lamented that the planned extension of excise duty to soaps and detergent will invariably increase their prices, make them inaccessible for the common man, and further heighten their plight amidst the current economic challenges that have reduced their purchasing power.
The LCCI chief said excise duty rates penalises domestic production and incentivises importation, which conflicts with the vision of the Economic Recovery and Growth Plan (ERGP) regarding economic diversification, job creation and local value addition. He also made a case for tax incentives to manufacturing firms.
Pointing out that the manufacturing sector is one of the most vulnerable sectors in the Nigerian economy, he said the sector is already grappling with several challenges that have continued to undermine its productivity and competitiveness.
Ruwase listed some of them to include high operating cost, high energy cost, consumers’ weak purchasing power, unfriendly tax environment, high regulatory compliance cost, and influx of smuggled products and high cost of logistics.
He argued that if the government cannot give tax incentives to manufacturing firms, it should not impose additional tax burden on them, given the challenging operating environment for production in the economy.
According to him, it is even worse when such burden is on necessities consumed largely by the ordinary people. He said the LCCI was requesting an urgent rethink of the proposition to increase or impose excise duty on the production of basic needs in the economy.
He also spoke on the outcome of the recent CBN Monetary Policy Committee (MPC) meeting, noting that although the monetary policy rates were retained, making it the 10th retention of the rates by the MPC, this may not be unconnected to the CBN’s worry about the risks to inflation, exchange rate, foreign reserves and capital flows.
While asking that priorities be given to job creation and poverty reduction, which he claimed are the cardinal programmes of the present administration, he said low interest rate will stimulate investment, impact positively on growth, create more jobs, increase income, and boost output, which will ultimately have a moderating effect on inflation.
Okwy Iroegbu-Chikezie is Assistant Editor of Nigeria’s The Nation newspaper.
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tralac’s Daily News Selection
Ahead of the 38th SADC Summit of Heads of State and Government (17-18 August): Namibia takes over Chairpersonship of SADC Committee of Senior Officials. An SARDC preview of the summit.
The 19th Annual SADC Lawyers’ Association Conference and General Meeting takes place next week in Maputo. Profiled session: Regional integration – harmonisation of laws in the SADC region (pdf)
Namibian MP, McHenry Venaani, has been elected the new Chairman of the Pan African Parliament’s Trade, Customs and Immigration Committee
The Association of African Central Banks annual meetings concluded yesterday in Sharm El-Sheikh. ECA’s Vera Songwe delivered the keynote address on Africa in a changing global financing architecture. Agenda sessions included: (i) Declining correspondent banking relationships and possible rise of underground financial sectors in developing countries; (ii) Illicit capital flows in Africa – challenges and policy implications for African countries.
Related AACB, other resources:
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Assembly of Governors Meeting August 2017: list of decisions (pdf),
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Documentation from the August 2017 symposium: Monetary integration prospects in Africa: lessons from the experience of the European Monetary and Financial Integration’; Symposium report (pdf)
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African Consultative Group Meeting: statement by the Chairman of the African Caucus and the MD of the IMF (July 2018)
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African Central Bank project: AU update (February 2018)
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Egypt, China to renew currency swap deal: CBE governor to AACB
African Pharmaceutical Development Fund: AU, AfDB, Afreximbank consultation
The organized consultation represents a platform which brings key stakeholders together to brainstorm and define the type of fund, scope of work, legal and institutional modalities leading to the set up a mechanism able to catalyze, mobilize and channel financial resources to the development of the pharmaceutical manufacturing sector in the African continent. The objective of this fund is to maximize the return on investment made to develop the African pharmaceutical industry. The urgent need for such a fund is substantiated by the existing financing gaps in the pharmaceutical industry, which precludes innovative private firms to access finance, technology and innovation required to develop and grow the industry. Related: “The continent unfortunately remains awash with fake, substandard and counterfeit drugs,” said Dr. Margaret Agama-Anyetei, Head of Health, Population and Nutrition of the AUC. “This situation draws the continent away from its aspiration to guarantee high standard of living, quality of life and well -being of the citizens of Africa as envisaged by Africa’s Agenda 2063. In this regard, the AUC seeks to advance the implementation of the Pharmaceutical Manufacturing Plan for Africa, building on continental trade initiatives, such as, the Continental Free Trade Agreement, recently endorsed by African Heads of States and Government.” [India: Pharmaceutical exports up 3% to $17.3bn in 2017-18]
Accelerated Industrial Development for Africa: AU roundtable
The roundtable (7-9 August) follows the successful setting up of the Implementation and Coordination Unit in the Department of Trade and Industry, a technical unit set up in May 2018 with financial support from UNIDO, with responsibility to oversee, and coordinate the implementation of AIDA and other pan-African industrialisation frameworks such as Africa Mining Vision. The session also provided a platform to re-orient the key stakeholders (RECs, private sector, public sector, and development partners) towards rejuvenating momentum to implement AIDA.
TFTA update: Africa free trade talks pass the halfway mark on new rules (Business Day)
South African Department of Trade and Industry chief director Wamkele Mene told the National Council of Provinces select committee on trade and international relations on Wednesday that negotiations over the rules were 60% complete and were expected to be finalised in mid-2019. Mene said the biggest challenge was to agree on policy, with some countries arguing for a general rule that would allow all products from outside countries to be eligible for TFTA preferences. SA opposed this approach on the grounds that it would limit the region’s ability to industrialise as there would be no requirement for value addition to the imported products. SA’s position is that products from outside countries should only benefit from preferential tariffs when exported to other countries in the region if there has been value addition within the country that first imported it. The ultimate agreement was that there would be common product-specific rules of origin for each of the more than 7,000 products in the tariff book. [EU-Africa free trade will create more imbalances, say critics]
Zimbabwe: Business lobbies government to engage SA on trade pact (The Independent)
Trade policy in Lesotho
Supporting Lesotho’s economic diversification and trade integration: structural transformation through greater export competitiveness (World Bank)
This report provides a multifaceted diagnostic overview of Lesotho’s export competitiveness, including an analysis of the macroeconomic environment in which exporters and importers operate in Lesotho; level, growth, composition, and market share performance of Lesotho’s exports; the evolution of FDI inflows and their sectoral composition; the diversification of products and markets, as well as the quality and sophistication of Lesotho’s exports. It builds on this with CGE analysis of potential impacts based on specific trade-related scenarios as well as diagnostic tools to facilitate the analysis of global and regional value chain participation and integration. pdf Download the report (1.44 MB) .
Extracts: Lesotho’s current trade strategy is not sustainable and requires a move away from reliance on exports of low-value added apparel to the US under AGOA. Uncertainty surrounding the future of Lesotho’s AGOA privileges underscores the need for reform and a renewed sense of urgency. Future export growth will be challenged by the emergence of new low-wage competitors in Asia and Africa and the expected erosion of preferential market access in main export destinations over the next decade. Despite the withdrawal of the United States from the Trans-Pacific Partnership, the significant difference in tariffs paid by apparel duty-free exports from Lesotho under AGOA and from Vietnam and Malaysia will likely be mostly eliminated in the next decade. Additionally, the current authorization of AGOA will expire in 2025. Although a further re-authorization of AGOA is not ruled out, its potential phase-out or replacement is of key importance for Lesotho since, in the absence of this preferential program, apparel exports will have to compete on equal footing against other low-wage competitors. Computable General Equilibrium analysis carried out for this study finds that the negative impacts due to a sudden suspension of AGOA privileges would reach 1% of GDP in 2020, while exports of textiles and apparel would drop by 16% leading to a drop of textiles and apparel output by 9%. The decline of average real consumption by 0.5% would have significant negative consequences for the population.
This changing external environment is likely to also offer new opportunities to Lesotho’s export industries in the medium term. Through its location, a relatively educated and largely English-speaking workforce, low wages, and significant potential as a tourism destination, Lesotho has the scope to diversify into services industries and integrate into existing and emergent value chains in Southern Africa. Regional integration in sub-Saharan Africa is progressing rapidly, and greater integration and liberalization in SADC and among the tri-partite alliance, as well as movement towards a Continental Free Trade Area means that Lesotho can improve its market access throughout sub-Saharan Africa. This makes a multifaceted diagnostic overview of Lesotho’s export competitiveness, including an assessment of medium-term impacts of potential trade policy changes, particularly salient, and would contribute to the development of the Second National Strategic Development Plan (2017/18-2020/21).
Kenya’s food imports cross Sh100bn mark for first time (Daily Nation)
Kenya’s food imports crossed the Sh100 billion mark in the six months through June for the first time, official statistics show, underscoring the country’s growing reliance on foreign markets despite improved weather. Food and beverages order bill from abroad stood at Sh108.51 billion in the January-June period, a 12.55 per cent rise over Sh96.41 billion in the same period last year, data collated by the Kenya National Bureau of Statistics indicate.
UN urges EAC to liberalise trade services to spur manufacturing sector (New Times)
Stephen Karingi, the Director of Capacity Development Division at UNECA, told Xinhua in Nairobi that the region’s manufacturing sector is not as competitive as it should be due to relatively high cost of services including in the insurance, legal, logistic and finance sectors. “There is empirical evidence that efficiency gains occurs when markets are opened up. The EAC will further its industrialisation agenda if it can access cheaper services from a liberalised market,” Karingi said on the sidelines of the Fifth COMESA Annual Research Forum. Karingi called for the partners of the trading bloc to amend their national laws so that they permit free movement of professionals across the region. He said that the region has already signed the EAC Common Market Protocol which calls for free movement of capital and labor but implementation has not been completed. Karingi said that for every manufactured good, there is an element of services input which must be procured at a competitive cost in order for merchandise to compete regionally and globally. [COMESA Research Forum: Successful implementation of regional free trade area pegged on digitization]
24th Intergovernmental Committee of Experts of Southern Africa: Blue economy, inclusive industrialization and economic development (UNECA)
The 24th Session of the ICE (18-21 September, Mauritius) will: (i) review the social and economic conditions in Southern Africa (ii) consider and endorse the implementation of the programme of work of the ECA Southern Africa Sub-Regional Office, the planned programme of work and the budget for 2019; and (iii) review the implementation of regional and international agendas, including NEPAD and other special initiatives in the sub-region. In reviewing the work programme, the delegates will proffer recommendations towards ensuring that the development priorities of the sub-region are fully accommodated in the work of ECA to align technical support provision to member States and RECs to these priorities. [Download the concept note, pdf]
Friday’s Quick Links: African Leadership Forum 2018: Vera Songwe urges leaders to act collectively to combat money laundering, tax evasion and bribery Reuters: Aliko Dangote’s huge Nigerian oil refinery likely delayed until 2022, say sources Reuters: AB InBev to build new brewery in fast-growing Mozambique Mauritius-India: MoU signed to further strengthen cooperative sector Mauritius workshop to validate African Union Malabo Commitments, develop Action Plan |
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TradesCape: the AfCFTA Agreement is set to enter into force by early 2019
South Africa signed the African Continental Free Trade Area Agreement (AfCFTA) on 1 July 2018. What does this mean in practical terms?
Wesgro recently hosted a seminar, in partnership with tralac (Trade Law Centre) and the Department of Trade and Industry (DTI), on the AfCFTA and the practical implications thereof for doing business on the Continent.
The African Continental Free Trade Area (AfCFTA)
The AfCFTA aims to establish a free trade area spanning the 55 Member States of the African Union (AU). It includes undertakings by Member States to progressively eliminate tariffs and non-tariff barriers to trade in goods and liberalise trade in services; cooperate on investment, intellectual property rights, competition policy, customs matters, and all other trade-related areas; and to establish a dispute settlement system. The continental trade agreement will build upon already existing regional economic communities, for example, SADC, COMESA, EAC, and ECOWAS and incorporate ongoing developments under the Tripartite Free Trade Area (TFTA).
Benefits for trade and investment in Africa
According to the Department of Trade and Industry, the AfCFTA holds many benefits, including:
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Improving the movement of goods and services through better customs cooperation among countries in Africa. Harmonisation of customs documentation and processes will speed up border crossings.
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Ensuring an effective and functional dispute settlement mechanism to deal with trade disputes arising under the AfCFTA.
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Eliminating non-tariff barriers.
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Improving investment prospects due to economies of scale associated with a larger market.
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Advancing the complementary pillars of industrialisation and infrastructure development to boost Africa’s productive capacity and supply side constraints.
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Legal certainty and predictability of a regional market.
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The encouragement of a rules-based trading regime.
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Opportunity to expand into new markets.
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Investment protection and facilitation.
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A fair and impartial dispute resolution mechanism.
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The progressive elimination of tariffs, elimination of non-tariff barriers, customs cooperation, and cooperation on sanitary and phytosanitary measures will all boost intra-Africa trade.
Status of AfCFTA
The AfCFTA was launched in March 2018 when 44 AU countries signed the Agreement Establishing the AfCFTA. Since then 5 more countries, including South Africa have signed the agreement.
The Agreement Establishing the AfCFTA is the overall framework agreement to which the various protocols, annexes and appendices form an integral part. It is important to note that most of the details still need to be negotiated.
Thus far, what has been agreed upon are the objectives, principles, institutions and a workplan for completing the negotiation process. At this point the framework agreement includes a protocol on trade in goods, a protocol on trade in services, and a protocol on dispute settlement. Once complete, it will also include protocols on investment, intellectual property rights, and competition policy.
Negotiations are divided into Phase I and Phase II, Phase I is currently underway, and includes trade in goods, services, and dispute settlement. Phase II is set to be concluded by 2020 and will cover investment, intellectual property rights, and competition policy.
At this point, the final annexes to the protocol on trade in goods and the protocol on the rules and procedures for the settlement of disputes, as well as the list of identified trade in services priority sectors have been submitted to the AU Assembly of Heads of State and Government. Still underway in Phase I is the negotiation of tariff concessions and the rules of origin with regard to trade in goods; and specific commitments with regard to trade in services.
The deadline for submission of tariff commitments and specific services liberalisation commitments is January 2019.
The AfCFTA will not replace the current regional economic communities (RECs), but rather will build upon them and ensure greater harmonisation and coordination between them. South Africa is currently a member of both the Southern African Customs Union (SACU) and the Southern African Development Community (SADC). Currently SACU is also in the process of negotiating tariff reductions with the East African Community (EAC) (Kenya, Tanzania, Uganda, Rwanda, Burundi, and South Sudan) and with Egypt under the auspices of the Tripartite Free Trade Agreement (TFTA).
Other significant events in 2018, which do not form part of the AfCFTA agreement but are closely associated with it, include the launch of the Single African Air Transport Market (SAATM), the Protocol on the Free Movement of Persons, and the first meeting of the AfCFTA Business Forum.
Liberalisation of trade in services
One of the most significant aspects of the AfCFTA will be the progressive liberalisation of trade in services. This is especially important from a Western Cape perspective, where services make up approximately 75 percent of the economy.
Priority sectors for the first round of negotiation of services liberalisation have been agreed upon by the Ministers of Trade as follows:
- Transport
- Communication
- Financial
- Tourism
- Business services
The top services exporters in Africa are Morocco, South Africa, and Egypt, and the top services importers are Egypt, South Africa, and Angola.
Public participation and consultation
The AfCFTA negotiations are led by the DTI with the support of the Department of Agriculture, Forestry and Fisheries; the South African Revenue Service; the Department of International Relations and Cooperation; as well as the Department of Justice and Constitutional Development.
One of the most pertinent issues raised during the seminar was the process of private sector engagement with government with regard to the AfCFTA negotiations. Formal processes for engagement exist through NEDLAC, however, there are many companies and even industries that feel that they are not sufficiently represented through NEDLAC, in which case representations can also be made to the DTI on an ad hoc basis. In particular, there may be room for services industries to be better organised in terms getting a broader segment of their voices heard while negotiations are still underway.
The commitments that South Africa makes under the AfCFTA will be binding, and it is therefore very important that this agreement is workable and effective. In order to achieve the objective of boosting intra-African trade the agreement needs to make trading easier, and this will only be effectively achieved if the private sector, i.e. the traders, have effective input in the negotiation process.
Entry into force and binding in law
The AfCFTA will enter into force when 22 countries have ratified the agreement. The aim at the African Union is to see the AfCFTA enter into force at the end of December 2018. So far 6 countries have ratified the agreement.
South Africa’s constitution provides that the negotiation and signing of international agreements (such as the AfCFTA) is the responsibility of the national executive, i.e. the president and his cabinet, but that such agreements will only be binding once approved by resolution in Parliament. Ratification of the AfCFTA therefore depends on Parliament approving the AfCFTA.
The aim of the South African government is be one of the first 22 countries to ratify the AfCFTA, and therefore to have the agreement approved by Parliament by the end of the year or in early 2019.
Importance of the African Market
The African market consists of about 1.2 billion people, projected to reach 2.5 billion by 2050, and a combined gross domestic product (GDP) of more than US$3.4 trillion. According to Harvard’s Centre for International Development, five of the ten countries projected to have the fastest growing economies by 2026 are situated in Africa.
Intra-Africa trade is very low compared to other regions. Only about 17 percent of all African trade is intra-Africa, while intra-Europe trade is 67 percent, and intra-Asia trade is 58 percent of all Asian trade.
Of the 17 percent of intra-Africa trade, South Africa takes up the lion’s share; 35 percent of exports were from South Africa in 2016, with Nigeria following at 8 percent. South Africa is also the top importer of African goods, importing 21 percent of all African exports in 2016, with Namibia following with 8 percent. South Africa largely imports raw materials from the Continent and exports manufactured goods to the Continent.
The rest of Africa is the top destination for exports from the Western Cape, followed by Europe. In 2017, the Western Cape exported R45 billion worth of goods to Africa. The Continent is also the top destination for investment by Western Cape companies, accounting for more than 50 percent of outward investment. According to a Wesgro survey, an estimated 51 percent of international companies investing in the Western Cape have indicated that they had motives for expanding into the rest of Africa from a Western Cape base.
In terms of exports, the Continent is a particularly important market for manufactured goods from South Africa. While only 27 percent of South Africa’s total exports go to the rest of Africa, 64 percent of all manufactured goods exported from South Africa are destined for the Continent.
The top three African countries for exports from South Africa are Botswana (20 percent), Namibia (18 percent), and Mozambique (15 percent). For exports from the Western Cape, the top destination in Africa is Namibia (31 percent), followed by Botswana (19 percent), and Kenya and Zambia (8 percent).
The top ten exports from South Africa to the rest of Africa in 2017 were: refined petroleum oils, vehicles for goods transport, electrical energy, chromium ores and concentrates, coal, diamonds, cars, parts for moving machinery, maize, and steel.
The top five imports to South Africa from the rest of Africa in 2017 were: crude petroleum oils, scents used in manufacturing, gold, petroleum and gaseous hydrocarbons, and refined petroleum oils (Trademap, 2018).
The top ten exports from the Western Cape to the rest of Africa in 2017 were: Refined petroleum oils, steel, cigarettes and cigars, fruit juices, apples and pears, wine, ethanol, sulphur, packaging articles, and fermented beverages e.g. cider.
The top five imports to the Western Cape from the rest of Africa in 2017 were: crude petroleum oils, frozen fish, t-shirts and vests, beer, and male clothing (Quantec, 2018).
This article was originally published by Wesgro. Read the original article.
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38th SADC Summit: Promoting infrastructure development and youth empowerment for sustainable development
The 38th SADC Summit of Heads of State and Government to be held in Windhoek, Namibia on 17-18 August 2018 will review progress towards regional integration and socio-economic development.
This year’s theme builds on the focus of the past four SADC Summits that sought to advance industrial development.
The theme also resonates with one of the key pillars of the SADC Regional Indicative Strategic Development Plan (RISDP 2015-2020) in which integrated infrastructure networks are regarded as an important enabler of industrialization and market integration.
As expected, the highlight of the Summit is the presentation of a progress report on implementation of the SADC Industrialization Strategy and Roadmap 2015-2063.
The SADC industrialization strategy, adopted in April 2015, seeks to achieve major economic and technological transformation at national and regional levels to accelerate economic growth through industrial development.
A Costed Action Plan for the Strategy covering 2015-2030 was approved in March 2017. The Action Plan details the key actions, with reference to the three pillars of the strategy and the requisite activities, as well as the key enablers needed to unlock the region’s industrial potential.
One of the three pillars of the industrialization strategy is Enhancing Infrastructure. The other two pillars are Strengthening Value Chains, and Corridor Development.
Summit will also discuss progress towards implementation of the SADC Regional Infrastructure Development Master Plan (RIDMP) which is pivotal to the socio-economic growth of the region, including the industrialization agenda.
The RIDMP is the region’s strategy for the development of integrated regional infrastructure to meet projected demand by 2027, at an estimated cost of US$500 billion.
The historic decision to approve the RIDMP in 2012 was informed by the perspective that infrastructure development and maintenance is a priority for accelerated regional integration, economic development, industrialization and trade.
The SADC Secretariat is currently reviewing progress of the first five-year phase 2012-2017, and this is expected to add impetus to the implementation of regional infrastructure projects.
SADC aims to develop cross-border infrastructure in the six priority areas of energy, transport, tourism, water, information communication technology and meteorology.
Energy limitations have presented barriers to socio-economic development, and the solution for the energy deficit is one of the main priorities of infrastructure development that the region must collectively tackle.
SADC has made significant progress in addressing power shortages experienced since 1999 which became more pronounced after 2007, and the region produced surplus electricity generation in 2017 for the first time in a decade as a result of regional cooperation in energy planning.
SADC leaders will seek to deepen a coordinated approach to the provision of energy in the region, as electricity is essential to advance the industrialization agenda which aims to ensure that SADC achieves its longstanding goal of a united, prosperous and integrated region.
Summit is expected to approve strategies for addressing food security in the region, including the need to increase investment in high-impact interventions that address chronic food and nutrition insecurity.
According to a report released in July, the State of Food and Nutrition Insecurity and Vulnerability in Southern Africa, the SADC region is estimated to have a cereal surplus of 6.3 million metric tonnes, down from 7.5 MT the previous year.
The number of food insecure people in the 2018/19 consumption year is 29 million, about 14 percent of the population in SADC according to the report, thus reversing the improvement achieved in 2017/18.
As part of the theme for Summit, the leaders will explore ways of harnessing the human capital dividend through youth empowerment. The youth make up the majority of the population in SADC, hence their importance in advancing the regional integration agenda.
As the timespan of the SADC Industrialization Strategy and Roadmap progresses towards 2063, the youth of today will reap the benefits of the key elements contained in the strategy.
SADC strategies of today will enable the youth to take an active role in promoting development and deepening integration.
Development needs peace and so another important issue for SADC leaders will be how to enhance peace and security as well as consolidate democracy and the rule of law in the region.
SADC is among the most stable and peaceful regions in Africa, however there are pockets of instability that continue to hinder peace and development.
Summit will discuss constitutional reforms in the Kingdom of Lesotho, preparation for general elections in the Democratic Republic of Congo, and the political situation in Madagascar.
The SADC Resource Mobilisation Framework (Alternative Sources of Funding SADC Regional Programmes) is intended to determine how fiscal space can be created to enable SADC Member States to finance regional programmes, projects and activities.
The six options for innovative sources of financing regional integration in SADC are the introduction of an export and import tax; a tourism levy; a financial transaction tax; a lottery system; philanthropy; and regional events.
It is estimated that SADC can earn in excess of US$1.2 billion annually from these alternative sources, a development expected to remove the current dependency on external funding
According to the SADC Secretariat, less than 10 percent of regional projects are funded by SADC Member States while the balance comes from International Cooperating Partners.
The SADC Secretariat was tasked to finalize the draft SADC Regional Resource Mobilisation Framework for submission to the Committee of Ministers of Finance and Investment, and ultimately to the SADC Summit of Heads of State and Government.
Summit will also receive a report from the human resources and administration committee, pertaining to review of the regional recruitment for the Secretariat. This was triggered by several challenges, including that of failing to fill positions because some Member States had exhausted their allocated quota points.
Reviewing the application of the quota system is intended to ensure that the SADC Secretariat has access to a high quality of human resources from Member States in a fair, effective and objective manner, while observing the principle of equity and representation without compromising delivery.
Summit is expected to present a common position on the African Union (AU) Institutional Reform, in line with an AU Assembly decision in January this year to consult the eight Regional Economic Communities that make up the AU on the need to review the institutional structure.
An effective institutional structure is essential to achieving the AU Agenda 2063 for the Africa We Want, a vision of inclusive economic growth and development.
The SADC Secretariat prepared an analytical paper that was considered by the SADC Council of Ministers in March and is expected to go to Summit for approval. Some key issues proposed by SADC for AU institutional reform include:
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African leaders to be given sufficient time to consult nationally on strategic issues;
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An urgent and thorough study of the bureaucratic barriers that affect service delivery in the AU Commission and other organs and institutions; and
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Reduce AU Summits from two to one per year.
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Africa in a changing global financing architecture
ECA Executive Secretary Vera Songwe was a special guest at the 41st Symposium of the Association of African Central Banks (AACB), held in Sharm El Sheikh, Egypt from 5-9 August 2018, where she delivered the keynote address.
Speaking about Africa in a changing global financial architecture, Ms. Songwe highlighted the economic and social impact of de-risking correspondence banking relationships on the continent.
To mitigate this, she urged governments to among others, adopt measures to halt the flow of illicit financial flows, enhance legal and regulatory frameworks, and to leverage on technology to advance financial inclusion.
Africa during the Recent Global Economic Crisis
Before the crisis
- High growth averaging 5.7% per annum during 2001-2008
- Low inflation rates between 5% and 10%
- Declining poverty rate since 1990s
Impact of the crisis on African Economies
- Declining trade flows and capital inflows
- Deteriorating foreign exchange reserves
- Increasing deficits in Governments revenues and overall balances
- Large financing gaps for growth drivers
Africa’s Sustained Economic Expansion
GDP Growth: Africa’s growth record has been significant for the past decade
Trade: High demand led to favorable terms of trade in Africa
Financial Flows to Africa: Robust foreign investments and upward trend in remittances
Illicit Financial Flows out of Africa
In the last three decades to 2009, Africa has lost close to US$1.4 trillion. Losses through non-trade channels average $27 billion annually between 2005 and 2014. Losses through mis-invoicing averaged $73 billion between 2005 and 2015. Uneven geographical distribution of illicit capital flight – West and Central Africa surpassing the rest of the regions.
Read more in the ECA pdf Study on the global governance architecture for combating illicit financial flows (809 KB) .
African Banking and Financial Systems
The development of African financial markets has been driven by improved macroeconomic fundamentals, increased political stability, high commodity prices and robust domestic demand; increasing trading volumes and capitalization in stock markets – highest returns in the world; and growing investment rates supported by strong emerging middle class.
AfCFTA – An opportunity to improve Regional Markets and Banking Systems
Regional integration is vital for Africa – providing benefits and opportunities for growth, structural transformation and strong and integrated markets. 44 African countries signed the Agreement establishing the African Continental Free Trade Area (AfCFTA).
The AfCFTA is an important step towards boosting intra-African trade and achieving the SDGs and leaving no one behind (Agenda 2030 and African Union Agenda 2063). Long-term gains are estimated at about US$16 billion annually when all tariffs are eliminated.
Expected increase in intra-African trade of about 30% will contribute to:
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Structural transformation (incl. increased production/trade of more sophisticated products with a higher technological content),
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Higher returns on investments (with economies of scale),
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Increased efficiency of domestic firms,
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Employment expansion (incl. for women and youth), especially along road corridors.
Impact of De-risking on African Economies
Consequences for Local/Regional Banks
- Concentration of relationships in smaller financial institutions
- Increased costs of funds/ transactions
- Compliance and regulatory challenges
- Capacity constraints
Economic and Social Impact
- Reduced effectiveness of domestic banking system
- Affects Financial inclusion
- Trade – lower exports and imports
- Loss of FDI and remittances and threats to poverty reduction
- Rise of informal financial systems and increasing illicit transactions
Mitigating the Risks and Effects of De-risking
The following strategies and initiatives were presented:
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Halt the Flow of IFFs: Various initiatives
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Develop compliance and legal entity identifier database platforms
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Create national and regional credit rating agencies
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Develop and strengthen effective information-sharing platforms
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Promote innovation and technology developments – e.g. Fintech and DIGITALID
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Enhance regulatory and legal frameworks – e.g. enforcement of domestic and international regulations (including AML/CFT)
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Advocate for more harmonization of regulations across jurisdictions and cross-border banking – e.g. advocacy and support for the AfCFTA.
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24th ICE of Southern Africa: Blue economy, inclusive industrialization and economic development
The 24th Session of the Intergovernmental Committee of Experts (ICE) of Southern Africa will be hosted by the government of Mauritius under the theme: “Blue Economy, Inclusive Industrialization and Economic Development in Southern Africa” from 18-21 September 2018 at the Le Meridian Hotel, Balaclava, Mauritius.
This follows the successful 23rd Session of the ICE hosted by the government of Zimbabwe from 26-27 October 2017 in Bulawayo under the theme: “Trade facilitation in Southern Africa: Bridging the Infrastructure Gap”.
The 24th Session of the ICE will: (i) review the social and economic conditions in Southern Africa (ii) consider and endorse the implementation of the programme of work of the ECA Southern Africa Sub-Regional Office, the planned programme of work and the budget for 2019; and (iii) review the implementation of regional and international agendas, including NEPAD and other special initiatives in the sub-region. In reviewing the work programme, the delegates will proffer recommendations towards ensuring that the development priorities of the sub-region are fully accommodated in the work of ECA to align technical support provision to member States and Regional Economic Communities (RECs) to these priorities.
In addition to carrying out its statutory mandate, the 24th Session will also review the recommendations of a study on “Blue Economy, Inclusive Industrialization and Economic Development in Southern Africa” as well as recommendations of an Ad Hoc Experts Group Meeting on “The Role of Small and Medium Scale Enterprises (SME) in the Industrialization Process in Southern Africa”.
The focus of the discussion on the blue economy in Southern Africa will be on its basis, prospects, constraints and challenges in regard to fostering inclusive industrialization and socioeconomic development in the region and mechanisms and strategies to address the identified challenges.
Outputs of the Meeting will include:
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An Outcome Statement of the 24th ICE reflecting the main observations on issues discussed and recommendations towards developing the blue economy sector as a viable means to accelerate inclusive industrialization and sustainable development in Southern Africa including recommendations on the Role of Small and Medium Scale Enterprises in the Industrialization Process in Southern Africa”;
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The approved and adopted work programme for SRO-SA for 2019; and
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Recommendations towards strengthening all the study reports considered by the 24th Session of the ICE.
Background and context
Covering over two-thirds of the planet, the global ocean is fundamental to the livelihood of human well-beings, regulating the earth’s climate, absorbing a significant proportion of anthropogenic emissions of carbon dioxide, providing foods, facilitating trade, and providing jobs and recreation for a large portion of the world’s population. The Organization of Economic Co-operation and Development (OECD) estimated that the ocean economy contributes approximately USD 1.5 trillion annually, or roughly 3 percent of global value added. The ocean is increasingly considered as a new economic frontier, driven by a growing population in search of new sources of growth and rapid technological advances making new resources accessible.
The notion of a “blue economy” and the need to stimulate “blue growth” was first raised during the 2012 United Nations Conference on Sustainable Development (also known as Rio+20) and aimed at capturing the potential for maritime-based activities and resources to stimulate economic growth and significantly contribute to sustainable development. Indeed, the “blue economy” concept essentially seeks to promote economic growth, social inclusion and the preservation or improvement of livelihoods while at the same time ensuring environmental sustainability of the oceans and coastal areas. It has diverse components, including established traditional ocean industries such as fisheries, tourism and maritime transport, but also new and emerging activities such as offshore renewable energy, aquaculture, seabed extractive industries and marine biotechnology and bioprospecting.
Hailed by the African Union (AU) as the “new frontier of African renaissance”, the blue economy and its potential as an economic resource is gaining prominence across the continent. Africa stands to reap maximum benefits of utilizing its seas, oceans and their resources for sustainable economic development. A substantial part of Africa’s economic growth relies on numerous ocean-related activities. Maritime zones under Africa’s jurisdiction cover about 13 million square kilometers including approximately 6.5 million square kilometers over the continental shelf. Moreover, 38 out of the 54 African countries are coastal States and the continent is host to globally acclaimed islands including Mauritius, Comoros, Seychelles and Madagascar. Africa’s inland waters, oceans and seas, offer an immense wealth of resources (fishing, minerals and energy), representing significant economic opportunities and, in some instances, real alternatives to many heavily exploited land-based resources. The blue economy holds great potential for the socio-economic development of the African continent and accordingly, it has gained an important place on regional and national development agendas. The pdf AU Agenda 2063 (333 KB) , the strategic document setting out the continent’s socio-economic targets for decades to come, identifies the blue economy as a significant accelerator for the continent’s quest for economic transformation and sustainable development.
Furthermore, the AU’s pdf 2050 Africa’s Integrated Maritime (AIM) Strategy (2.04 MB) provides a broad framework for the protection and sustainable exploitation of the Africa’s Maritime Domain (AMD). Its overarching vision is to foster increased wealth creation from Africa’s oceans, seas and inland waters by developing a sustainable thriving blue economy in a secure and environmentally sustainable manner. One of the key goals of the Strategy is to ensure synergies and coherence between sectoral policies within and between Regional Economic Communities (RECs) by adopting a common and cooperative approach to maritime issues in order to contribute to the creation of sustainable growth from sea or maritime related activities. The October 2016 AU Extraordinary Summit on Maritime Security and Safety and Development in Africa adopted the AU Charter on Maritime Security, Safety and Development (also referred to as the Lomé Charter) which reinforces the commitment by African leaders to make maritime space a key driver of the continent’s economic and social development. The Charter recognizes the need for support in developing security objectives and the need for neighbouring countries and partners to cooperate in areas such as training, education, business and industry development. The blue economy is also interlinked with the SDG14 which refers to the need to “Conserve and sustainably use the oceans, seas and marine resources for sustainable development.”
A blue economy approach centered on regional integration and cooperation has the potential to significantly contribute to economic transformation and industrialization efforts in Southern Africa and help support countries on the path to sustainable development. The region is home to island States such as Mauritius and Seychelles, both of which, form together with South Africa, the very small group of African countries with well-established blue economy strategies.
The importance of marine and coastal resources to island countries such as Mauritius is evident and has been elaborated in numerous international fora. The remarkable per capita marine resource area enjoyed by these countries means that the blue economy approach offers the prospect of sustained, environmentally-sound, socially inclusive economic growth. However, the benefits of the blue economy are not exclusively tailored for island countries. They are equally applicable to coastal and even landlocked countries and ultimately (and importantly), the approach offers the means for the sound utilization of resources beyond national jurisdictions. The approach is also essentially based on the optimization of several sectors such as the mining sector, port infrastructure, maritime transport, fisheries, tourism and renewable energy. It enhances intersectoral coordination and sustainable management of the resources involved in all sectors. At the core of the blue economy concept is the decoupling of socio-economic development from environmental degradation. To that end, the approach is founded upon the assessment of the real value of the blue economy capital, a natural resource, into all aspects of economic activity (conceptualization, planning, infrastructure development, trade, renewable resource exploitation, energy production and consumption). In particular, efficiency and optimization of resource use is paramount, whilst respecting environmental and ecological parameters. This includes where sustainable, the sourcing and usage of local (regional) raw materials and utilizing where feasible, “blue” low energy options to realize efficiencies as opposed to the usual scenarios of high energy.
Thus, there are clear linkages between the blue economy approach, industrialization and sustainable development. Notably, as the Southern African Development Community (SADC) prepares to implement the SADC Industrialization Strategy and Roadmap Strategy 2015-2063, focusing on developing Regional Value Chains (RVCs) including maritime value chains, agroprocessing, minerals beneficiation, pharmaceuticals and tourism, there is need to examine how the blue economy approach centered on cooperation and partnership among member States can effectively contribute to the attainment of the sustainable and inclusive industrialization objectives of the region. The immense Southern Africa’s blue economy capital, coupled with the experiences and policy leadership of countries such as Mauritius and South Africa can be leveraged to build and sustain a strong and inclusive blue economy in the region, with the ultimate objective of achieving sustainable development in all member States.
In spite of all its promises and immense opportunities, the development of an integrated blue economy is limited by a number of challenges and constraints, some of which, might be specific to the Southern African region.
In particular, there is need to overcome current economic activities that are rapidly degrading ocean resources through unsustainable extraction of marine resources, physical alterations and destruction of marine and coastal habitats and landscapes, climate change, as well as marine pollution. The need for urgent protection of the marine environment and ecosystems has become a worldwide concern. In fact, the conservation and sustainable use of biodiversity has a precursory role in enabling the establishment of a blue economy, broader sustainable development and poverty eradication. This is particularly true in developing countries, including Southern African States in particular, where economies are more directly related to environmental exploitation. An ecosystem approach that factors in restoration of biodiversity and renewable resources and proper management of resource extraction is required. It is equally clear that the effects of poor environmental management are heavily exacerbated by the impacts of climate change. Sea level rise and changes in ecosystem status due to changing temperatures, from coral bleaching to impacts of climate change on migration patterns, have been discussed at length in diverse international fora. While the long-term climate change impacts on ocean systems are not yet fully understood, it is however clear that changes in sea temperature, acidity and major oceanic currents, among others, already threaten marine life, habitats and the communities that depend on them.
Issues related to environmental crimes (including deliberate shipwrecking and oil spillage as well as the dumping of toxic waste in the maritime domain), maritime disasters and accidents at sea, as well as transnational organized crimes (including money laundering, illegal arms and drug trafficking, piracy and armed robbery at sea, illegal oil bunkering, maritime terrorism, human smuggling and human trafficking) cannot also be ignored in developing a thriving blue economy in the region.
It is also critical to invest in the human capital required to harness the employment and development benefits of investing in innovative blue economy sectors. It is evident that blue growth cannot be achieved without highly qualified and specialized professionals in strategic and technology-intensive sectors of the blue economy. At present, the Southern Africa region is characterized by deficiencies in human capital and skills for industrial processes, science and technology. There might also be constraints related to the establishment and development of effective legal, regulatory and institutional frameworks. While each country is ultimately responsible for its own resources and sustainable development, the need for structured international/regional cooperation in many aspects of the blue economy cannot be overemphasized. Investment in, and use of the best available science, data and technology is critical to underpinning governance reforms and shaping management decisions to enact long-term change. Clearly, the adoption and implementation of a blue economy approach requires access to affordable and innovative sources of long-term financing.
Besides, inclusive industrialization emanating from the blue economy sector can only be achieved if all societal groups, especially women, youth and underrepresented/marginalized populations are effectively included in the economic activities of the various blue economy sectors or value chains. Likewise, the private sector can play a critical role in building and advancing the blue economy, including through partnering with the public sector to develop investments and ensure sustainability of coastal and marine operations. For instance, maximizing finance for the development of the blue economy can be achieved through the optimization of the scarce public resources and crowding in private investment. The private sector, including Civil Society Organizations (CSOs) can also help address threats such as overfishing, ocean pollution and climate change that the blue economy sector is facing.
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Experts convene in Cairo to discuss modalities for the establishment of the African Pharmaceutical Development Fund
The African Union (AU), in partnership with the African Development Bank (AfDB) and the African Import and Export Bank (Afreximbank), held a three-day consultation event to discuss practical steps towards the creation of a fund to support pharmaceutical manufacturing in Africa.
The establishment of the Pharmaceutical Development Fund is in line with Executive Council decision EX.CL/Dec.970 (XXXI), endorsed in July 2017 recommending the second specialized technical committee on Health, Population and Drug control (STC-HPDC-2) to establish a Fund for African Pharmaceutical Development (FAP-D).
The organized consultation represents a platform which brings key stakeholders together to brainstorm and define the type of fund, scope of work, legal and institutional modalities leading to the set up a mechanism able to catalyze, mobilize and channel financial resources to the development of the pharmaceutical manufacturing sector in the African continent.
The objective of this fund is to maximize the return on investment made to develop the African pharmaceutical industry. The urgent need for such a fund is substantiated by the existing financing gaps in the pharmaceutical industry, which precludes innovative private firms to access finance, technology and innovation required to develop and grow the industry.
“Afreximbank is determined to continue implementing its health and medical tourism program to help pave the way for interested investors and partners to develop pharmaceutical industry in Africa,” said Mr. Amr Kamel Amr Kamel, Executive Vice President, Business Development and Corporate Banking.
“The bank being predominantly a trade finance institution, we would like to see African countries develop manufacturing capabilities in pharmaceuticals, reduce the level of equipment and medicines to conserve foreign exchange.”
The consultation process is part of a comprehensive and coordinated approach to the establishment of an African Pharmaceutical Development Fund capable to mobilize resource from the public and private financial partners.
In this sense, the three-day consultation brought together twenty-five professionals and experts from the pharmaceutical, finance, banking and the private sector, representation from the eight recognized Regional Economic Communities (RECs), consultants in the pharmaceutical industries.
The first day sessions tackled the assessment of the needs, identifying the scope of activities to be financed by the envisaged fund, detecting the available types of funds and comparing their relevance to the objectives of the fund with a view to come up with a list of relevant options and identifying the potential financiers for each of the options identified, and finally assess the respective main implications in terms of resource mobilization and sustainability.
During the second day, the participants explored the best ways to establish the fund to support pharmaceutical manufacturing in Africa, taking into consideration the institutional and operational requirements helping the installation and the realization the objectives of such a fund and permitting the attraction of additional funders.
The third and final day explored ways of linking pharmaceutical manufacturing to the decades of traditional medicines in Africa.
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Supporting Lesotho’s economic diversification and trade integration: Structural transformation through greater export competitiveness
This report provides a multifaceted diagnostic overview of Lesotho’s export competitiveness, including an assessment of medium-term impacts of potential trade policy changes, based on the analysis of publicly available data and evidence, by examining export dynamics and outcomes and using field interviews with the public and private sector.
The report examines the relevance of trade for the macroeconomic context, and vice versa, as well as the degree of diversification and sophistication of exports over time and relative to a series of relevant comparators.
It builds on this with CGE analysis of potential impacts based on specific traderelated scenarios as well as diagnostic tools to facilitate the analysis of GVC participation and integration. As such, it aims to provide a comprehensive and forward-looking view of trade and its relevance for Lesotho’s medium- and long-term development.
Executive Summary
A challenging global context
For a small, landlocked country like Lesotho, improving its trade competitiveness and increasing regional and global integration are essential to growth and economic development. Compared to other countries in its region, Lesotho has benefited from globalization and the emergence of global value chains (GVCs). By taking advantage of the favorable trade preferences into the US market through the American Growth and Opportunities Act (AGOA), Lesotho has developed a substantial manufacturing capacity, particularly in apparel and footwear, and provided jobs for tens of thousands of low-skilled workers, most of whom have been women. Since 2000, GDP per capita has more than doubled.
However, while Lesotho has used trade to drive economic growth, this does not appear to have contributed significantly to poverty reduction in recent years. Moreover, Basotho-owned businesses have struggled to integrate into GVCs as suppliers, resulting in only limited backward linkages to the economy. A tough competitive environment and a slow pace of investment climate reform risk Lesotho losing its competitive edge in its core sectors. Finally, sustained domestic political instability has had a deterrent effect on foreign investors. Political instability is one of the main obstacles cited by firms doing business in Lesotho. These factors have created uncertainty about the sustainability of its current export-driven development model and have limited Lesotho’s ability to further diversify its economy.
Lesotho’s current trade strategy is not sustainable and requires a move away from reliance on exports of low-value added apparel to the US under AGOA. Uncertainty surrounding the future of Lesotho’s AGOA privileges underscores the need for reform and a renewed sense of urgency. Future export growth will be challenged by the emergence of new low-wage competitors in Asia and Africa and the expected erosion of preferential market access in main export destinations over the next decade.
Despite the withdrawal of the United States from the Trans-Pacific Partnership (TPP), the significant difference in tariffs paid by apparel duty-free exports from Lesotho under AGOA and from Vietnam and Malaysia will likely be mostly eliminated in the next decade. Additionally, the current authorization of AGOA will expire in 2025. Although a further re-authorization of AGOA is not ruled out, its potential phase-out or replacement is of key importance for Lesotho since, in the absence of this preferential program, apparel exports will have to compete on equal footing against other low-wage competitors.
Computable General Equilibrium (CGE) analysis carried out for this study finds that the negative impacts due to a sudden suspension of AGOA privileges would reach 1% of GDP in 2020, while exports of textiles and apparel would drop by 16% leading to a drop of textiles and apparel output by 9%. The decline of average real consumption by 0.5% would have significant negative consequences for the population.
This changing external environment is likely to also offer new opportunities to Lesotho’s export industries in the medium term. Through its location, a relatively educated and largely English-speaking workforce, low wages, and significant potential as a tourism destination, Lesotho has the scope to diversify into services industries and integrate into existing and emergent value chains in Southern Africa. Regional integration in sub-Saharan Africa is progressing rapidly, and greater integration and liberalization in SADC and among the tri-partite alliance, as well as movement towards a Continental Free Trade Area means that Lesotho can improve its market access throughout sub-Saharan Africa. This makes a multifaceted diagnostic overview of Lesotho’s export competitiveness, including an assessment of medium-term impacts of potential trade policy changes, particularly salient, and would contribute to the development of the Second National Strategic Development Plan (2017/18-2020/21).
Policy recommendations
The findings emphasize the need for a new approach to trade and trade policy that can provide export-driven growth that is more sustainable and inclusive. Building on Lesotho’s recent DTIS Update (EIF 2012), this report identifies six primary policy recommendations that are intended to be both sufficiently specific and feasible that they can be addressed by relevant government agencies.
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Improve access to imported material inputs and technology by i) pursuing tariff reductions within SACU and ii) ensuring that the duty drawback system functions more efficiently and effectively.
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Pursue a sustained focus on increasing productivity in AGOA beneficiary sectors, most notably textiles and apparel, and aiming to increase spillovers and linkages from these sectors. This will also require a focus on addressing skills gaps, for example by more effectively linking postsecondary education to the labor market.
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Enhance export promotion activities, including improving market information on export opportunities to South Africa, European and other markets, as well as for products other than apparel to the US.
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Since a reduction in trade costs could substantially offset any risks from losing AGOA preferences, there would be substantial gains in a coordinated approach to meeting traderelated regulatory requirements and border management and to exploring cross-border coordination mechanisms with the South African authorities.
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Undertake a comprehensive analysis of service sector performance in Lesotho and its implications for export-driven growth, identifying the most urgent regulatory issues that need to be addressed.
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Develop a comprehensive trade and investment strategy linked to the NSDP II, focusing on i) how to retain and increase investment once AGOA margins have been eroded, ii) determine progress in the implementation of actions recommended in the 2012 DTIS Update and iii) supporting industrialization through participation in regional and global value chains.
This report has been prepared as part of the 2nd phase of the Lesotho Private Sector Development and Economic Competitiveness Project at the request of the Lesotho Ministry of Trade and Industry.
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tralac’s Daily News Selection
Towards an EAC Regional Intellectual Property Policy: 15 August is closing date for completion of a questionnaire to inform the policy
Netpreneurs event: “Let’s make Africa a digital Africa,” Jack Ma tells entrepreneurs (UNCTAD)
From Madagascar to Liberia, Africa’s “digital lions” are preparing to roar, speakers said at an event co-organized by UNCTAD, the Alibaba Business School and the Jack Ma Foundation at South Africa’s Wits University on 8 August. The day-long e-commerce and technology event, dubbed Netpreneurs: The Rise of Africa's Digital Lions, featured an announcement by Jack Ma, co-founder and executive chairman of Chinese e-commerce giant Alibaba, of a $10 million prize fund for African internet entrepreneurs, to be known as the African Netpreneur Prize.
Germany’s Development Minister: EU must open markets to ‘all African goods’ (The Local)
Development Minister Gerd Müller (CSU) has called on the EU to open its markets to African goods, in a bid to stimulate growth on the continent and tackle the migrant crisis. Millions of jobs could be created for young people in Africa if the EU were to allow custom and quota free imports of agricultural produce in particular, argued Müller in an interview with “Welt”. “The European market is effectively blocked, and yet at the same time, European exports to Africa are increasing. So my message to Brussels is: open the markets to all African goods.”
“Our prosperity is to a large extent built on Africa’s resources,” said Müller. “No mobile phone works without coltan from the Congo. Yet we don’t pay people fair wages and we accept that we are exploiting nature. That’s why we need a new way of thinking and acting in politics, economics and society.” While Chinese, Turkish and Russian business were investing heavily in Africa, Müller said, the EU was lagging behind, with only 1,000 German companies at all involved in the continent, despite what he saw as Africa’s economic potential.
COMESA region can reap $17.5bn by implementing e-trade measures (COMESA)
The COMESA region would annually gain $17.5bn in intra-COMESA exports if all the member states fully implemented the digital trade facilitation reforms that involved the use of paperless trade facilitation measures. According to research findings presented to the 5th COMESA Annual Research Forum, five countries have the greatest intra-COMESA export trade potential for the region. These are Eritrea, Egypt, Sudan, Libya and Ethiopia. The researcher, Mr Adam Willie, Principal Economist, Ministry of Commerce, Industry and Enterprise Development of Zimbabwe, said this was based on their low baseline implementation score of the six digital trade facilitation measures in the study. Top scorers under the assessment criteria were Kenya, Madagascar, Mauritius and Rwanda.
ECA eyes Chinese Ant Financial to promote digital financial inclusion in Africa (UNECA)
The UNECA, on Monday, revealed a partnership with Chinese digital financial giant Ant Financial to promote financial inclusion in the continent. ECA Executive Secretary, Vera Songwe, who stressed the importance of digital financial inclusion platforms for Africa’s future development, has underscored the positive protects working in partnership with Ant Financial - an affiliate of the Alibaba Group - mainly in the digital financial arena. Noting that Ant Financial runs one of the world’s largest online payment platforms, valued at $150bn, Songwe also underscored that Africa has an “opportunity to leapfrog technology for social, financial and political inclusion” by working with the Chinese giant. Ant Ant Financial CEO Jing Xiandong said that his company serves over 650 million people on a daily basis and that the company’s vast reach has involved over the years. [Silk Road to the Sahel: African ambitions in China’s Belt and Road Initiative (pdf)]
Playing to strength: growth strategy for small agrarian economies in Africa (World Bank)
With urban industrialization on the scale achieved by East Asian economies looking increasingly less plausible, small economies in Africa need an alternative strategic approach to long-term growth. The purpose of this paper is to identify a growth strategy with the greatest potential for small, landlocked economies in East Africa. The paper uses Malawi, Rwanda, and Uganda as case studies to explore the potential for growth in agriculture, manufacturing, and tourism in these countries. Extract (pdf): The economic centre of gravity in these economies is in services whether rural or urban, formal or informal. Between 52% (Malawi) and 55% (Uganda) of GDP is sourced from services, which is close to the SSA average (56%). The disquieting development in all three countries, like Africa overall, is the trend decline in the salience of industry and manufacturing. Industry’s share in SSA fell by an astonishing 10 percentage points from 36% in 2000 to 26% in 2014. It slid downwards in Malawi and Uganda: from 18% to 16% in Malawi and from 23% to 20% percent in Uganda; it remained constant at 14% in Rwanda. Manufacturing also dipped below the already low SSA average of 11% to just 5% in Rwanda and to 10% and 8% in Malawi and Uganda respectively. [Note: This paper was prepared as a background document for the pdf Malawi Country Economic Memorandum, 2017 (2.33 MB) ]
Country, bilateral trade updates
Impact of macroeconomic reform on labour markets and income in Zambia: assessing ZAMMOD (ILO)
This paper, authored by Alemayehu Geda, John Weeks and Herryman Moono, reviews an econometric model (ZAMMOD) currently being used by the Zambia Ministry of Finance for forecasting, policy analysis and budget preparation; identifies some limitations to the labour market block of ZAMMOD, and makes specific recommendations on how the block could be enhanced. The authors then introduce these recommendation into the model and run simulations examining the labour market impacts of the austerity measures.
Ghana: Nigerian traders cry over constant harassment by unscrupulous GUTA members (GhanaWeb)
Government has been urged to make a definite pronouncement that will quell the rising tension between Ghanaian Traders and their foreign counterparts, particularly those from neighbouring Nigeria in the retail trade arena. Some unscrupulous persons claiming to be Ghanaian traders have been up in arms against their foreign counterparts in the last couple of days, locking up their shops and threatening to take the law into their own hands should government not enforce the law on retail trade in the country. These traders are banking their strength on the part of the law that reserves the retail trade for only Ghanaians and want that law enforced to the letter and are therefore engaging in these acts despite government’s calls for a halt.
Ghana: Minerals Commission to monitor small-scale mining electronically (GhanaWeb)
Speaking during the University of Mines and Technology’s sixth biennial international minerals and mining conference held at Tarkwa in the Western Region, the CEO of the Minerals Commission, Addae Antwi-Boadiako, said this would be done using satellite imagery, drones, and tracking of excavators. He said the Commission would also offer online mining cadaster licensing system for small-scale miners. Mr Antwi-Boadiako noted that the sub-sector in recent times produced a third of Ghana’s gold, which was over one million ounces of gold annually. Unfortunately, the small-scale mining operations were characterized by illegality, social conflicts and adverse health and safety issues; the CEO pointed out.
South Africa: Small business policy is based on wrong assumptions, study shows (Business Day)
The Small Business Institute, in partnership with research company SBP, has been working in 2018 on SA’s first baseline study of SMMEs. We have completed the first phase and have learned that: There are only about 250,000 formal SMMEs in SA - a far cry from the range of 1.2-million to 6-million estimated up until now; Despite comprising a relatively high proportion of formal firms (98.5% in 2016), SMMEs provide a relatively low proportion of jobs in SA (28% in 2016). [The authors: Bernard Swanepoel, Chris Darroll]
Kenyan traders block Tanzania goods in Namanga border standoff (Daily Nation)
Business and transport was paralysed at Namanga border town for the second day as Kenyans protested mistreatment by Tanzanian authorities after several milk traders were arrested and placed in custody at Tanzania last Saturday. About 100 trailers ferry goods into Kenya daily, underlining long-running trade disputes between the two States that has seen Tanzania recently restrict entry of Kenya-made goods to its market like confectionery, juice and ice cream. Irate traders and transporters yesterday complained of harassment by Tanzanian authorities.
Nigeria: LCCI canvasses 13% derivation benefit for states hosting ports (Premium Times)
The Lagos Chamber of Commerce and Industry says the 13% derivatives principles applied to oil producing areas should be extended to states hosting the nation’s ports. The President of LCCI, Babatunde Ruwase, made the suggestion at a news conference on the state of the economy on Thursday in Lagos. Mr Ruwase said that ports activities created profound negative externalities to host states and exerts tremendous pressure on the states’ facilities, which significantly affects roads, health facilities, traffic, environmental management and pollution. “These are costs that are borne by the states in which the ports are located and offers basis to argue that derivation principles should be applied to revenue generated through customs’ duties from the ports.” [Importers, agents groan under 400% hike in cost of container haulage]
East Africa’s gas pipeline plans progress steadily (Daily News)
Tanzania’s plans to export gas to Uganda are advancing towards fruition as the government moves ahead with construction plans of a natural gas transmission pipeline from Dar es Salaam to Uganda via Tanga and Kagera regions. Tanzania Petroleum Development Corporation MD Kapuulya Musomba told the ‘Daily News’ East African Edition that they were now looking for a consultant to conduct a feasibility study for construction of the pipeline.
What draft e-commerce policy means for India’s retail sector (LiveMint)
Just a day before her retirement on 31 July, commerce secretary Rita Teotia tabled the draft e-commerce policy before a panel headed by commerce and industry minister Suresh Prabhu. Little did she know that her last act will draw severe criticism. The draft e-commerce policy, which effectively seeks to regulate all aspects of online retail and recommends strict restrictions, including curbs on discounts, may impact not just e-commerce companies, but also countless sellers working on those platforms. Amazon and Flipkart, which make the majority of the $18bn online retail market but were not part of the deliberations, are now lobbying to get the government to scrap the draft and consider fresh regulations instead.
India: 2018 Article IV Consultation (IMF)
On trade policy issues: Further trade liberalization and reforms to facilitate trade and investment will ultimately benefit India, and expand its role in the world trade system. Trade barriers remain significant. Trade documentation and procedures are cumbersome, and lengthy processing times are burdensome. India’s average most favored nation applied tariff rate (at 13.4% as of 2016) is higher than in some peer countries, though with relatively large differentiation between agricultural and non-agricultural products. In addition, tariffs are being changed frequently, including in the FY2018/19 budget. Trade in services is also restricted. Restrictions on foreign entry, barriers to competition, and lack of regulatory transparency are reportedly the main obstacles. Reducing non-tariff barriers, stabilizing and then subsequently decreasing tariffs, and implementing supply-side reforms to improve the business climate would help increase India’s integration in global markets. The recent liberalization of FDI policies is a positive step in this direction. Several trade-related issues concerning India are currently being considered at the WTO: Extract from the accompanying Selected Issues report: This chapter analyzes the structure and composition of FDI flows to India and factors underlying FDI flows across countries. FDI inflows to India have increased significantly in recent years, partly benefiting from FDI liberalization and improved investor sentiment. Empirical analysis highlights the importance of capital account openness and infrastructure in attracting FDI. Going forward, further investment liberalization, supply-side reforms, and infrastructure investment could help sustain FDI. [See figure 2: India - FDI and Exports by States] [LiveMint: 10 things the IMF numbers tell us about the Indian economy]
Wednesday’s Quick Links: Is Nigeria’s coffee industry going into extinction? Africa Report interview with Arunma Oteh (Treasurer and Vice-President, World Bank Group) ITC: Who’s scooping the benefits of the ice-cream value chain? Connecting Sustainable Development Goals 15 and 16: BioTrade experiences in Colombia, Indonesia Sectoral and regional distribution of export shocks: what do 200 000 UK firm observations say? (pdf, OECD) US seeks $350m annual sanctions in Indonesia trade row USTR: US poultry gains new market access in Morocco India: Japan protests import duty on mobiles, printers Project Syndicate commentary: The need for a global patent market |
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“Let’s make Africa a digital Africa,” Jack Ma tells entrepreneurs
A day-long event organized by UNCTAD and Alibaba gave young tech entrepreneurs in Africa a chance to share experiences and get inspired
From Madagascar to Liberia, Africa’s “digital lions” are preparing to roar, speakers said at an event co-organized by UNCTAD, the Alibaba Business School and the Jack Ma Foundation at South Africa’s Wits University on 8 August.
The day-long e-commerce and technology event featured an announcement by Jack Ma, co-founder and executive chairman of Chinese e-commerce giant Alibaba, of a $10 million prize fund for African internet entrepreneurs, to be known as the African Netpreneur Prize.
“Let’s make Africa a digital Africa,” Mr. Ma said at the event, dubbed Netpreneurs: The Rise of Africa's Digital Lions.
Mr. Ma, who currently serves as UNCTAD special adviser for young entrepreneurs and small business, said he always believed that “when everything is ready it’s always too late” for entrepreneurs. Their role is to create the conditions to prosper, not wait for them.
Former United Nations Secretary-General Ban Ki Moon said by video that he would sit on the African Netpreneur Prize advisory board.
“All young Africans should seize the opportunity to aim high,” Mr. Ban said. “Put your best foot forward and I look forward to your application to the African Netpreneur Prize.”
eFounders Fellows
Around 30 African graduates of the eFounders Fellowship Programme, launched in 2017 and run by UNCTAD and the Alibaba Business School, also attended the event.
“Those of us from Africa, and friends of Africa, are facing the challenge of how to convert the young talents emerging in Africa into a dividend and not a curse,” UNCTAD Secretary-General Mukhisa Kituyi said.
“As everyone keeps telling them ‘go and make employment for yourself,’ how can we make it possible for them to create employment?” he said.
“Since last year, UNCTAD and Alibaba have been recruiting a number of young net entrepreneurs and sending them to Alibaba Business School in Hangzhou, China, for a short intense training on the possibilities on electronic market platforms, gaining visibility on the global market through remote technology and liberating small-scale producers through a conscious, purposeful impact investment in linking them to the electronic market.”
Dr. Kituyi described these eFounders fellows as the start of “an army of impatient entrepreneurs” that will ignite a digital revolution in Africa.
Kenyan eFounder fellow Catherine Mahugu described her journey as a technology professional and entrepreneur. After her encounter with Alibaba in Hangzhou she founded an e-commerce coffee export firm.
Another, Nigerian eFounder fellow Adetayo Bamidura, founded MAX, a platform that uses mobile apps to connect businesses and commuters to safe and affordable motorcycle-taxis on demand.
Africa’s opportunity
South Africa’s science and technology minister Mmamoloko Kubayi-Ngubane said “innovation coupled with entrepreneurship is the engine of growth of any modern economy”.
“The emerging fourth industrial revolution, which will affect and change the whole world, demands that we invest in information and communication technology infrastructure – otherwise we will be spectators of this revolution and not active participants,” she said.
Wits University acting vice chancellor Tawana Kupe asked: “Where is Africa in the fourth industrial revolution?”
Three panel discussions were held in answer, the first on how governments and policymakers can nurture innovation in the digital economy.
Botswana’s investment, trade and industry minister Bogolo Kenewendo said the “last mile” of internet infrastructure was often the hardest in Africa, but “policy infrastructure” in terms of laws, regulations and government awareness of the issues was at least as important.
South African economist Miriam Altman agreed, and said that digital infrastructure was often seen by African governments as “something extra” on top of traditional infrastructure needs like water and electricity.
University of Johannesburg vice-chancellor and principal Tshilidzi Marwala added that he thought governments should make provision for free Wi-Fi, as well as “virtual economic zones” to spur investment.
Lion cubs
“I have to be honest, the digital economy concept has been so slow to catch on in governments,” Ms. Kenewendo said.
This included in “soft” policy areas like education as well as in “hard” infrastructure like broadband, she said.
For Ms. Altman, “kids get it,” but “institutions often don’t.”
She said that basic standard-setting and building a digital infrastructure was incumbent on governments – not just in Africa – and e-commerce would flow from that.
Ms. Kenewondo said that young digitally-aware Africans should not afraid to be disruptors because “what we have now clearly isn’t working for us”.
“I encourage you to throw away your caution,” she said.
Panellists agreed that the African Continental Free Trade Area (AfCFTA) was a welcome step toward freer regional circulation of goods, but much work remained to be done on transport logistics and connectivity.
Investing in talent
A second panel addressed access to capital and investment.
Mara Corporation founder Ashish J. Thakkar said that with M-Pesa, Kenya’s mobile money system, covering 98% of that country’s GDP, Africa had proved that it could develop, use and exploit new technologies.
AfricInvest venture capital director Selma Ribica said that M-Pesa’s success, and that of Nigerian ecommerce giant Jumia and others, was itself a spur to investment capital and now it was pouring in – to the tune of $500 million in 2017.
However, she cautioned, so far this flow of investment was unevenly distributed in a few sectors and mostly to just three African countries: Nigeria, Kenya and South Africa.
IFC Venture Capital’s Africa head Wale Ayeni said that “angel investing” was in its infancy in Africa but this was changing.
A third panel considered skills gaps and employment for young people.
Wambui Kinya, chief strategy officer of Andela, a full-service tech talent agency which spots, trains and places African developers and other technology professionals, urged businesses in Africa not to look outside the continent for their technology service needs.
“Africa has the tech talent they need,” she said.
Hubs and ecosystems
Mr. Kupe said Wits University had launched a digital innovation hub five years ago in partnership with the private sector with students working in areas as diverse as fintech, health and gaming.
“Our challenge is to make digital life the ‘new normal’,” Mr. Kupe said of his university’s commitment to future-forward education. “We must change our mindset.”
Anna Ekeledo, executive director of AfriLabs, a community of 100 innovation hubs in 30 African countries aiming to build technical and entrepreneurial skills and engage in policy advocacy, said that the linkage between academia and innovation hubs needs to be strengthened.
She said she was looking forward to scaling businesses as a result of trade reforms under AfCFTA, and other ways of turbocharging the “enabling environment for digital ecosystems”.
As well as the panellists, eFounders fellows, students, other participants and dignitaries, the event was also attended by UN Women’s executive director, Phumzile Mlambo-Ngcuka, and China’s ambassador to South Africa, Lin Songtian.
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ECA promotes use of disruptive technology to enhance financial inclusion in Africa
The United Nations Economic Commission for Africa (ECA) is collaborating with the International Financial Corporation (IFC) and Ant Financial (Ant) to promote digital financial inclusion in Africa, through investment and technical capacity building.
On Friday, 3 August, ECA Executive Secretary, Vera Songwe, led Ant Financial’s CEO, Eric Jing, and IFC’s VP and Treasurer, Jingdong Hua, to a meeting with President Mulatu Teshome of Ethiopia.
Addressing a group of journalists right after the meeting, Ms. Songwe said: “Essentially, we were talking (with the president) about IT and the power of IT for financial, social and political inclusion.”
The Executive Secretary noted, “Agenda 2030 and Agenda 2063 say we should leave no one behind, and many people have been asking what happens to SMEs with the AfCFTA. So we are thinking about what platforms we can put together to ensure that not only big companies take advantage of the AfCTA but also small companies.”
Ms. Songwe underscored that “We have an opportunity to leapfrog technology for social, financial and political inclusion,” adding “today, we are bringing Ant Financial, which has the largest platform for financial inclusion and assists people with very small financial capacity to be involved in the society.”
Ant Financial – an affiliate of the Alibaba Group – runs one of the world’s largest online payment platforms, valued at $150 billion.
Ant CEO, Eric Jing, said the company serves over 650 million people on a daily basis. He stated that “we have expanded well beyond China and are recording tremendous success in our effort to bridge the gap between the reach and the poor in many other countries such as India, the Philippines and more.”
Mr. Jing said he would like to replicate his company’s success in Africa so that financial inclusion can be enhanced.
Mr. Hua stated that IFC is supportive of Ethiopia’s laudable poverty reduction initiatives.
The delegations from IFC and Ant Financial also met with some senior staff of the ECA on Friday and expressed their willingness to collaborate with the Commission to foster inclusive growth on the continent. They were also briefed on what ECA does in line with IT and digital inclusion.
Ms. Songwe highlighted the importance of digital IDs, noting that “we have many displaced people and refugees on the continent without proper official identity. We know that without an identity you are not a complete citizen and life can be challenging.”
“So we are trying to see how we can go from getting identities to getting financial and social inclusion particularly for youth and women,” she said.
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Playing to strength: Growth strategy for small agrarian economies in Africa
With urban industrialization on the scale achieved by East Asian economies looking increasingly less plausible, small economies in Africa need an alternative strategic approach to long-term growth. The purpose of this paper is to identify a growth strategy with the greatest potential for small, landlocked economies in East Africa.
The paper uses Malawi, Rwanda, and Uganda as case studies to explore the potential for growth in agriculture, manufacturing, and tourism in these countries. The paper marshals extensive reasoning that while the manufacturing sector and exports of light labor or resource intensive manufactures could contribute a fraction of aggregate growth, it is agriculture, agribusiness, and services that will contribute the lion’s share because of an unprecedented convergence of technologies.
Industrialized agriculture and agri-business could enable these countries to sustain rapid growth even in the face of climate change. Malawi, Rwanda, and Uganda, with some trying, can accelerate their convergence to the technological frontier to take full advantage of this promise.
Achieving agriculture’s potential through modernization, adoption of new technological advances and enhanced resilience to climate change
The Green Revolution in South Asia is frequently referred to as an example for Africa to emulate. Are there lessons for the three East African countries and how do these need to be updated to take account of technological developments and learning since? The Green Revolution in South Asia was enabled by the availability and adoption of high-yielding varieties of seeds, intensification of inputs including fertilizer and water, mechanization, and extension services. There is some good news on the availability of high-yielding varieties for East Africa, but there are considerable other bottlenecks to emulating the Green Revolution in East Africa that need to be resolved. In all three countries, the insufficient application of modern inputs – fertilizers, improved seeds, pesticides, and farm machinery – results in low yields.
The further improved dwarf rice strains that have delivered good results in South Asia and Latin America are suitable for Rwanda and Uganda where rice is one of the staples. Hybrid strains of maize and sorghum have also been developed that are adapted to African conditions and the brightly colored seeds are becoming widely available. The issue for Africa is that consumption includes multiple staples and other crops. There is nothing comparable to the stranglehold that wheat and rice have on diets in South Asia. Hence, the research needed to improve yields must be more extensive in its coverage of crops and microclimates. This crop diversity poses a challenge; at the same time, it mitigates risks and opens multiple pathways to increasing production and exports.
Higher yielding varieties of maize have been available for some time but their diffusion has fallen short of expectations. Hybrid seeds need to be purchased anew prior to each planting season because maize is an open pollinating species, and hybrids deliver the sought after yields only if they are adequately fertilized. Because agriculture is almost exclusively rain-fed and drought poses an omnipresent risk, borrowing to finance the cultivation of hybrids, even when subsidized credit is available, remains unattractive to many. Only 7 percent of the cultivated acreage in Africa is under hybrid varieties.
Superior strains of food crops are a necessary but by no means a sufficient condition for an eventual transition to modern agriculture. In the three countries, farmers use remarkably little mechanical equipment partly because labor is cheap, and partly also because capital costs and the expenses incurred on fuel discourage the use of machinery that would ease the workload and circumvent seasonal labor shortages. Furthermore, the incentive to upgrade agricultural practices is inhibited by difficulties encountered in processing, storing, transporting, and marketing surplus output.
Infrastructure constraints to modernization are several. First and foremost are the transport and energy infrastructures. All three East African countries are deficient in these. The lack of easily accessible all-weather feeder roads, maintained in good condition, greatly increases the ton/km cost of transporting agricultural produce and discourages yield-enhancing improvements and production for the market (e.g. the availability of fertilizer at affordable prices). In fact, only a third of Uganda’s agricultural output reaches the market and many farmers have been discouraged from growing the high yielding NERICA rice for just this reason. Rural transport bottlenecks hamper the processing and marketing of food grains, dairy products and cash crops such as coffee and cut flowers. A crippling shortage of electric power compounds the problem caused by transport constraints because – and this is looking ahead – an increasingly industrialized agriculture that harnesses digital technologies to raise yields and enlarge rural value adding activities, cannot gain traction without an adequate supply of power. As McKinsey Global (2015, Brighter Africa) note, there is potential for developing both fossil-based and renewable sources of power such as solar powered micro grids but until governments step up their efforts to mobilize resources and deepen the capacity to plan and implement, the power supply will increase in small doses when a Big Push is the need of the day.
Rainfed agriculture is hostage to the vagaries of nature and with climate change likely to magnify the variability of precipitation, conserving and efficiently allocating water will require investment in irrigation, the creation of institutions and the use of pricing policies. In addition, farmers would benefit from improved weather forecasting now feasible with the help of advanced computing technologies and models as well as the data provided by satellites and ground-based sensors. These initiatives will need to be combined with other measures such as greater mechanization aimed at industrializing agriculture. As observed by Fuglie and Rada (2013), irrigation can close to double crop yields, however, the best and most costeffective results come from providing plants with the exact amount of water needed at each stage of the growing cycle regarding soil and environmental conditions. To do that calls for the kind of water distribution and application technologies (e.g. drip irrigation using polyethylene tubing and micro spray heads) that delivers a metered amount of water to the root system with the minimum losses from evaporation and overwatering. How much water is needed at any time depends on the information collected by the imaging and sensing techniques that are diffusing in advanced countries.
Water management would go hand in hand with the optimal application of fertilizer using the appropriate mix. Too much is not only wasteful, it pollutes watercourses as well. One promising approach is the so-called deep placement technique that inserts a briquette of fertilizer some centimeters under the soil to slow the release of nitrogen, loss through leaching (if excess water is applied) and surface volatilization as nitrous oxide or ammonia gas. East Africa can also potentially benefit from the advances in digital and imaging technologies, in the crop sciences and in genetic recombination in modernizing its agriculture.
The technology to increase yields and the quality of production in the medium term and in the more distant and climatically less favorable environment (see discussion on climate resilient agriculture later) is available for the three countries to adapt. These technologies are systematizing and making agricultural production more akin to manufacturing. If the industrializing of agriculture and the switch to precision farming are followed through, a sustained increase in supply would be assured.
Is adoption of high-tech for industrialization of agriculture too much of a stretch for landlocked East Africa? There are many obstacles to transferring these technologies wholesale to East Africa but their eventual assimilation is a must and it is the removal of the hurdles that needs to be addressed. To do this the countries will need to invest in RD&E capabilities and in the hard infrastructures that will provide essential services to farmers – principally transport, energy and water. If more of the growth is to be derived from an industrialized precision agriculture, then this is the time to begin planning for the transformation of the agricultural economy because the building of the soft and hard infrastructures and the skills that will make agriculture a sustainable success far into the future will not be accomplished overnight.
Foremost is the need to shift the current focus of development away from growth that is driven by urban industrialization. Upgrading agriculture technologically can generate higher returns for many more people and ease the burden of migration on urban centers. The development of urban manufacturing and services will still be a necessity to support agriculture. However, a strategy that assigns more weight to agriculture in the medium term could be superior (because it builds on current comparative advantage) while at the same time generating the spillovers that spur activity in other sectors of the economy.
Shahid Yusuf is Chief Economist, The Growth Dialogue. Praveen Kumar is Lead Economist, Macroeconomics, Trade and Investment Global Practice at the World Bank. This paper was prepared as a background document for the pdf Malawi Country Economic Memorandum, 2017: From falling behind to catching up (2.33 MB) .
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tralac’s Daily News Selection
A reminder of tomorrow’s UNCTAD forum in Johannesburg: Netrepreneurs: The rise of Africa’s Digital Lions
Diarise: (i) EAC-COMESA-SADC Consultative workshop on Trade in Goods (13-17 August, Addis Ababa); (ii) 4th AU Customs expert trade facilitation forum (15-17 August, Cairo)
Explore tralac’s new series of country trade data updates and infographics: they provide an overview of a country’s intra-African trade relationships; the top import and export products traded; and applicable tariffs.
Responses to Dani Rodrik’s FT commentary on the future of the WTO: Joel Trachtman, Simon Lester
A Devex interview with Jean-Philippe Stijns: Supporting Africa’s entrepreneurs
COMESA Research Forum: Policy barriers bad for trade – George Lipimile (The Star)
COMESA is losing at least Sh3.2 trillion annually in trade due to trade barriers arising from protectionism policy. Road blocks, lengthy customs procedures and administrative requirements are some of barriers hindering free flow of trade in the region that has the potential to make at least Sh4.2 trillion per year. Last year, intra-COMESA trade dropped by 1.76% to Sh2.1 trillion compared to the previous year. This was revealed yesterday at the start of the Fifth COMESA Annual Research Forum in Nairobi. “There is need for country member states to look into these issues, because sometimes we deal with one, then there arises other three non-tariff barriers,” COMESA Competition Commission chief executive Goerge Lipimile said. [COMESA watchdog to tighten surveillance to enhance consumer protection]
COMESA region can reap US$17.5b by implementing e-trade measures (COMESA)
The COMESA region would annually gain US$17.5 billion in intra-COMESA exports if all the member States fully implemented the digital trade facilitation reforms that involves the use of paperless trade facilitation measures. According to research findings presented to the 5th COMESA Annual Research Forum underway in Nairobi, five countries have the greatest intra-COMESA export trade potential for the region. These are Eritrea, Egypt, Sudan, Libya and Ethiopia.
Zimbabwe: Bilateral free trade agreement with South Africa to terminate (pdf, ZimTrade)
The Government of South Africa has given notice of its intention to terminate the Zimbabwe-South Africa Bilateral Trade Agreement. The trade agreement will be terminated with effect from 20 November 2018. South Africa has indicated that the Agreement is being terminated in favour of the SADC Trade Protocol on Trade, which is more comprehensive and gives better preferences than the Bilateral Trade Agreement.
South Africa: If the Western Cape were a country, it would be the world’s fifth largest exporter of citrus fruits (GCIS)
South Africa is currently the second biggest exporter of citrus in the world after Spain, accounting for 10% of the global market. The Western Cape currently exports the majority share of this, at 62%, making it the largest exporter of citrus fruit in the Southern Hemisphere. Over 6% of the global market share of citrus was exported from the Western Cape in 2017. To put this in perspective, China and the USA, which hold the spots as the world’s third and fourth biggest exporters, hold global market share of 8% and 7% respectively.
Most of the province’s exports are oranges (54% of all exports in 2017). However, soft citrus (19%) has shown excellent growth in the past ten years, and lemons and limes, which showed good growth between 2012 and 2015, have since tapered considerably. Europe is the biggest market for Western Cape exports, however, the market size has declined from 55% of all Western Cape citrus exports in 2008, to 47% in 2017. The Asian and Oceania markets however have made up the decline, growing from 34% in 2008 to 42% last year.
AfDB President Akinwumi Adesina calls for technology transfer to farmers (AfDB)
Adesina, who was the 2017 World Food Prize winner, is advocating for the creation of staple crops processing zones (SCPZs) across Africa: vast areas within rural areas set aside and managed for agribusiness and food manufacturing industries and other agro-allied industries, enabled with right policies and infrastructure. “I am convinced that just like industrial parks helped China, so will the SCPZs help to create new economic zones in rural areas that will help lift hundreds of millions out of poverty through the transformation of agriculture- the main source of their livelihoods- from a way of life into a viable profitable business that will unleash new sources of wealth,” he said. The African Development Bank has already begun investing in the development of processing zones in a number of African countries, including Ethiopia, Togo, DRC, and Mozambique, with a plan to reach 15 countries in a few years. Adesisana was speaaking at the 2018 Agricultural and Applied Economics Association annual meeting in Washington. [Nigeria: NIRSAL targets N1.6tn revenue for smallholder farmers]
Rwanda targets $92m from tea exports in 2018 (New Times)
Nigerian trade and related updates
2018 Making Business Work report (Presidential Enabling Business Environment Council)
The Presidential Enabling Business Environment Council said on Monday that it would continue to accelerate its efforts to ensure better public service delivery and improved business environment for micro, small and medium enterprises. Bisi Daniels, Strategy and Communications Adviser to the Minister of Industry, Trade and Investment, Okechukwu Enelamah, said: “Nigeria must improve its ranking by 45 places in the World Bank Ease of Doing Business Index over the next two years to achieve its goal of attaining the top 100 by 2020. Such an ambitious goal requires accelerated and focused execution of Government Executive Order and National Action Plans. It is clear that Nigeria must now intensify its reforms; and the PEBEC will continue to work closely with the public and private sectors to institutionalise its reforms, cascade them to state level, refine and improve the business environment.” [Download the PEBEC report, pdf]
Nigeria, Niger, and Benin to meet over smuggling (NAN)
Having identified smuggling of rice and other products as threat to their relationship, Nigeria, Niger and Benin are to meet on how to address the problem. The Benin Republic Ambassador to Nigeria, Mrs Paulette Yekpe said the proposed tripartite meeting would establish a framework to address rice smuggling. Yekpe said the smuggling of rice and other products posed a threat to the relationship between both countries. The ambassador said that although ECOWAS protocol paved way for the free movement of citizens within the sub-region, more needed to be done through regional integration to tackle rice smuggling.
Ghana: Nigerian traders not affected by Ghana’s new retail law – envoy (The Eagle)
AfDB’s Industrial and Trade Development Department: EOI to support industrial policy design and implementation in Africa
The services to be provided under the assignment include (pdf): (i) Review industrial policies experience in Africa and other emerging markets to take stock of best practices; (ii) Review the Bank’s past support to support industrial policies for lessons learnt; (iii) Undertake diagnostics/analytical work on industrial policy challenges and bottlenecks in Africa covering the range of more advanced emerging economies as well as countries in transitions with less developed industrial sectors; (iv) Assist in the finalization of the strategic approach and delivery model to support the implementation of the flagship 1 of the Industrial Africa High 5 strategy:
Ghana: New fiscal regime for mining sector soon – Bawumia (GhanaWeb)
Government will soon introduce a new fiscal regime for the mining sector to ensure Ghana derives maximum benefit from the extraction of her mineral resources, the Vice President Dr Mahamudu Bawumia has revealed. Such thinking has already began to reflect in the Nana Akufo-Addo government’s approach to development with the recent passage by Parliament of a Master Project Facility Agreement that seeks to leverage a fraction of our bauxite deposits in a barter arrangement for infrastructure development worth $2bn after the Vice President’s business visit to the People’s Republic of China in June last year. This new thinking, the Vice President emphasised, was the guiding principle behind the decision to leverage a fraction of Ghana’s vast bauxite deposits to build an integrated bauxite and aluminium industry. “We have decided that we are not going to allow what has happened to gold and manganese to happen with bauxite. Parliament just passed the Ghana Integrated Bauxite Authority Bill. We are forming this corporation, and will be forming partnerships with anybody who comes, a joint venture, to build an integrated bauxite and aluminium industry. We don’t want the raw bauxite being taken out of Ghana anymore.”
Road to industrialized Africa: role of efficient factor market in firm growth (IMF)
After a decade of rapid growth, industrialization has lost ground with shrinking manufacturing sector and high informality in Sub-Saharan Africa. This paper explores how land market and labor regulations affect factor allocative efficiency and firm performance in SSA. Using pooled data on firm balance sheets for 40 countries in SSA, the results identify significant land and labor misallocations due to limited market allocation of land and inappropriate regulatory policies.
Dynamics of off-farm employment in Sub-Saharan Africa: a gender perspective (World Bank)
Off-farm income constitutes a significant share of the household livelihood portfolios across Sub-Saharan Africa. Yet, the determinants and dynamics of individuals’ participation in off-farm employment activities have not received adequate attention due to the weaknesses in individual-level data collection and the lack of longitudinal studies. This paper uses national panel household survey data from Ethiopia, Malawi, Nigeria, Tanzania, and Uganda; provides empirical evidence on individual-level off-farm (wage and self) employment participation rates; analyzes the extent and drivers of entry into off-farm employment and continued employment; and conducts the analysis by gender and rural/urban location. A significant share of the rural and urban working-age individual population is found to participate in off-farm employment, ranging at the national level from 34% in Ethiopia to 58% in Malawi.
Tuesday’s Quick Links: Kenyatta to meet Trump for trade talks later this month as ties improve East Africa hit by new round of trade disputes Nigeria: Importers abandon over N10b vehicles at Lagos ports Ghana: ‘Outrageous tax incentives harming local businesses’ – Marwan Ansah Togo adopts a new national development plan (PND 2018-2022) CBE: Egypt’s foreign debt reached $88.2bn by end of March Global Network of Export-Import Banks and Development Finance Institutions (G-NEXID): update KZN to boost trade opportunities with Nevada He Wenping: The Belt and Road Initiative boosts Africa’s leapfrog development Atlantic Council on non-tariff barriers: Can the EU and the US make progress on trade? CII: New export opportunities for India in trade with US and China |
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COMESA region can reap US$17.5b by implementing e-trade measures
The COMESA region would annually gain US$17.5 billion in intra-COMESA exports if all the member States fully implemented the digital trade facilitation reforms that involves the use of paperless trade facilitation measures.
According to research findings presented to the 5th COMESA Annual Research Forum underway in Nairobi, five countries have the greatest intra-COMESA export trade potential for the region. These are Eritrea, Egypt, Sudan, Libya and Ethiopia.
The researcher, Mr Adam Willie, Principal Economist, Ministry of Commerce, Industry and Enterprise Development of Zimbabwe, said this was based on their low baseline implementation score of the six digital trade facilitation measures in the study.
“The implementation scores used in the study only captured the paperless trade facilitation measures that enable efficient coordination and exchange of data and documents among government border agencies and business community within a country,” Mr Adam explained.
Top scorers under the assessment criteria were Kenya, Madagascar, Mauritius and Rwanda. According to the researcher the top scorers have exhausted their potential to generate additional intra-COMESA exports with respect to scaling up implementation of the six e-trade facilitation measures considered in this study.
Comoros, D R Congo, Djibouti, Malawi, Swaziland, Seychelles, Uganda, Zambia and Zimbabwe had medium implementation scores thus presenting significant potential to increase intra-COMESA trade by implementing the DFTA.
The study sought to investigate intra-COMESA exports gains resulting from full implementation of e-trade by Member States. In particular, the study sought to assess the impact of the current implementation level of e-trade facilitation on intra-COMESA exports and secondly, to estimate the regional gain in intra-COMESA exports when all Member States fully implement digital trade facilitation.
Arising from these findings, the study recommended policy change by countries with low to medium baseline implementation scores to scale up implementation of e-trade facilitation to realise the demonstrated potential benefits for the region.
“Efforts should be made to understand country specific circumstance on why they have not been able to scale up implementation,” Mr Adam cautioned noting that ‘one size fit all policies’ may not work as there is greater variability in baseline implementation levels.
The five-day Forum is reviewing the best 11 out 88 research papers submitted by researchers from COMESA members States. The policy implications from the papers will be presented to the COMESA policy organs for consideration as a basis for the policy making for Member States.
Over 60 regional experts drawn from the academia, policy think tanks, government and private sector institutions and international organizations are participating in the Forum.
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Western Cape leads the way in citrus exports
MEC Alan Winde on exportation of citrus fruits from Western Cape
If the Western Cape were a country, it would be the world’s fifth largest exporter of citrus fruits.
South Africa is currently the second biggest exporter of citrus in the world after Spain, accounting for 10% of the global market. The Western Cape currently exports the majority share of this, at 62%, making it the largest exporter of citrus fruit in the Southern Hemisphere.
Over 6% of the global market share of citrus was exported from the Western Cape in 2017. To put this in perspective, China and the USA, which hold the spots as the world’s third and fourth biggest exporters, hold global market share of eight percent and 7 percent respectively.
Most of the province’s exports are oranges (54% of all exports in 2017). However, soft citrus (19%) has shown excellent growth in the past ten years, and lemons and limes, which showed good growth between 2012 and 2015, have since tapered considerably.
Europe is the biggest market for Western Cape exports, however, the market size has declined from 55% of all Western Cape citrus exports in 2008, to 47% in 2017. The Asian and Oceana markets however have made up the decline, growing from 34% in 2008 to 42% last year.
At a country level, the United Kingdom and the Netherlands are the biggest buyers of Western Cape citrus, however, citrus exports to China have shown remarkable growth.
The Chinese market is currently valued at R752 million, with 50.5% real annual growth recorded since 2008.
Exports to Hong Kong, Saudi Arabia, Bangladesh and Portugal are also showing good growth, revealing good potential for new markets.
Minister of Economic Opportunities, Alan Winde said: “Europe has long been a major destination for exports, but the growth we’re seeing in the Asian market is showing a new shift. This is especially positive news with the uncertainty around Brexit and what this means for European and UK exports.”
“Our Project Khulisa strategy has been to focus on growing the agricultural and agri-processing sectors, thereby creating new jobs. By developing new export markets for our produce, while still providing a world class product to our traditional markets, we can grow this economy.
“We’ve also been focused on growing our Halal exports, and the growth of citrus exports to countries like Saudi Arabia, Oman and Bahrain is a positive step towards meeting this Project Khulisa goal.”
“Citrus farming also creates jobs in the winter months, once the harvest of the summer deciduous fruits and grapes has taken place, creating more employment opportunities for seasonal workers,” Minister Winde said.
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African Development Bank President Adesina calls for technology transfer to farmers
Africa should be the breadbasket of the world, has no reason spending US$ 35 billion a year importing food, Adesina tells Agriculture conference in U.S.
The President of the African Development Bank Group, Akinwumi Adesina, has made an urgent call to give farmers across the continent new technologies with the potential to transform agricultural production. Adesina said the technology transfer was needed immediately and that evidence from countries like Nigeria demonstrated that technology plus strong government backing was already yielding positive results.
”Technologies to achieve Africa’s green revolution exist, but are mostly just sitting on the shelves. The challenge is a lack of supportive policies to ensure that they are scaled up to reach millions of farmers,” Adesina said during a keynote speech delivered at the 2018 Agricultural and Applied Economics Association (AAEA) Annual Meeting held in Washington, D.C on August 5, 2018.
Adesina cited the case of Nigeria, where policy under the country’s Minister of Agriculture, had resulted in a rice production revolution in three years.
“All it took was sheer political will, supported by science, technology and pragmatic policies... Just like in the case of rice, the same can be said of a myriad of technologies, including high-yielding water efficient maize, high-yielding cassava varieties, animal and fisheries technologies,” Adesina said.
The African Development Bank is pointing the way to how this can be done, and is currently working with the World Bank, the Alliance for a Green Revolution in Africa (AGRA), and the Bill and Melinda Gates Foundation to mobilize US$ 1 billion to scale up agricultural technologies across Africa under a new initiative called Technologies for African Agricultural Transformation (TAAT).
TAAT is taking bold steps to bring down some of the barriers preventing farmers from accessing latest seed varieties and technologies to improve their productivity.
“With the rapid pace of growth of the use of drones, automated tractors, artificial intelligence, robotics and block chains, agriculture as we know it today will change,” the President said.
“It is more likely that the future farmers will be sitting in their homes with computer applications using drone to determine the size of their farms, monitor and guide the applications of farm inputs, and with driverless combine harvesters bringing in the harvest.”
Adesina used the opportunity to advocate for African universities to adapt their curriculum to enable technology-driven farmers and to focus on agribusiness entrepreneurship for young people, emphasizing the need to rise beyond theories to application.
Through its innovative Enable Youth initiative, the African Development Bank has in the past two years committed close to US$ 300 million to develop the next generation of agribusiness and commercial farmers for Africa.
Adesina stressed the Bank’s resolve to change the face of agriculture in Africa to unleash new sources of wealth.
AAEA President Scott Swinton said Adesina and the African Development Bank exemplify the use of economics that makes a difference in people’s lives.
“If applied economics is economies that make a difference, I think that there is no better example of someone who has used that than Akinwumi Adesina,” Swindon said.
Adesina told delegates at the 2018 conference attended by over 1,600 agricultural and applied economists from around the world: “There is no reason why Africa should be spending US$ 35 billion a year importing food. All it needs to do is to harness the available technologies with the right policies and rapidly raise agricultural productivity and incomes for farmers, and assure lower food prices for consumers.”
“I am convinced that just like industrial parks helped China, so will the SCPZs help to create new economic zones in rural areas that will help lift hundreds of millions out of poverty through the transformation of agriculture- the main source of their livelihoods- from a way of life into a viable profitable business that will unleash new sources of wealth,” he said.
The African Development Bank has already begun investing in the development of processing zones in a number of African countries, including Ethiopia, Togo, Democratic Republic of Congo, and Mozambique, with a plan to reach 15 countries in a few years.
To help Africa transform its agriculture, the Bank is investing US$ 24 billion over the next ten years to implement its pdf Feed Africa Strategy (7.93 MB) .
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tralac’s Daily News Selection
The 5th COMESA Annual Research Forum is underway in Nairobi: download the programme (pdf)
The annual meetings of the African Caucus for the World Bank and the International Monetary Fund began yesterday at Sharm El Sheikh: an overview
Three commentaries on the WTO: Dani Rodrik: The WTO has become dysfunctional (Financial Times); Giovanni Di Lieto: Australia has to prepare for life after the WTO (The Conversation AU); Leïla Choukroune, James J. Nedumpara: The problem at the WTO (The Hindu)
AGOA eligibility hearing: South Africa’s Copyright Amendment Bill
In our comments, IIPA raises significant concerns with South Africa’s 2017 Copyright Amendment Bill, which remains riddled with problematic and troublesome provisions that run afoul of international norms and are inconsistent with South Africa’s international obligations, including under the WTO TRIPS Agreement and the Berne Convention. Adoption of this bill would place South Africa out of compliance with the AGOA eligibility criteria that require beneficiary countries to provide adequate and effective protection and enforcement of intellectual property. Many of the proposals in the 2017 Bill suggest a mistaken assumption that there is a fixed market for copyrighted works and that the government’s role is to regulate the internal relationships of the creative community rather than to incentivize new investment in creative output. This misguided approach will stagnate South Africa’s cultural community. If it does not make important revisions to these proposed provisions, South Africa will take a giant step backward in its effort to strengthen its copyright-based industries. South Africa would be better served by providing clear and unencumbered rights in its law that will allow its creative communities to increase investment to meet the growing demand for creative works of all kinds, in all formats. [Note: Summary of testimony of the International Intellectual Property Alliance ahead of next week’s (16 August) hearing before the AGOA Implementation Subcommittee of the Trade Policy Staff Committee, Office of the United States Trade Representative]
How South Africa’s competition bill is a threat to investment (Business Day)
Even if one were to argue that competition in South African markets is limited, it seems legislators do not appreciate that competition policy alone cannot achieve more competition. It is the coherence of the policy framework that ensures economic dynamism: one cannot ignore the competitive effects of ill-advised mining, agricultural, tele-communications, financial and other sectoral policies. One of the key premises of competition policy internationally is that its primary aim is not the engineering of more competition, but the prevention of competitive abuses. The latter focus indirectly serves to increase dynamism and long-term investment. [The author, Willem Boschoff, is the co-director of the Centre for Competition Law and Economics at Stellenbosch University]
Anzetse Were: Rwanda AGOA exit signals era of reciprocal trading (Business Daily)
Washington and Europe seem tired of ‘babying’ the continent and being ‘soft’ on sovereign African states. They are acutely aware of the problems and suffering in their own countries and communities, and wonder why these issues remain unaddressed while their governments give Africa generous aid and trade packages. Africa needs to read the signs and prepare for the future. In an era of growing economic nationalism, Africa can expect fewer trade deals that are non-reciprocal where Africa gets access to massive external markets while the other party does not benefit from penetration into African markets. This is not to say there is no concern with the economic nationalist movements. A KMPG survey revealed that two-thirds of UK CEOs are most worried about the growing use of protectionism, which includes measures such as tariffs and quotas on imports and view populist politics as the greatest threat to growth.
World Bank: $15m IDA grant for AUC capacity development
Component 2: Facilitating regional integration results with stakeholders (pdf). On a pilot basis, this component aims to leverage the AUC’s unique convening role and to support results-oriented external partnerships and collective actions designed to enhance the implementation of key regional economic development initiatives. This would be largely achieved by “leveraging” the AUC’s convening role to advance priority economic integration programs through consensus building, policy harmonization, and advocacy in collaboration with RECs and other stakeholders; “positioning” of the AU globally for the voice and agency, through partnerships and representation in multinational institutions and global fora and diaspora engagement; and “connecting” the AU to its citizens especially women, youth as well as to civil society more broadly.
EAC Secretariat, AfDB strategize on EAC’s integration agenda (EAC)
Country updates
Mozambique: IMF statement
Regarding the ongoing preparations for the 2019 budget, the mission recommended the submission of a draft budget underpinned by realistic macroeconomic assumptions, as well as prudent revenue and spending projections. On the revenue side, the mission recommended removing VAT exemptions, except for basic basket goods, and strengthening VAT administration. It advised, on the spending side, reducing the size of the wage bill as a share of GDP through moderation in wage increases, particularly for top earners in the public sector, and parsimony in additional hires, which should be limited to urgent needs in social sectors. The mission also stressed the importance to continue limiting other spending items through better prioritization, including public investment outlays.
Kenya: IMF statement
Discussions focused on (i) fiscal policies to achieve the authorities’ fiscal deficit target of 5.7 percent of GDP in FY2018/19; (ii) interest rate controls; and (iii) structural reforms aiming to ensure the sustainability of investment-driven, inclusive growth. The authorities reiterated their commitment to macroeconomic policies that would maintain public debt on a sustainable path, contain inflation within the target range, and preserve external stability.
Kenya: Maize earnings fears over Uganda imports (Business Daily)
The government has raised the alarm over an influx of cheap maize from Uganda that look set to depress grain prices ahead of harvest. Traders have stepped up imports from Uganda and the cross-border trade is expected to rise as maize prices in the neighbouring country dropped to Sh16 a kilogramme compared to Kenya’s average cost of Sh51.47. While the imports will help to lower the cost of maize flour, they will hurt farmers’ earnings, setting the stage for a fresh round of confrontation between farmers and the government. “Obviously this will affect farmers’ prices because we are also expecting a bumper harvest this year. But we do not have much control over it because the East African Protocol allows for free movement of goods,” said Agriculture chief administrative secretary Andrew Tuimur.
Tanzania slaps 25% tax on Ugandan sugar (Daily Monitor)
Tanzania has slapped a 25% import duty on Ugandan sugar exports contrary to the EAC Common Market Protocol, which recommends zero tax on goods manufactured within the region. In a media briefing at the weekend, Mr Vincent Seruma, the Uganda Revenue Authority assistant commissioner for public and corporate affairs, said sugar that had been exported by Kakira Sugar Works in May had been denied entry and forced to return. Kakira Sugar Works, according to URA, had exported 12,000 bags (600 tonnes) of locally manufactured sugar but was denied entry. “Under the EAC Common Market Protocol, this [sugar] is supposed to enjoy preferential treatment at 0% import duty within in EAC partner states because it is wholly produced in Uganda. However… Tanzania decided to impose duty of 25 per cent, a violation of the EAC rules of origin and the Common Market Protocol.”
Ensure Ghana stops importing chicken soon: VP Bawumia charges Agric Ministry (GhanaWeb)
India makes final plea to avail GSP benefits (LiveMint)
India has made a final plea for continuation of the generalized system of preferences (GSP) benefits currently under review before the USTR, arguing that the cheaper imports of intermediary products from India enable availability of cost-effective and price-competitive inputs to the US downstream industries and helps the US firms remain domestically and internationally competitive. In its initial submission during the hearing, India had threatened to drag the US to the dispute settlement mechanism of the WTO, claiming withdrawal of the GSP benefits would be “discriminatory, arbitrary and detrimental” to its developmental needs. In its post-hearing submission, while answering the queries raised by the USTR GSP sub-committee and other US industry lobbies, India has maintained that GSP benefits are integral and catalytic in promoting the pace and sequence of domestic and external economic reforms in India.
Market access, trade and sustainable development: the labour market channel (UNCTAD)
This report provides guidance to trade-policy makers aiming to design employment-centered trade policies. The first chapter is a brief introduction to the issue at stake and underlines its relevance to the current debate about the role of international trade in facilitating the achievement of the SDGs. The second chapter of this report reviews the existing theoretical and empirical literature on the relationship between trade and labour market outcomes. Informality, which is an important feature of the labour market in most developing countries, and its role in framing the latter relationship are discussed in detail. The third chapter of the report presents a diagnostic tool constructed based on insights from the previous chapter, providing detailed information on data requirements and methodology. The diagnostic tool is designed to be used as a first step in assessing the potential employment implications of trade policy.
Monday’s Quick Links: Ethiopia’s Commodity Exchange celebrated its 10th anniversary this week: a review Malawi’s Songwe-Kasumulu OSBP on course: Trade Minister Mussa Namibia’s SME sector will benefit from the AfCFTA: Meyer WCO successfully conducts ‘People Diagnostics’ mission in Ethiopia Mauritius to host regional workshop on marine spatial planning, October 2018 UNCTAD’s trade facilitation work boosted by new UK funding India to bring in regulator for e-commerce |
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Trade under Africa bloc will create ‘respect’
The East African Community should channel its resources to the implementation of the African Continental Free Trade Area (AfCFTA) as an alternative to pacts with Europe, Asia and the US.
“Africa has a lot of potential in intra-regional trade that is untapped; that is why we are exploited by the West and Asia, who offer trade deals that benefit them more than they do African states,” said Seth Kwizera, the co-ordinator of think tank Economic Policy and Research Network.
“When over 40 states signed the AfCFTA, it was a strong statement. Once it is in force and the major barriers to regional trade are eliminated, liberal trade will start across the continent. This will give a stronger voice to countries and regions when dealing with global economic powers.”
It is thought that intra-Africa trade could double under the AfCFTA, and benefit blocs like the EAC that are at advanced stages of free trade protocols such as free movement of people and establishment of a Common Market.
The United Nations Economic Commission for Africa (Uneca) said that the “Anything But Arms” deal with the European Union, established in 2001, has not brought about the expected industrial growth in EAC economies despite exports from the region enjoying duty-free and quota-free access to the EU.
The region’s trade deficit with EU has stagnated at an average of $1 billion every year for the past three years, according to data from the European Commission.
In addition, Economic Partnership Agreements (EPAs) with Europe have met with scepticism, with some countries like Tanzania claiming that industries in the region will be overwhelmed by European products if they sign it.
There has been a similar reaction to the Africa Growth and Opportunity Act (Agoa), which was enacted by the US in 2000.
The Agoa website indicates that total exports to the US from the EAC last year reached $784 million, but the region’s total trade deficit was $77 million.
Kenya accounts for the largest chunk of the region’s exports to the US, while smaller economies like Rwanda make as little as $1.5 million in revenues under Agoa.
With Burundi’s eligibility to Agoa revoked in 2016 and Rwandan textile exports suspended due to its tough stance against second-hand clothes, the AfCFTA may result in respectful relations among trade partners that “understand each other,” rather than with an economic power that imposes strict conditions.
“Benefits from some pacts, such as the proposed EPAs, remain uncertain, but what is certain is that the AfCFTA will benefit all member states,” Andrew Mold, the Uneca acting Director for Eastern Africa, said in an interview.
“EAC and SADC are the best performers in regional trade; but this is still lower than 25 per cent of the total trade they engage in. The AfCFTA will accelerate this, but on its own it is not enough. There is a need to build productive capacities and effective policies.”
Trade among EAC countries increased by $712 million last year, rising 39 per cent from the previous year, Uneca statistics show.
Experts argue that lack of infrastructure to support key sectors in agriculture and manufacturing could limit benefits from the AfCFTA, which requires fast tracking of projects such as the standard gauge railway.
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EAC Secretariat, AfDB strategize to set up partnership to accelerate Africa’s transformation through regional integration
An African Development Bank mission led by Dr. Marcellin Ndong Ntah, Lead Economist and comprising Mr. Patrick Kanyimbo, Regional Integration Coordinator at the Bank’s East African Regional Hub (RDGE) in Nairobi visited the EAC headquarters in Arusha, Tanzania.
Engineer Honourable Mlote, Deputy Secretary General, responsible for Planning and Infrastructure hosted the mission, while technical deliberations were chaired by Eng. Dr. Kamugisha Kazaura, Director of Infrastructure.
Discussions during the two-days of the mission focused on strategic priorities and corresponding indicative operational program to accelerate EAC’s integration agenda. These strategic and operational priorities and operations will be articulated in the Bank’s programming document, namely the Regional Integration Strategy for East Africa (EA-RISP) 2018-22, which is expected to be approved by the Bank’s Board in 2018.
The Mission explained that the EA-RISP seeks to operationalize the Bank’s Integrate Africa corporate strategy (2018-25) approved in May this year, and support the implementation of the pdf 5th EAC Development Strategy (2017-21) (1.44 MB) .
Consultations on the new RISP started last year when the Secretariat presented a number of projects in November 2017 for consideration and support under the RISP. This mission therefore served to discuss Bank’s feedback on the proposed projects and further consult on the RISP prior to its approval by the Bank.
In his remarks, Eng. Steven Mlote, EAC Deputy Secretary General (DSG), Planning and Infrastructure thanked the AfDB for honouring the EAC’s invitation and thanked the Bank for its ongoing support on a number of projects managed by the Secretariat. He informed the AfDB team that a number of on-going projects are progressing well and promised that those lagging behind will be fast tracked.
In this regard, the DSG noted that EAC is looking forward to the approval of projects proposed to the Bank for funding under the new RISP, which will help operationalize the EAC 5th Development Strategy. Many of these projects have high-level political commitment and specifically the infrastructure projects have been endorsed by the EAC Heads of State during their Retreat held in Kampala, Uganda in February 2018, where the Bank and other development partners were called upon to collaborate with the EAC Secretariat to mobilize resources for implementation.
In this regard, Dr. Ndong Ntah highlighted that the prioritized projects are fully aligned with the 5th EAC Development Strategy and aim at addressing the region’s pervasive developmental challenge, namely the slow pace of economic transformation. He explained that the strategic thrust of the RISP is articulated around two pillars, namely (i) Regional infrastructure development for economic transformation; (ii) Strengthening the policy and institutional frameworks for market integration, investment and value chains development.
Accordingly and as per the Bank’s High-5s Agenda, the agreed Bank-supported projects will focus on improving regional infrastructure connectivity to improve the business environment and accelerate transformation. In the transport sector the agreed projects range will focus on cross-border highways and bridging missing links on priority transport corridors, and developing multi-modal transport systems including inland waterways, air and railways.
In the energy sector, priority projects cover electricity generation, transmission lines to facilitate cross-border electricity trade, and promotion of clean cooking solutions. A number of project preparation activities have also been prioritized to increase the stock of bankable regional projects to crowd in investment, including from the private sector and non-traditional investors such as pension funds.
To finance the RISP, the Bank will deploy its full range of instruments including its concessional resources from the African Development Fund (ADF), the dedicated ADF Regional Operations Envelope, its non-concessional African Development Bank window, trust funds and explore innovative financing mechanisms to complement the Bank’s statutory resources. The Mission shared information on some of the steps taken by the Bank to unlock innovative financing, (such as Africa50, and Africa Investment Forum), and measures taken by the Bank’s President, Dr. Akinwumi Adesina to ensure accelerated delivery of Bank-funded projects.
In conclusion, the two Parties were satisfied with the agreed projects and in the cordial atmosphere in which the discussions were heard, underscoring African character of these key developmental institutions.