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Financial reforms at the African Union lead to massive cuts of the Union’s Budget
The African Union has approved the 2019 budget for the Union at a total of $681.5 million, signaling a substantial decrease of the annual budget by 12%, compared to the previous year.
The approved budget is in line with the continent’s move to reduce dependency on partner funding and gradually move towards funding 100% of the Union’s operational budget, 75% of the programme budget and 25% of peace support operations by 2021 with resources generated from the Continent.
While presenting the budget proposal at the just concluded African Union Summit in Nouakchott, the capital of the Islamic Republic of Mauritania, the African Union Commission Deputy Chairperson Amb. Kwesi Quartey observed that Africa had recorded great milestones in the implementation of the decision on financing of the Union, which reflected in the preparation of the 2019 budget.
Following budgetary reforms initiated within the African Union, the preparation of 2019 budget demonstrated a significant shift in the programme planning and budgeting process from the previous budgets processes.
“This time we were guided by the nine golden rules adopted by the Assembly in January 2018 aimed at improving the budget process and financial management of the Union, and to enable us decisively address issues of low execution rates, identify undetected wastages and instances of over-budgeting by departments or organs, as well as ensure full compliance with the African Union financial rules and regulations,” he stated. Amb. Kwesi added the budgetary reforms were critical to drive the Union’s agenda and for greater impact in service delivery to the African citizenry.
The nine golden rules are financial management guidelines introduced by the Committee of Finance Ministers (F15), tasked with overseeing the financial and budgetary reforms, in parallel to the implementation of the decision on financing of the Union.
Amb. Kwesi noted that the golden rules had been fundamental in ensuring the AU budget is well scrutinized in joint sittings of the F15 technical experts, the Permanent Representatives’ Committee as well as at the ministerial level, to review the Union’s budget and to guarantee the highest standards of accountability and judicious utilization of the resources.
“In line with the golden rules, aspects of the new additions into the budget reforms is the introduction budget ceilings which have proven to be very effective in providing a clear framework for the deliberations on the budget, taking into account the revenues and expenditure capacities of the commission and the organs,” Amb Kwesi noted.
Budget ceiling are caps indicating the limit on the amount each department and organ of the Union should align their budget to, guided by analysis on their execution rate, ability to reach their targets and the impact of their programmes or projects in line the goals and objectives of the Union.
Of the total budget, $161.4 million will go into in financing the operational budget of the Union. $252.8 million will go into the program budget while $273.3 million will finance Peace Support operations. Member states will contribute 46% of the budget while the remaining balance of 54% is expected to be financed by development Partners; signaling a great shift from overreliance on external funding from about 70% in previous years.
Amb. Kwesi stated, “there is growing confidence in our ability to finance our agenda. The momentum in the implementation of the 0.2% levy decision is very positive and in fact, looking at the contributions to the peace fund using this mechanism, it is the highest we have had. With this trend, the percentage of member states contribution is expected to rise to a level where Africa takes full ownership of its development agenda. We are very optimistic.”
The programme budget will go to support the consolidation of the implementation of key flagship projects. These include the continental infrastructure development, driving the regional integration agenda through key projects such as the Continental Free Trade Area, the single air transport, the African passport and the free movement of persons.
The Focus on peace and security is on silencing the guns by 2020. More attention will also be given to education and skills development, energy, health, particularly the full operationalization of the Africa CDC as well as promoting gender equality.
Africa continues to make noteworthy progress in its quest to mobilise financial resources within the continent through the full implementation of the decision on financing of the Union, adopted by Heads of State and Government in July 2016, in Kigali, Rwanda.
At least 14 African Union member states are already collecting the 0.2% levy from eligible imported goods to meet their assessed financial commitments to the Union. These include Rwanda, Kenya, Ethiopia, Djibouti, Chad, Guinea, Sudan, Congo Brazzaville, Cameroon, Gambia, Gabon, Cote d’Ivoire and Sierra Leone and Ghana. Another 23 countries are at various stages of implementation.
With the efforts that have been put in place in the fight against corruption and Illicit Financial Flows, Africa can augment and enhance its prospects for adequate self-financing for its development agenda.
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Return of free trade as Nairobi-Dar spat ends
Kenyan officials have announced the end of the long-running trade dispute with Tanzania following a bilateral meeting between the two states in Dar es Salaam.
The move will see Kenya-made goods such as textiles, which had been denied preferential access, get to the Tanzanian market with much ease.
Kenyan Trade PS Chris Kiptoo held talks with his Tanzanian counterpart Elisante ole Gabriel to resolve the standoff.
“The two partner states have called for effective and timely implementation of agreements made during bilateral meetings with a view to ease the flow of goods and services,” reads a joint communiqué.
Kenya’s textile products had been denied preferential access to the Tanzanian market with Dar arguing that the textiles are manufactured at the Export Promotion Zones (EPZs) and are not subjected to duty, hence cannot compete favourably with local products.
Tanzania also argued that the fact that Nairobi allowed manufacturers at the EPZs to offload their final textile products in the local market had hindered similar goods from Tanzania from being competitive in the Kenyan market.
Nairobi allows EPZ firms to sell up to 20 per cent of their products in the Kenyan market.
The meeting resolved that provisions of an East African Community (EAC) legal notice should be enforced to allow Kenya’s textile to enjoy preferential treatment.
According to the statement, immigration chiefs from the two sides will also meet to resolve border issues. It also directed the Kenya Revenue Authority and the Tanzania Revenue Authority to solve the challenges on the electronic Cargo Tracking system for Tanzanian cargo trucks.
Senior officials from Kenya and Tanzania will also jointly tour Lunga Lunga, Isebania and Namanga to familiarise themselves with the flow of trade at the border points.
Tanzania has been Kenya’s second largest market in the region after Uganda, providing an export market for a range of products that include palm oil, soap, medical drugs, cooking fats, iron sheets, sugar confectionery and margarine.
Kenya’s exports to Tanzania dropped 34 per cent in the first five months of the year to Sh4.35 billion raising concerns over negative impacts of the long-running trade standoff.
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tralac’s Daily News Selection
Promoting the AU Reform Agenda: An Extra-ordinary AU Summit has been called for 17-18 November
Released, today in Abuja: Independent analysis of the potential benefits of the AfCFTA for Nigeria (NOTN)
This study aims to assess the harmony between the AfCFTA and Nigeria’s economic and industrial goals; evaluate the economic benefits and costs of the agreement to the Nigerian economy looking at output, trade and welfare; and harness the perspectives of the private sector on the benefits and costs of the agreement to businesses in all sectors and the overall macro-economy. The study was conducted using a mixed methodology that involved: opinion polling of Nigerian businesses of all sizes from all sectors to harness their perspectives on AFCFTA; in-depth face-to-face interviews with key stakeholders such as business leaders, policy experts and leaders of organized labour about the agreement; simulation of trade and monetary effects, and meta-analysis of welfare and job effects of the agreement. A total of 512 companies were polled from all geopolitical zones of the country. pdf Findings on the AfCFTA and the business environment (4.34 MB) :
(i) 69% of businesses believe AfCFTA would be advantageous to the country; While 20% of businesses believe AfCFTA would be disadvantageous to the country; and 11% are unsure about how AfCFTA will affect the business environment. The top three advantages are better business environment, promotion of local business and business expansion. Top three disadvantages are influx of sub-standard goods, discouragement of local businesses and loss of revenue for Nigeria. Top three sources of uncertainty are possibilities that AfCFTA will boost the economy, need for time to understand its impacts and the chances of collapse of local industry.
(ii) Overall, 78% of businesses believe that AfCFTA will make a positive impact on local businesses; 10% believe that the impact will be negative while the remaining 12% believe it will have no impact.
Next week, in Abuja: AU AfCFTA workshop on market access concessions on trade in goods for CEN-SAD, ECCAS, ECOWAS and UMA member states
AU member states have agreed to remove 90% of their tariffs on goods over a period of between 5 and 15 years, depending on whether a country is classified as developing or least developed, with special and differentiated treatment for the group of seven countries (Djibouti, Ethiopia, Madagascar, Malawi, the Sudan, Zambia, Zimbabwe. It has not yet been determined, however, whether the 90% of tariffs (also referred to as non-sensitive) that is to be completely liberalized relates to the percentage of total product lines or to the share in the country’s total value of imported products. Moreover, there are uncertainties regarding how the remaining 10% of tariffs will be treated. Robust empirical analysis and presentations will be made on, inter alia (pdf): Implementation of HS across the Member States; Toolkit on the modalities on goods and then the expected economic implications; Indicative criteria for self-designation of sensitive products and exclusion lists; How to accommodate LDCs within customs unions with common customs regimes in SDT flexibilities – experiences in other FTAs; Double qualification criteria (anti-concentration clause) to balance national sensitivities (i.e. exclusion lists) with the objective of boosting intra-Africa Trade in line with BIAT; Scheduling of tariff commitments in line with agreed modalities: examples of tariff phase-down schedules using national tariff schedules/books; Economic Partnership Agreements – market access schedules, excluded products and intra-African import coverage and approaches to categorizing ‘sensitive’ products; Fiscal implications of removing community levies: the cases of ECOWAS, CEMAC. [Note: the workshop is organised by the AfCFTA Unit of the AU’s Department of Trade and Industry]
Tripartite Free Trade Area: Sudan sensitisation workshop (COMESA)
BRICS updates
8th BRICS Trade Ministers’ Meeting: BRICS commits to multilaterism (SAnews)
BRICS Trade Ministers have affirmed their commitment to a multilateral trading system as a tool to promote greater inclusivity. “Unilateralism is now placing the future of the multilaterism system at risk and we reaffirmed our commitment to a multi-lateral trading system. Many of us expressed the view that a multilateral trading system needs to become the tool to promote greater inclusivity and lessen inequality in the world,” South Africa’s Trade and Industry Minister, Dr Rob Davies, said. “We have agreed to update some work which we did before, which is to identify areas where we are complementary in trade and to emphasise those. We have a cooperation programme on technical standards, which is going to support the exchange in information and I am aware that these are major issues in international trade now,” he said.
Highlighted outcomes from the Joint Communiqué: On Global economic developments: We note with satisfaction that the intra-BRICS exports have significantly increased in recent years but agree that more should be done to increase trade, specifically value added trade, within BRICS.
Current state of play in the WTO: We recognise that the multilateral trading system is facing unprecedented challenges. We are deeply concerned with the systemic impact of unilateral measures that are incompatible with World Trade Organisation (WTO) rules and that put the multilateral trading system at risk. Of key concern is the disregard of the multilateral rules and principles that underpin international trade. We are further concerned about the increased trade tension which will without a doubt negatively impact countries, including BRICS.
We emphasise that global trade rules should facilitate effective participation of all countries in the multilateral trading system, that development must remain integral in the WTO’s work and the need to continue to make positive efforts to ensure that developing country Members, and especially the least-developed country Members, secure a share in the growth of world trade commensurate with the needs of their economic development.
Trade in Services: We acknowledge that trade in services is an increasingly important economic activity for BRICS countries, driving global economic and trade growth and creating job opportunities, with BRICS countries’ contribution to total global Trade in Services amounting to 12.1% in 2016, up from 8% in 2006. We recognise that BRICS countries have significant potential to enhance collaboration in services trade to promote mutually beneficial outcomes.
Third BRICS Industry Ministers’ Meeting: Fourth Industrial Revolution a step closer (SAnews)
Industry Ministers from BRICS countries on Wednesday signed a Declaration on the implementation of the Digital Industrial Revolution (DIR). Briefing the media after the meeting, South Africa’s Rob Davies said he and his counterparts had discussed issues of skills development and capacity building for the fourth industrial revolution. “We have been talking about partnerships within BRICS to prepare us all for the fourth industrial revolution and to ensure that the benefits of this are widely defused and they outweigh the risks and downsides,” he said. [Note: A concept note on the Fourth Industrial Revolution, tabled by China, needs to be studied before being adopted says SA’s Davies]
Declaration: The New Industrial Revolution (Fourth Industrial Revolution) and the drive for sustainable, less carbon and waste, intensive production, will have profound disruptive impacts on the structure of global production, trade, investment, employment and education. In this context, the action plan of this Third BRICS Industry Ministers Meeting, seeks to build on previously adopted directions and further expand industrial cooperation to secure mutually beneficial outcomes in an increasingly complex global environment.
The Ministers meeting further resolved, inter alia, to establish the BRICS partnership on the New Industrial Revolution (PartNIR) that aims to translate the vision of the second Golden Decade of BRICS cooperation into reality through deepened BRICS cooperation on Industrialisation, Innovation, Inclusiveness and Investment. Under the partnership, in support of the manufacturing sectors, a new industrial revolution advisory group comprised of policy makers and experts from all BRICS countries will be established. The advisory group will develop a terms of reference and a work plan.
Bridges Africa: Reflections on China-Africa economic relations at a time of transition (pdf)
Importantly, in a context of slowing Chinese demand and shrinking African borrowing capacity, the intensification of China-Africa economic relations seems to have subsided in recent years, pushing the complexity of the debate yet further. Data from the China Africa Research Initiative reveal that three key indicators – Chinese investment in Africa, China-Africa trade, and Chinese loans to Africa – have all been decreasing since 2013-2014. Against such a background, and ahead of the upcoming 2018 summit of the Forum on China-Africa Cooperation that will take place in September, this issue of Bridges Africa offers a range of reflections on what the future may hold for economic cooperation between China and African countries. Contents: In the lead article, Wenjie Chen and Roger Nord examine the recent evolution of economic links between China and Africa, suggesting that China’s Belt and Road Initiative could help reinvigorate this partnership. The second piece, Yunnan Chen looks at the role of Chinese infrastructure finance on the continent. The issue also features an article in which Lauren Johnston reflects on the possibility for Africa to capitalise on the end of China’s demographic dividend. Thierry Pairault, for his part, underlines the relative weakness of Chinese investment in Africa and sheds light on the nature of China’s economic engagement on the continent. In the final article, Iginio Galgiardone examines whether the involvement of China in Africa’s telecom infrastructure has led to the imposition of a specific information society model.
Mixed migration, forced displacement and job outcomes in South Africa (World Bank)
Southern Africa has a long history of human mobility centred around the migration of labour to farms and mines in the region. Patterns of migration and displacement have since been transformed by the end of Apartheid, changing economic systems, and conflict and political instability, both in the region and elsewhere. These complex patterns of migration and displacement, state responses to them, and the implications of mobility for job outcomes in South Africa - as the major destination country in the region - are the subject matter of this study. Our quantitative analysis on the impact of immigration on local jobs in South Africa finds that one immigrant worker generates approximately two jobs for South Africans during the period analyzed (1996 and 2011). These results and the substantiations provided in this publication are significant for policy makers and development actors in South Africa and the wider region, and as such, their implications should be seriously considered. Compared to earlier papers, this analysis makes several contributions. First, the analysis uses industry-province level data, given significant variation in the utilization of immigrant labour across industries and provinces. Second, the analysis uses an instrumental variables (IV) approach to address endogeneity issues. Third, the analysis includes all immigrants–not only males, as in some studies–given a substantial share of female employment among immigrants. Finally, the study uses wage data from the Post Apartheid Labour Market Series (PALMS) harmonized survey, instead of relying on total income that includes both labour and non-labor earnings as in other studies. For details on the methodological approach, see chapter 4. [Downloads: Executive summary, Main report]
Kenya: SGR raises cargo trains to seven (Business Daily)
Transport Principal Secretary Paul Maringa said six trains carrying 654 containers were leaving Mombasa daily to the inland container depot in Nairobi. However, by tomorrow seven trains will be leaving the port ferrying some 752 containers. Some 1,300 containers arrive at the port daily. Although one cargo train has capacity to remove 150 trucks from the roads daily, some 3,000 trucks still ferry cargo on the Mombasa-Nairobi route daily. Prof Maringa said that only goods destined for Nairobi were being ferried. He said some 2,300 containers that had been cleared were awaiting collection by owners, resulting in congestion. He said plans were underway to ensure that goods were collected within six hours after being cleared and those that overstay attract heavy charges. Prof Maringa said 1000 cargo tracking devices were being used to speed up cargo offloading and that the equipment will be increased to 3000.
Dar es Salaam port and its corridors: Dar port now efficient and secure, say regional users (IPPMedia)
Clients of the port of Dar es Salaam from six countries yesterday pledged to continue using the facility after having being satisfied with the ongoing improvements, including elimination of barriers and expansion of infrastructure. Business Congolese International president from the DRC, Sumaili Edouard promised to persuade their fellow business community to use the facility. For his part, a delegate member from Zambia eng Ernest Mande said indeed, it was a revealing trip since we saw new developments at the port assuring us of better future services. The Comoros port director general Said Anfane said: “Tanzania has accepted our requests to remove barriers and improve infrastructure. Therefore, we are ready to do business”.
Posted by the AU: pdf Strategy for the harmonization of statistics in Africa 2017-2026 (1.97 MB)
Various evaluations, including evaluations relating to the 1990 Addis Ababa Plan of Action for the Development of Statistics in Africa; the Regional Reference Statistics Framework for the development of Statistics in Africa of 2006; the template for the National Strategy for the Development of Statistics; and the coordination mechanism for the implementation of the African Charter on Statistics, have pinpointed weaknesses in the African Statistical System. This review and update of the “Strategy for the Harmonization of Statistics in Africa (SHaSA)” aims to address all of these challenges in a drive to support the African integration program alongside national, regional, continental, and international development agendas. SHaSA 2 also comes at a time of considerable change for statistical systems globally and notes in particular the challenges and opportunities offered by the emergence of Big Data, methodologies to integrate geospatial and statistical information and calls for a data revolution which places a burden on countries to widen the group of actors involved in the statistical system. [Downloads: Action Plan (pdf), Abridged version (pdf)]
Rate of new trade restrictions from G20 economies doubles against previous period (WTO)
The WTO’s nineteenth monitoring report on G20 trade measures covering the period from mid-October 2017 to mid-May 2018, issued yesterday, shows that new trade-restrictive measures from G20 economies have doubled compared to the previous review period. A total of 39 new trade-restrictive measures were applied by G20 economies during the review period, including tariff increases, stricter customs procedures, imposition of taxes and export duties. G20 economies also implemented 47 measures aimed at facilitating trade during the review period, including eliminated or reduced tariffs, simplified import and export customs procedures and reduction of import taxes. It is notable that the estimated trade coverage of trade-facilitating measures implemented by G20 economies ($82.7bn) exceeded the estimated trade coverage of import-restrictive measures ($74.1bn), but is approximately half the trade coverage reported for these measures during the same period in 2016-17. The trade coverage of import-restrictive measures is more than one-and-a-half times larger than that during the same period in 2016-17. Commenting on the report, Director-General Roberto Azevêdo said:
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8th Meeting of the BRICS Trade Ministers: Joint Communiqué
Joint Communiqué
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The 8th BRICS Trade Ministers met on 5 July 2018 in Magaliesburg, South Africa under the chairmanship of Dr Rob Davies, Minister of Trade and Industry of South Africa. We met in preparation of the 10th Summit convened under the theme “BRICS in Africa: Collaboration for Inclusive Growth and Shared Prosperity in the 4th Industrial Revolution” and had open and constructive discussions.
Global economic developments
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We note with satisfaction the global economic recovery, albeit still slow in some parts of the world. Downside risks to the global economy, however, remain.
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We note, with much concern that the world economy remains unbalanced and there is increasing backlash against globalization. Many countries are becoming more inward looking with some major players in international trade seemingly moving away from multilateralism to focus on bilateral trade arrangements.
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We note with satisfaction that the intra-BRICS exports have significantly increased in recent years but agree that more should be done to increase trade, specifically value added trade, within BRICS.
Current state of play in the WTO
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We reaffirm the centrality of the rules-based transparent, non-discriminatory, open and inclusive multilateral trading system (MTS), as embodied in the WTO. The MTS has contributed significantly to economic growth, development and employment over the past seventy years. We agree to make all efforts to strengthen the multilateral trading system and make the WTO more responsive to the needs of its members.
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We recognise that the multilateral trading system is facing unprecedented challenges. We are deeply concerned with the systemic impact of unilateral measures that are incompatible with World Trade Organisation (WTO) rules and that put the multilateral trading system at risk. Of key concern is the disregard of the multilateral rules and principles that underpin international trade. We are further concerned about the increased trade tension which will without a doubt negatively impact countries, including BRICS.
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We call on all WTO Members to oppose protectionism and honour their commitments, including those in previous Ministerial decisions, in the WTO.
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We emphasise that global trade rules should facilitate effective participation of all countries in the multilateral trading system, that development must remain integral in the WTO’s work and the need to continue to make positive efforts to ensure that developing country Members, and especially the least-developed country Members, secure a share in the growth of world trade commensurate with the needs of their economic development.
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We emphasise the importance of a functional and effective dispute settlement mechanism. We express our concern on the impasse to the appointment of Appellate Body members and affirm our commitment to work together with other WTO Members to find a solution.
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In this regard we endorse the BRICS Statement of support for an inclusive multilateral trading system and the Statement on WTO matters, annexed as A and B, respectively.
Strengthening intra-BRICS economic cooperation
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We note that the Contact Group on Economic and Trade Issues (CGETI) has convened three meetings in 2018, and commend the officials for the outcomes achieved in various areas, as outlined below.
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We direct the CGETI to continue its work in areas where it is possible to deepen intra-BRICS cooperation in a practical way to implement the consensus reached by the previous Leaders summits, including the Strategy for the BRICS Economic Partnership and the BRICS Action Agenda on Economic and Trade Cooperation, while respecting the tradition of each presidency focusing on selected issues in order to pursue a manageable agenda.
Promoting value-added intra-BRICS trade
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We commend the CGETI for reconvening the Trade Promotion Working Group. We further welcome the commissioning of the review of the BRICS Joint Trade Study on increased value-added trade, and we endorse the terms of reference for the study (Annex C).
Enhancing cooperation on technical regulations, standards, metrology and conformity assessment procedures
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We endorse the Working Mechanism on technical regulations, standards, metrology and conformity assessment procedures aimed at enhancing co-operation in the fields of technical regulations, standards, metrology and conformity assessment procedures in order to facilitate and increase trade in goods. (Annexed as D)
Deepening intra-BRICS investment cooperation
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We recognise the importance of investment cooperation especially in key sectors that support industrial and manufacturing output. We re-iterate the need for investment cooperation in new sectors that drive technological change particularly in the Fourth Industrial Revolution to ensure integration in the global knowledge and technology sectors.
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We applaud South Africa’s hosting of the BRICS Business Forum on 25 July 2018. The Business Forum aims to promote greater private sector participation in key sectors that will support inclusive growth and economic development, as well as stimulate intra-BRICS investments and encourage partnerships between BRICS companies to enhance foreign direct investments, promote building and integration of value chains and promote investments into key projects in Africa.
Cooperation in Intellectual Property Rights
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We acknowledge that the Implementation Framework for Intellectual Property Rights Cooperation Mechanism (IPRCM) aims to strengthen and enhance IPR cooperation amongst the BRICS countries. (Annex E)
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We endorse the IPRCM Action Plan (Annex F) which encapsulates specific practical activities. Notwithstanding the action plan, it is noted that each Chair will have the flexibility to pursue specific topics in line with its priorities and based on BRICS consensus.
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We further endorse the development of the BRICS IPR Guidebook, which will serve as a practical guide for IP owners and users in BRICS countries and endorse the outline for the IPR Guidebook. (Annexed as G)
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We also note cooperation under BRICS Heads of Intellectual Property Offices (HIPO) has been going on successfully for six years, which includes sustained progressive activities of cooperation at international fora and the endeavour to explore future cooperation in new technologies.
BRICS Cooperation on Inclusive E-Commerce Development
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BRICS Ministers have recognised the importance of electronic commerce; beginning in 2015 with the endorsement of the Framework for BRICS E-commerce Cooperation; followed by the pdf 2016 Trade Ministers’ Communiqué (157 KB) , supporting cooperation on e-commerce; and subsequently resulting in the endorsement of the BRICS E-Commerce Cooperation Initiative and the establishment of the BRICS E-Commerce Working Group in 2017.
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E-commerce is an increasingly important economic activity and is transforming the global economy. We undertake to enhance BRICS cooperation on inclusive e-commerce development.
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We acknowledge the need to examine the development dimensions and the socio-economic implications to ensure e-commerce better contributes to sustainable development and inclusive growth. We acknowledge in particular the need to address the digital divide. We take note of the e-commerce elements in the UNCTAD Information Economy Report 2017 on Digitalization, Trade and Development.
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We acknowledge the commencement of the E-Commerce Working Group and agree to take forward our intensified efforts in promoting cooperation on e-commerce by endorsing the BRICS Cooperation Framework on Inclusive E-Commerce Development (Annex H) and continue work on initiatives agreed.
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We recognise the usefulness of sharing experiences in promoting development through e-commerce as an ongoing activity and will explore the possibility of sharing best practices, including continuing discussions on developing case studies. We note the work done thus far and look forward to more efforts in this regard.
Trade in Services
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We acknowledge that trade in services is an increasingly important economic activity for BRICS countries, driving global economic and trade growth and creating job opportunities, with BRICS countries’ contribution to total global Trade in Services amounting to 12.1% in 2016, up from 8% in 2006 (World Bank, 2017). We recognise that BRICS countries have significant potential to enhance collaboration in services trade to promote mutually beneficial outcomes. In this regard, the 6th Meeting of the BRICS Trade Ministers, in New Delhi, India, endorsed the BRICS Framework for Cooperation on Trade in Services. Subsequently, the 7th Meeting of BRICS Trade Ministers, in Shanghai, China, endorsed the BRICS Trade in Services Cooperation Roadmap to further promote cooperation among members in areas of mutual benefit. We applaud the establishment of the BRICS Focal Points on Trade in Services and the initial exchange of information on international trade in services between BRICS members.
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We are committed to strengthen cooperation in the field of International Trade in Services Statistics. BRICS countries will initially seek to identify areas in which gains are most realistically achievable. We are committed to promote information sharing and capacity building in Trade in Services by enhancing collaboration amongst organizations responsible for international trade in services statistics and other relevant governmental organisations in BRICS Member countries. Furthermore, we agree to continue the discussion on developing a guidebook on Trade in Services.
Cooperation with regards to Small, Medium and Micro Enterprises
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The BRICS Ministers recognises the critical role that MSMEs and cooperatives continue to play in their contribution to economic growth and employment generation.
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Furthermore, continued collaboration amongst the BRICS countries is significant in particular by promoting and developing the potential of Micro, Small and Medium Enterprises (MSMEs) and cooperatives in the economy.
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The 10th BRICS Summit therefore further encourages the strengthening of MSME and Cooperatives in line with the BRICS MSME Cooperation Framework to promote cooperation between MSMEs; exchange of information and best practices on MSMEs regulation and support, facilitation of MSME’s access to public services, financing, exports and international projects.
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The BRICS Ministers mandate the CGETI to establish the institutional arrangement of MSMEs (Annex I) through holding dedicated CGETI sessions and establishing Focal Points to give effect to the MSME Cooperation Framework. This will contribute to fostering cooperation on MSME promotion and development amongst the BRICS member countries.
Monitoring mechanism for CGETI activities
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We endorse the BRICS CGETI Monitoring Mechanism as a living document and commend the CGETI for developing a mechanism to track and monitor initiatives, which can be used by future presidencies when setting their own priorities and outcomes. Updating the mechanism would be the responsibility of each current Chair. (Annex J)
Other issues
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We note various initiatives presented to the CGETI by Russia, namely: a BRICS Business Women Alliance for the purpose of supporting women’s entrepreneurship; regulatory impact assessment; and economic development and integration of remote areas.
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We note that Russia is a candidate for hosting the EXPO-2025 in Yekaterinburg.
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We note commencement of the work on the BRICS Model E-Port Network initiated by China, including the capacity building initiative, and applaud the further discussions held in this regard. We note discussions guided by the ToR and the Annual Work Plan of the BRICS Model E-Port Network on a voluntary basis, and look forward to the Capacity Building Program to be organized in China in September 2018.
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China will host China International Import Expo on 5-10 November 2018 in Shanghai and welcome BRICS members to display their products at the Expo. The BRICS members welcome the initiative, and encourage their business community to actively participate in it.
Annexes
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BRICS Statement of support for an inclusive multilateral trading system
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Statement on WTO matters
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Terms of Reference for the review of the BRICS Joint Trade Study
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Working mechanism on technical regulations, standards, metrology, conformity assessment, and accreditation
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BRICS IPRCM Implementation Framework
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BRICS IPR Action Plan
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Outline for the Guidebook on intellectual property rights in BRICS countries
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BRICS Cooperation Framework on inclusive e-commerce development
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Terms of Reference to strengthen institutional arrangements on MSME cooperation
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BRICS CGETI Monitoring Mechanism
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BRICS Trade Ministers commit to multilaterism
BRICS Trade Ministers have affirmed their commitment to a multilateral trading system as a tool to promote greater inclusivity.
“Unilateralism is now placing the future of the multilaterism system at risk and we reaffirmed our commitment to a multi-lateral trading system. Many of us expressed the view that a multilateral trading system needs to become the tool to promote greater inclusivity and lessen inequality in the world,” South Africa’s Trade and Industry Minister, Dr Rob Davies, said.
Speaking to SAnews following what he regards as a fruitful and constructive engagement of BRICS Trade Ministers in Magaliesburg, Davies said the Ministers have agreed to update work they have done previously.
“We have agreed to update some work which we did before, which is to identify areas where we are complementary in trade and to emphasise those. We have a cooperation programme on technical standards, which is going to support the exchange in information and I am aware that these are major issues in international trade now,” he said.
Earlier at the opening session of the meeting – which follows on the one held in Xiamen, China last year – Davies said today’s meeting comes at a time of great turbulence in the global environment.
“We are seeing disruptive and destructive behaviour by the current leadership of the world’s largest economy. It’s not just that tariffs have been raised. It is that a little used justification of national security has been used to raise tariffs above WTO [World Trade Organization] bindings and to apply them not on the basis of the rule without discrimination, but discriminatorily applying them to some of us and not to others,” Davies said.
This, the Minister said, is a matter of great concern “because it is weakening the multilateral trading system, weakening the rules based trading environment that we have all gotten used to”.
Davies, however, conceded that the multilateral system is “not perfect” and that negotiations on the WTO agenda in terms of the developmental mandate remain largely unfinished.
The Minister bemoaned the issue that there is aggressive action aimed at rebalancing the global trading system in the partisan advantage of one player.
The Minister’s comments were echoed by the Chinese Assistant Minister of Commerce, Li Chenggang, who (speaking through a translator) said the world’s largest economy “is behaving like a bull in a china shop”.
In May, Cabinet expressed its disappointment at the decision by the United States not to exempt South Africa from the application of steel and aluminum duties.
US President Donald Trump signed proclamations granting permanent country-exemptions to a select number of countries and extended by one month the Section 232 steel and aluminium tariff duty exemptions for some.
The proclamation follows the 8 March proclamation signed by President Trump to impose a 10% ad valorem tariff on imports of aluminium articles and a 25% ad valorem tariff on imports of steel articles. This excluded select countries namely Canada, Mexico, the European Union, South Korea, Australia, Argentina and Brazil.
Significance of BRICS
Davies said the coming together of Brazil, Russia, India, China and South Africa (BRICS) is extremely important, as these countries represent about 22% of the world’s Gross Domestic Product (GDP).The bloc is a significant force that many parts of the emerging world look to.
He told SAnews that South Africa has expressed its concern on the flexibilities around public health and intellectual issues among others.
The meeting also heard of progress made in other member states in the bloc, with the Brazilian Deputy Minister for Industry, Foreign Trade and Service, Yana Dumaresq, saying that in recent times, the country has signed 30 agreements with BRICS members.
She urged BRICS countries to facilitate more trade among each other, while the other Ministers called for strengthened cooperation to protect multilaterism.
The meeting also endorsed a practical cooperation mechanism, as well as an action plan that will enhance cooperation on various aspects on intellectual property.
They also agreed on a practical approach to promote trade and value added products.
SA’s membership of BRICS
Meanwhile, Small Business Development Minster Lindiwe Zulu said South Africa is honoured to hold the Presidency of BRICS in 2018. She said the 10th BRICS Summit to be held from 25 July comes at a time when there is increased anti-globalisation sentiment.
“We are meeting at a time when there are unprecedented challenges facing multilateral systems. We are also witnessing a rise in anti-globalisation sentiments due to lack of inclusive growth.
“We need to position the BRICS partnership differently and ensure that it contributes to inclusive growth and that development is at the centre of everything that we do in order to change the world.”
Zulu said South Africa, which joined BRICS in 2011, takes its participation in the bloc seriously.
“We do believe in this partnership and we will do everything we can to make sure that this partnership grows. No doubt, individually BRICS countries are important and influential globally but even more so through the alliance we have forged.”
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Independent study on the potential benefits of the African Continental Free Trade Area (AfCFTA) on Nigeria: Study report
This report documents the results and findings from an independent study to assess the potential benefits of the African Continental Free Trade Area (AfCFTA) agreement on Nigeria. It is an attempt to contribute to knowledge by bridging the existing gap in this area; one that has become topical in Nigeria’s recent economic landscape.
Executive summary
Regional integration is inevitable for economic transformation and sustainable socio-economic development in Africa. On one hand, it is a development strategy aimed at aggregating Africa’s small countries into one large market that can deliver economies of scale, improved competitiveness, foreign direct investment (FDI) and poverty reduction. On the other hand, regional integration helps in addressing non-economic problems such as recurring conflicts and political instability as well as increasing the continent’s bargaining power in the multilateral front.
Despite the recent shift in the growth poles of the global economy from developed countries to emerging and developing countries, Africa lags behind and remains marginalized. This is partly because the continent remains a fragmented bundle of small resource-rich but commodity-dependent economies. For Africa to optimize its resource endowments and translate them into welfare gains for its teeming population, regional integration is inevitable. The eight regional economic communities are at various stages in the integration process, and it is not certain that all the obstacles could be addressed in order to achieve the African economic community (AEC) in line with the timelines of the Abuja Treaty. Meanwhile, African leaders and policymakers are showing more interests and making stronger commitments toward fast-tracking the AEC. To this end, the leaders agreed to establish the African Continental Free Trade Area (AfCFTA) by 2017 as a step toward this objective.
This study aims to assess the harmony between the AfCFTA and Nigeria’s economic and industrial goals; evaluate the economic benefits and costs of the agreement to the Nigerian economy looking at output, trade and welfare; and harness the perspectives of the private sector on the benefits and costs of the agreement to businesses in all sectors and the overall macroeconomy.
The study was conducted using a mixed methodology that involved: 1) opinion polling of Nigerian businesses of all sizes from all sectors to harness their perspectives on AFCFTA; 2) in-depth face-to-face interviews with key stakeholders such as business leaders, policy experts and leaders of organized labour about the agreement; 3) simulation of trade and monetary effects, and 4) meta-analysis of welfare and job effects of the agreement.
AfCFTA and ERGP 2017-2021
The cornerstone of the AfCFTA is promotion of industrialization, sustained growth and development in Africa. The agreement is being pursued based on its potential to “boost intra-African trade, stimulate investment and innovation, foster structural transformation, improve food security, enhance economic growth and export diversification, and rationalize the overlapping trade regimes of the main regional economic communities”.
Similarly, the broad vision of the pdf Economic Recovery and Growth Plan (ERGP) (6.59 MB) of Nigeria is to turn around the country’s economic performance and lay the foundations for sustained inclusive growth. As summarized below, the congruence between AfCFTA and ERGP plan lies in their focus on industrialization, export orientation and improved economic competitiveness.
Study Conclusions
The Nigerian government cited the need to consult widely with stakeholders as the reason for withholding consent to the AfCFTA last month, in March 2018. This study employed various techniques to measure perspectives of a wide range of stakeholders about AfCFTA. The report shows overwhelming expectation of positive impacts of AFCFTA on businesses and the economy, and stakeholders engaged in this study support the agreement with a sound majority.
The pessimism toward the agreement is driven mainly by the lack of strong industrial base and the potential that the nascent industry could collapse under the weight of international competition; and the issue of smuggling, counterfeiting and dumping of substandard products into the country. While this pessimism is acknowledged, respondents to the surveys offered measured counter-optimism on these issues.
On the issue of industry, respondents overwhelmingly expect an enlargement of the industrial base arising from the benefits of expanded markets, inward foreign direct investments and regional infrastructure projects that will contribute substantially to closing the infrastructure gap. Business leaders also caution against conflating the onset of AfCFTA with smuggling and dumping of sub-standard products, which are currently prevalent in the country. Instead, government is encouraged to invest more effort in managing the country’s borders to tackle the problem.
In general, businesses in all sectors see tremendous opportunities in the agreement both in terms of its expected impact on individual businesses and the macroeconomy. They expect the agreement to help them overcome their top business challenges namely power supply, access to credit, roads, taxes and tariff, port reform; open new markets for their products; and strengthen their competitiveness.
Recommendations and Policy Considerations
Key recommendations from this study are as follows:
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Government and policymakers need to listen and comprehend the subject of AfCFTA the way businesses and stakeholders appreciate them, given that they are located at the spots where the rubber meets the road on trade and economic growth.
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Clearly, Nigeria stands to benefit more from the AfCFTA with better business environment and improved infrastructure. In this regard, more concerted efforts are required to bridge the internal infrastructural inadequacies especially in areas of power supply and access to credit, which most businesses identify as their top challenges.
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Nigeria needs to take Continental leadership of the regional infrastructure projects to lead other African countries toward bridging the continental infrastructure gaps. Road and rail connections to neighbouring countries needs to be facilitated by ECOWAS or other bilateral protocols to boost regional trade and enhance mutual economic benefits.
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Policymakers should see the AfCFTA as an opportunity for Nigeria to pursue and achieve its goals of export-led growth as elaborated in the ERGP (2017-2021) and set up the institutional capabilities needed to take advantage of the offers contained in the agreement while minimizing the threats it may pose.
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The likelihood of AfCFTA contributing to accelerating or impeding Nigeria’s industrialization depends on government policy response to its provisions, and the system of assessment, monitoring and evaluation put in place by the government to guide its implementation.
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Based on the foregoing, the Nigerian government should sign the AfCFTA and follow the action with a set-up of the policy institution necessary for its successful implementation.
Key considerations for policymakers include the following:
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Position industrialization and export-led growth at the centre of the country’s economic policies and galvanize stakeholders around it;
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Conduct regular studies on the structure, progress and challenges of industry value-chains with a view to making adjustments and providing policy support necessary to reposition the industrial sector on the path to competitiveness;
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Conduct regular studies on comparative export opportunities for Nigerian businesses in the African continent and elsewhere and share the knowledge with business associations and institutions; Insulate the policy-making institution and instruments from the unstable political environment to allow for development of focused, forward-looking policies that are essential for the goals of ERGP 2017-2021 and the benefits of AfCFTA;
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Develop, reinforce and implement an active industrial policy that takes full advantage of the provisions of the agreement and provides opportunities and support for learning and growth of the SMEs sector.
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Newer models for funding infrastructure needs to be considered such as Public-Private Partnership (PPP) arrangements, Build, Operate and Transfer (BOT) arrangements, Sukuk funds, and other options.
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Customs and border patrol needs to be strengthened in order to minimize smuggling and dumping of substandard products. Similarly, regulatory agencies such as NAFDAC and SON need to be strengthened to enable businesses take advantage of export opportunities under the AfCFTA.
Part III – Benefits of AfCFTA to Nigeria
Trade, growth and monetary benefits of AfCFTA
Key concerns driving the resistance to the AfCFTA is whether the expected gains will be realized without suffocating our struggling industries. This is also tied to the theoretical argument of whether trade agreements lead to trade creation or trade diversion. The fear of losing the supposed protection of less-competitive domestic producers operating in inclement business environment underscores the opposition from trade unions. But liberalization, usually through a Schumpeterian-type process of disrupting and recreating at a larger scale, brings about economic benefits that far outweigh the short-term costs. This is even more effective with global trade which provides added incentives for competition and innovation as well as the continuous search for new opportunities and markets.
In order to appreciate the size of the expected increase in Nigeria’s trade through the AfCFTA, it is important to examine the magnitudes of recent growth in international trade. Export growth lagged behind import growth globally and the same pattern is observed in the developed countries. Second, developing countries experienced export growth relative to imports: imports growth in 2015 was sustained in 2016 but export growth rose from 0.6% to 2.8%. In Africa, imports reversed from 0.7% growth in 2015 to contraction of 4.6% in 2016 while export growth improved from 0.6% to 2.9%. Sub-Saharan Africa’s experience was slightly different with contraction of imports in both 2015 and 2016 by 0.3% and 6.6% respectively while exports reversed from growth of 0.7% to contraction of 0.3%. It is expected that implementation of AfCFTA will help sustain and improve the African performance and boost trade in the Sub-Saharan Africa sub-region.
Estimates (of elasticities) presented in Table 10 support the argument that Nigeria’s membership of the AfCFTA will indeed create trade between Nigeria and the rest of Africa. The estimates show that a 1% decrease in tariff rate imposed or faced by Nigeria in trading with the rest of Africa will increase trade in all cases by more than 1%. The boost in trade is most noticeable between Nigeria and the rest of Sub-Saharan Africa, although South Africa is the greatest contributor to such trade; trade would increase by only 1.21% if South African effects are removed. The second largest economy in Africa claims similar status when comparing the impact of tariff reduction on Nigeria’s trade with Africa including and excluding South Africa: trade would increase by 1.45% with South Africa effects unadjusted but only by 1.17% with South Africa’s impact eliminated. The estimates further reveal that South Africa has greater impact on Nigeria’s trade than all ECOWAS countries combined. Following tariff reduction, Nigeria-Africa trade would increase by 1.21% if ECOWAS effect is adjusted and by 1.17% with South Africa effect adjusted. Africa is strategically important to Nigeria’s economic growth as Africa’s economic output undoubtedly shapes Nigeria’s trade with the continent.
The tariff rate and government revenue move in opposite direction, on 1 to 2.5 basis. This means that a fall in revenue in the short term due to tariff impositions by Nigeria, as being proposed to be the aftermath of CET, would be more than offset by rise in revenue generated through increased trade in the longer term. Therefore, fiscal policymakers need not worry about the revenue implications insofar as the loss of revenue from tariff reductions on imports is offset by gain in revenue generation from increased imports or trade.
This report was compiled by a consortium of academics and research institutions for the Nigerian Office for Trade Negotiations. The authors are Dr. Bell Ihua, Professor Martin Ike-Muonso, Dr. Olumide Taiwo, and Mr. Sand Mba-Kalu.
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Rate of new trade restrictions from G20 economies doubles against previous period
The WTO’s nineteenth monitoring report on Group of 20 (G20) trade measures covering the period from mid-October 2017 to mid-May 2018, issued on 4 July, shows that new trade-restrictive measures from G20 economies have doubled compared to the previous review period.
The report also shows that G20 economies continue to implement trade-facilitating measures, with the rate increasing slightly. The report’s findings should be of ‘real concern’ to the international community, according to Director-General Roberto Azevêdo.
A total of 39 new trade-restrictive measures were applied by G20 economies during the review period, including tariff increases, stricter customs procedures, imposition of taxes and export duties. This equates to an average of almost six restrictive measures per month, which is significantly higher than the three measures recorded during the previous review period.
G20 economies also implemented 47 measures aimed at facilitating trade during the review period, including eliminated or reduced tariffs, simplified import and export customs procedures and reduction of import taxes. At an average of almost seven trade-facilitating measures per month, this is marginally higher than the six measures recorded in the previous reporting period (mid-May to mid-October 2017).
It is notable that the estimated trade coverage of trade-facilitating measures implemented by G20 economies (US$82.7 billion) exceeded the estimated trade coverage of import-restrictive measures (US$74.1 billion), but is approximately half the trade coverage reported for these measures during the same period in 2016-17. The trade coverage of import-restrictive measures is more than one-and-a-half times larger than that during the same period in 2016-17.
Commenting on the report, Director-General Roberto Azevêdo said:
“The marked increase in new trade restrictive measures among G20 economies should be of real concern to the international community. Additional trade-restrictive measures have been announced in the weeks since this reporting period and therefore the deterioration in trade relations may be even worse than that recorded here. This continued escalation poses a serious threat to growth and recovery in all countries, and we are beginning to see this reflected in some forward-looking indicators. I urge G20 leaders to show restraint in applying new measures and to urgently de-escalate the situation. I will continue working with the G20 governments and all WTO members to this end.”
On trade remedy measures and compared to the previous period, the review period saw a slight increase in initiations of investigations by G20 economies and a significant increase of terminations of trade remedy actions. Initiations of trade remedy investigations represented about half (49%) of trade measures recorded, with anti-dumping (AD) investigations accounting for almost 80% of all trade remedy initiations. The amount of trade covered by these is estimated at US$52.3 billion and is significantly higher than in the two previous G20 reports. The trade coverage of trade remedy initiations recorded in the review period is estimated at US$6.2 billion. These measures are not classified as either trade-restrictive or trade-facilitating by this report.
The main sectors affected by trade remedy initiations during the review period were iron and steel, plastics and articles thereof, vehicles, parts and accessories thereof and products of iron and steel.
The G20 economies are Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Republic of Korea, Japan, Mexico, the Russian Federation, Saudi Arabia, South Africa, Turkey, the United Kingdom and the United States, as well as the European Union.
Key Findings
- This Report covers new trade and trade-related measures implemented by G20 economies between 16 October 2017 and 15 May 2018. It reveals a number of important trends in global trade policy-making. While G20 economies continue to implement trade-facilitating measures, the more worrying trend during this period is the increase in trade-restrictive measures which has come at a time of increasing trade tensions and associated rhetoric. This should be of real concern to the international community.
- G20 economies applied 39 new trade-restrictive measures during the review period, including tariff increases, stricter customs procedures, imposition of taxes and export duties. This equates to an average of almost six restrictive measures per month, which is significantly higher than the three measures recorded during the previous review period.
- G20 economies also implemented 47 measures aimed at facilitating trade during the review period, including eliminated or reduced tariffs, simplified import and export customs procedures and reduction of import taxes. At almost seven trade-facilitating measures per month, this is marginally higher than the six measures recorded in the previous period.
- The estimated trade coverage of import-facilitating measures (US$82.7 billion) is higher than that of import-restrictive measures (US$74.1 billion) during the review period, but is approximately half the trade coverage reported for these measures during the same period in 2016-17. Moreover, the trade coverage of import-restrictive measures is more than one-and-a-half times larger than that during the same period in 2016-17.
- On trade remedy measures, the review period saw a slight increase in initiations of investigations by G20 economies and a significant increase of terminations, compared to the previous period. Initiations of trade remedy investigations represent almost half (49%) of all trade measures recorded during the review period. The trade coverage of trade remedy initiations recorded in this Report is estimated at US$52.3 billion and is significantly higher than in the two previous G20 Reports. The trade coverage of trade remedy terminations recorded in the review period is estimated at US$6.2 billion.
- At a juncture where the global economy is finally beginning to generate sustained economic momentum following the global financial crisis, the uncertainty created by a proliferation of trade restrictive actions could place economic recovery in jeopardy. The multilateral trading system was built to resolve such problems and it has the tools to do so again. However, further escalation could carry potentially large risks for the system itself. Its resilience and functionality in the face of these challenges will depend on each and every one of its Members. The G20 economies must use all means at their disposal to de-escalate the situation and promote further trade recovery.
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Consultative workshop on market access concessions on trade in goods for CEN-SAD, ECCAS, ECOWAS and UMA Member States
Trade is crucial for economic growth and food security and Africa has huge potential for trade both in global and intra-regional terms, for example, as a result of its natural resource endowment, agricultural potential, intra-regional complementarities.
In recognition of this potential, the African Union Heads of State and Government in January 2012 adopted the decision to create the Continental Free Trade Area (CFTA), later renamed to African Continental Free Trade Area (AfCFTA). The major aim is the expansion of intra-African trade by lowering the trade barriers to goods and services, as well as the movement of people throughout the continent. The AfCFTA is viewed as a stepping stone that will lead to an African Common Market (ACM) and an African Economic Community (AEC) (effectively the Agenda 2063 of the African Union).
Negotiations were launched in Johannesburg in June 2015 and on 21 March 2018 in Kigali, Rwanda after intense negotiations, 44 member States of the African Union signed the pdf Agreement Establishing the African Continental Free Trade Area (AfCFTA) (973 KB) . An additional 6 AU member States signed the pdf Kigali Declaration (209 KB) by which they committed to sign the Agreement of the AfCFTA once they had undertaken necessary national consultations.
One of the key steps beyond the ratification of the Agreement is to prepare and submit tariff offers, under the modalities on goods that will determine the liberalization efforts to be undertaken between the States Parties to the Agreement. In the modalities for the liberalization of trade in goods that were adopted during the negotiation process, AU member States agreed to remove at least 90 per cent of tariffs on goods imported from other States parties. The remaining 10 per cent tariffs include sensitive products that enjoy a longer tariff elimination period as well as excluded products where tariffs will remain.
The 6th meeting of the African Ministers of Trade that took place from 3rd to 4th June 2018 in Dakar, Senegal, recommended the AUC and its Partners carry out a number of activities to assist AU Member States make market access offers to each other. The Ministers were mindful of the instructions by the Heads of State in the Kigali Summit on 21 March 2018 that Member States submit schedules of concessions at the January 2019 Summit.
There was also recognition by the Ministers that negotiations on market access are very complex and that Member States require assistance to guide their national and regional consultations in a number areas. As such the AfCFTA Unit of the Department of Trade and Industry plans to organise as a first step a consultative workshop of ECOWAS, ECCAS, CEN-SAD and UMA with the aim towards finalising the modalities on trade in goods.
Objectives of the Meeting
African Union Member States have agreed to remove 90 per cent of their tariffs on goods over a period of between 5 and 15 years, depending on whether a country is classified as developing or least developed, with special and differentiated treatment for the group of seven countries, which are, as mentioned previously, Djibouti, Ethiopia, Madagascar, Malawi, the Sudan, Zambia and Zimbabwe.
It has not yet been determined, however, whether the 90 per cent of tariffs (also referred to as non-sensitive) that is to be completely liberalized relates to the percentage of total product lines or to the share in the country’s total value of imported products.
Moreover, there are uncertainties regarding how the remaining 10 per cent of tariffs will be treated. According to the modalities agreed at the African Union Ministers of Trade meeting in Niamey in June 2017, the remaining 10 per cent is to be split between sensitive and excluded products. Sensitive tariffs are to be accorded a longer time frame for liberalization while excluded tariffs are not subject to liberalization. However, the exact share of tariffs accorded to either group has not yet been determined.
The objective of the consultative workshop, taking place in Abuja, Nigeria from 9th to 13th July 2018, is therefore a regional-wide consultation to build upon preliminary work already undertaken by the AUC and its Technical Partners on finalizing the outstanding issues including criteria for designation of sensitive products, percentages, etc.
Further, the consultative workshop aims to provide guidance for policymakers and negotiators on how they could possibly resolve the above mentioned issues that remain to be addressed under the AfCFTA negotiations in relation to the modalities on goods, with a view to bringing that aspect of the negotiations to a successful conclusion. This would give Member States and Customs Unions sufficient information to, inter alia, make market access offers regarding the 90 percent, etc, designate sensitive products and identify products to be excluded from liberalization.
Expected output
It is expected that Delegates and the RECs will have an increased understanding of the remaining issues and that the exchange of views between Member States and RECs will lead to the finalization of the Modalities on Trade in Goods.
The Member States will be closer to the goal of submitting the Schedules of Tariff Concessions, in line with agreed modalities to the January 2019 Session of the Assembly for adoption.
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China and Africa: Whither the Belt and Road?
While economic ties between China and African countries have vastly expanded over the past decades, falling commodity prices and rising debt levels risk reversing this process. Can China’s Belt and Road Initiative reinvigorate the relationship?
Economic links between China and Africa have increased dramatically over the past 20 years. Trade has risen more than 40-fold since the mid-1990s, and China is now sub-Saharan Africa’s largest trading partner. China’s foreign direct investment in Africa has also risen sharply, although based on official statistics, China still only accounts for about 3 percent of the stock of FDI in Africa.[1] And finally, China is a major source of loan financing for public infrastructure projects, with available data suggesting that China is now Africa’s largest bilateral creditor, with total debt of about $94 billion in 2015.
Natural resources feature prominently in the economic ties between China and Africa. For example, in 2015, 70 percent of Africa’s exports to China consisted of fuels, metals, or mineral products. But Chinese investment tends to be more diversified, covering sectors from telecommunications to financial services, and Chinese-financed projects range from hydroelectric dams to ports and railways.
Figure 1: Sub-Saharan Africa’s total exports by partner (billions US$)
Source: Direction of Trade Statistics (IMF) and authors’ calculations
This rapid growth in economic ties has served both Africa and China well. For Africa, trade with China has boosted economic development in many countries, and the financing of infrastructure projects, for which little concessional financing is available, has helped address crucial bottlenecks to industrial development and structural transformation.
For China, while trade with Africa remains a small part of its total foreign trade, many of its project loans are tied to Chinese suppliers, and, as a result, about a quarter of all Chinese engineering contracts worldwide by 2013 on a stock basis went to sub-Saharan Africa, with most of these contracts being awarded in energy (hydropower) and transport (roads, railways, ports, aviation).
Recently, however, these ties have come under strain. With sharply falling commodity prices, Africa’s export receipts have declined since 2014. While there are many different reasons behind this decline in commodity prices, one key factor has been the rebalancing of China’s growth model away from investment towards relying increasingly on domestic consumption. This in turn has had a negative impact on growth in Africa.[2] The continent’s almost decade-old trade surplus with China has now turned into a trade deficit as lower growth in China curbs import demand.[3]
Figure 2: China’s exports to and imports from Sub-Saharan Africa (Billions US$, 6-month moving average)
Source: Direction of Trade Statistics (IMF) and authors’ calculations
In addition, borrowing space in African countries is shrinking rapidly. After the debt reductions of the 1990s and 2000s, many African countries had comparatively low levels of external debt. At the same time, traditional partner countries were shifting from providing loans to grants, and many were focusing on social sectors rather than infrastructure.
Against that background, Chinese lending agencies started to provide significant financing for infrastructure projects in Africa. It is estimated that between 2000 and 2015, the Chinese government, banks and contractors extended US$94.4 billion worth of loans to African governments and state-owned enterprises. At a political level, this was underpinned by the Forum for China Africa Cooperation (FOCAC), which beginning in 2000 brought together African heads of state and the Chinese leadership on the occasion of triennial summits.
At the most recent FOCAC summit in Johannesburg, China pledged support of US$60 billion over the period 2015-18. China’s recently-launched Belt and Road Initiative carries the potential for providing further financing for Africa. But the reality is that many countries are facing shrinking borrowing capacity.
Public debt in the median sub-Saharan African country rose from 34 percent of GDP in 2013 to an estimated 53 percent in 2017, and debt service as a share of revenue has doubled. In some oil-producing countries such as Angola, Gabon, and Nigeria, debt service amounts to more than 60 percent of government revenues. More than 40 percent of low-income countries in sub-Saharan Africa are now classified at high-risk of debt distress.[4] As a result, both the demand and the feasibility of large infrastructure projects is falling. And some are already facing difficulty servicing existing loans.[5]
With shrinking borrowing space, can FDI pick up the slack? Based on official data from China’s Ministry of Commerce, FDI flows from China to Africa peaked in 2008 and 2013 and have slowed down markedly since then. Notably, this decline in Chinese FDI to Africa is occurring despite a surge in Chinese outward capital flow, especially by Chinese corporations, signaling investors’ continued appetite for investments and high returns outside China.
Of course, this trend is only indicative of the short term. Much of China’s lending to Africa – as well as the political initiatives from FOCAC to the Belt and Road Initiative (BRI) – is based on the recognition that, over the longer term, Africa’s growth potential is significant. Provided African countries can pursue sound economic and social policies, the continent is expected to benefit from a huge demographic dividend, which could raise GDP per capita by 25 percent by 2050.[6]
But there are at least two caveats to that rosy forecast. First, tighter fiscal space and rising global interest rates will make foreign financing less ample. In the absence of compensating FDI flows, this will put a premium on the development of domestic financial sectors in Africa and reinforces the need for a much more rapid expansion of domestic revenue bases. Second, dramatic advances in artificial intelligence (AI) and robotics may call into question the assumption that Africa can become the next manufacturing hub of the world.
In a recent study of the impact of automation on workers in advanced economies, the OECD estimated that about 14 percent of workers are at a high risk of having most of their existing tasks automated over the next 15 years, and another 30 percent will face major changes in the tasks required in their job and, consequently, the skills required.[7]
Another study by McKinsey estimates that automation will displace almost 13 percent of South Africa’s current work activities by 2020.[8] With many African countries still on the threshold of development, this may block industrialisation, which is often seen as the road to productivity growth and income convergence.[9]
Of course, AI can also create new opportunities for Africa, enhancing labor productivity and providing cheaper and more reliable services, for example in education and health care. But reaping these benefits will require nimble policies, both in the economic and social areas. This is likely the most important challenge – and not only for Africa.
Can the Belt and Road Initiative help address this challenge? If it is limited to more official lending for infrastructure development, it is unlikely to be the solution, given the shrinking borrowing space in many African countries. But if the Belt and Road Initiative can catalyse more private investment, including in sectors that boost productivity in Africa, then it may fulfill its promise.
Wenjie Chen is an Economist in the Research Department, International Monetary Fund. Roger Nord is Deputy Director of the Institute for Capacity Development, International Monetary Fund.
This article is published under Bridges Africa, Volume 7 - Number 5, by the ICTSD.
[1] Unrecorded FDI is likely to be much larger, particularly through small-scale investments. See China’s Second Continent: How a Million Migrants Are Building a New Empire in Africa by Howard French.
[2] Chen, Wenjie and Roger Nord. “A Rebalancing Act for China and Africa – The Effects of China’s Rebalancing on Africa’s Trade and Growth”. International Monetary Fund, African Departmental Paper Series, 2017.
[3] International Monetary Fund (IMF). “African Regional Economic Outlook: Slow Recovery amid Growing Challenges.” Washington D.C.: IMF, 2018.
[4] IMF, 2018, op. cit.
[5] For example, China is one of the principal external creditors of the Republic of Congo, which has recently embarked on a restructuring of its external debt.
[6] International Monetary Fund (IMF). “African Regional Economic Outlook: How Can Sub-Saharan Africa Harness the Demographic Dividend?” Washington D.C.: IMF, 2015.
[7] Organisation for Economic Co-operation and Development (OECD). “Transformative Technologies and Jobs of the Future.” Paris: OECD, 2018.
[8] McKinsey Global Institute. “Jobs Lost, Jobs Gained, Workforce Transitions in a Time of Automation.” 2017.
[9] Rodrik, Dani. “Premature Deindustrialization.” Journal of Economic Growth 21 (2016); Rodrik, Dani. “Unconditional Convergence in Manufacturing.” Quarterly Journal of Economics 128, No. 1 (2013).
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Fourth Industrial Revolution a step closer
Industry Ministers from BRICS countries on Wednesday, 4 July, 2018 signed a Declaration on the implementation of the Digital Industrial Revolution (DIR).
The Ministers met at the Africa Pride Mount Grace Hotel, in Magaliesburg, for the third BRICS Industry Ministers’ meeting.
Briefing the media after the meeting, South Africa’s Trade and Industry Minister Rob Davies said he and his counterparts had discussed issues of skills development and capacity building for the fourth industrial revolution or DIR.
“We adopted a declaration. The gist of it is that we have been talking about partnerships within BRICS to prepare us all for the fourth industrial revolution and to ensure that the benefits of this are widely defused and they outweigh the risks and downsides,” he said.
This, the Minister said, would require cooperation and active intervention to ensure that the aim is achieved.
The Ministers have also resolved to establish an advisory group which would move into a concrete development of a programme to give effect to cooperation in six areas.
“One of them is the area of policy and regulatory frameworks. The other one is opportunities of cooperation in advanced technical skills and training, exchange of information in best practice with regards to digitization, capacity building, projects which secure inclusive and equitable growth for greater synergy of human and financial resources.
“This advisory will also work closely with the BRICS advisory council,” he said, adding that the BRICS Business Council will have its meeting on 23 July in Durban.
The meeting also heard from Chinese companies with operations in South Africa which detailed how their investments in the country were learning experiences for the digital industrial revolution.
African Continental Free Trade Area
Meanwhile, Minister Davies said South Africa’s signing of the African Continental Free Trade Area (AfCFTA) agreement with the African Union, was a significant development.
“It’s a very significant and strategic development,” said the Minister at Wednesday’s briefing. The agreement will pave the way for the country to benefit from inter-regional trade within the African continent.
It is envisaged that the agreement will contribute to the growth and diversification of the South African economy and therefore create jobs, as well as reduce inequality and unemployment.
President Cyril Ramaphosa signed the agreement during the AU Summit that took place from 1-2 July 2018 in the Republic of Mauritania.
“The significance of the AfCFTA is that it is intended to boost intra-regional trade which is at very low levels of about 12% of total trade... that’s very small compared to other regions. Behind that lies a vision of many of us that it is by creating a large market and emulating what China is doing now turning to its domestic market when trade conditions become tight.”
This, said the Minister, can create a large market that will allow the emergence of reaching value chains and “will assist us all to move up the value chain from producing primary commodities into industrial products”.
AGOA Forum
Meanwhile, the Minister is set to attend the African Growth and Opportunity Act (AGOA) Forum in Washington, DC next week.
In March 2016, government announced that it had concluded negotiations on poultry, beef and pork with the United States, a move that brought to a close months of discussions with the US on the terms required for South Africa to secure its position in AGOA.
In November 2015, then US President Barack Obama announced that the duty-free entry into the US of South Africa’s agricultural exports under AGOA would end if South Africa’s health restrictions on the import of US poultry, beef and pork were not lifted by 4 January. However, the deadline was extended to 15 March 2016.
At Tuesday’s briefing, Davies said AGOA is not a negotiated agreement.
“It’s a series of concessions offered to countries, an act of [US] Congress. There will be a lot of discussions. AGOA underpins a relatively balanced trading agreement between us [and the US] and we are saying if it isn’t broke it needs no fixing so that’s our message.”
AGOA is a legislation that provides duty-free market access to the US for qualifying sub-Saharan African countries by extending preferences on more than 4 600 products. AGOA was reauthorized in June 2015 for 10 years until 2025, with South Africa’s inclusion.
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tralac’s Daily News Selection
Talks between Kenya and Tanzania to resolve the non-tariff barriers affecting bilateral trade entered their second day today. For updates: @Trade_Kenya
Concluding today, in Lagos: Standard Bank’s pan-African trans-regional conference
AfCFTA updates: South Africa, Nigeria
(i) South Africa’s foreign minister says South Africa should have ratified the AfCFTA by the end of this year
(ii) AfCFTA can stimulate Nigeria’s economy by $2.9bn – Osakwe. Nigeria’s chief trade negotiator/director-general, Nigeria Office for Trade Negotiations, Ambassador Chiedu Osakwe, has disclosed that the AfCFTA has the potential to stimulate the nation’s economy with an increase of $2.9bn in 2018. Osakwe also disclosed that international and domestic studies carried out showed that the AfCFTA is estimated to stimulate 8.8% increase in Nigeria’s total exports, with a small structural shift towards manufacturing and services. He also outlined other benefits of the AfCFTA to include, but not limited to: integrating the informal sector into the formal sector, empowering women, investing in trade infrastructure to reverse the systemic deficit and dilapidated one, reducing the cost of money which precludes trade finance/micro credits and finance for MSMEs. [Nigeria: State of play on the AfCFTA sensitization and consultation exercise]
(iii) NOTN’s position on AfCFTA agreement worries MAN. Manufacturers Association of Nigeria has expressed dissatisfaction with the outcomes of the Nigerian Office of Trade Negotiations in just concluded nationwide stakeholders’ engagements on the AfCFTA agreement. According to MAN President, Dr Frank Jacobs, “we are now even more worried that, in spite of the widespread concerns that necessitated Mr President’s reservation of his signature at the summit in Kigali, the subsequent activities of the NOTN was not tailored towards addressing those concerns. Rather than squarely addressing those critical issues, all efforts were geared towards extolling the laudable objectives of the AfCFTA, its potential benefits and what Nigeria is expected to benefit from its implementation.” The manufacturers urged government to provide details of how concerns bordering on the tariff lines and product lines (categorised using HS codes) that have been agreed for liberalisation, as well as the exclusion and sensitive lists, implementation of market access without negotiating the rules of origin and other safeguard measures, would be addressed once the AfCFTA is ratified.
Implementation of trade policy instruments on rice trade in the EAC: the experience of Tanzania (USAID Hub)
The USAID Hub has embarked on publishing a series of EAC Common Market Implementation Impact Studies. This second study (pdf) showcases how the implementation of EAC trade policy instruments has a significant impact on grain trade in the region. Specifically, how these policies affected Tanzanian rice trade from 2008 to 2016 and leading up to one of the Hub’s trade policy reforms in 2017, where Tanzania’s longstanding dispute with Rwanda – Rwandan authorities assessed a charge of $300 per metric ton on rice originating from Tanzania - was resolved. Although the existing EAC policy framework is intended to benefit trade in sensitive products like rice and further domestic food security objectives, its application and ineffective implementation has undermined trade in the rice market for Tanzanian producers. There is need for joint action at the EAC level in terms of the treatment of rice as a sensitive product and the applicable CET rates and for a review of the inbuilt flexibilities availed through stays of application of the CET and the duty remission schemes.
Tanzanian trade facilitation updates:
(i) Tanzania Ports Authority in $690m initiative geared to boost port of Dar es Salaam. The funding will be sourced mainly through a $600m International Bank for Reconstruction and Development soft loan and a $30m grant jointly offered by the UK’s Department for International Development and Trade Mark East Africa. Speaking on the sidelines of the first-ever Port of Dar es Salaam stakeholders’ forum which began in the city yesterday, Kakoko said TPA is implementing a total of 163 projects major expansion projects to increase depth and handling capacity of the country’s seaports. The authority has embarked on a new marketing campaign to attract and retain customers of the port of Dar es Salaam in particular, with representatives of clients from at least seven countries invited to attend the Transit Markets Stakeholders’ Forum. Apart from local customers, delegates from Uganda, Malawi, Zambia, DRC, Rwanda, Burundi, and the Comoros attended.
Country updates
Kenya: MPs give Rotich two weeks to decide fate of cryptocurrencies (Business Daily)
Parliament’s Finance and National Planning Committee took Mr Rotich to task to explain why trade in bitcoins and other virtual currencies was taking place in the country. The committee sought to know why the Treasury and the Central Bank of Kenya allowed people to venture into the unregulated cryptocurrency space without being licensed to operate and taxed. Mr Rotich told MPs that like any other developing technology, the government was yet to determine whether or not trade in cryptocurrencies will be allowed to thrive. He said discussions were ongoing globally to regulate the trade in virtual currency to minimise risks including money laundering.
Nigeria: Dangote Ibese Cement achieves 2.4m metric tons export to West African markets (BusinessDay)
Dangote cement plant, Ibese, Ogun State with production capacity of 12 million metric tons of cement per annum has achieved 2.4 million metric tons export annually to West African markets, mainly Benin, Togo and Ghana. Armando Martinez, plant director, said that the cement plant in Ibese has concluded plans to export 2 million metric tons annually, of klinker, a major cement raw material, to Dangote cement plants in both Ghana and Cameroon for a full-fledged cement production. Speaking during a facility tour conducted on Dangote cement plant, Ibese by the Standards Organisation of Nigeria, Martinez noted that Dangote cement and Dangote Group was vigorously expanding and covering more African countries by locating more cement plants across Africa, explaining that the former grinding and packaging plants in Cameroon and Ghana would be converted to cement production plants. Martinez said that Dangote cement targets 77 million metric tons of cement annually, but produces 44 million metric tons of cement at present. Nigeria accounts for 29.5 million metric tons of the total cement production.
Ethiopia: DP World plans logistics complex to serve landlocked African countries (The National)
DP World is planning to set up a logistics facility in landlocked Ethiopia to transport goods from a port it is developing in neighbouring Somaliland, in its latest foray into Africa where it has faced dual challenges. The Nasdaq-listed company’s logistics complex in the east African country would transport goods to various landlocked states on the continent, said Sultan bin Sulayem, chairman of DP World, according to UAE news agency Wam. DP World’s planned facility in Ethiopia would strengthen its position in Africa, Mr bin Sulayem said. “Business groups in Dubai can always benefit from DP World’s presence in different countries including Rwanda and Egypt where re-exporting opportunities are abundant.”
Tunisia, China sign deal on developing digital economy (Xinhua)
Tunisia and China have signed a partnership agreement on developing digital economy, the Tunisian Institute for Strategic Studies (ITES) said Tuesday. The deal was inked during the Belt and Road Digital Economy conference held in Beijing, the ITES said.
Indonesia targets African market, eyes Tunisia as hub (Antara News)
Global Infrastructure Outlook: Infrastructure investment need in the Compact with Africa countries (GIH)
Moreover, the required $621bn is part of a greater total infrastructure investment need of US$2.4 trillion for energy, telecommunications, airports, ports, rail, roads and water to 2040, if these 10 countries are to meet the demands of accelerating economic and population growth. Based on current trends, forecast investment is $1.4 trillion, leaving a $1 trillion investment shortfall. In delivering these findings, Outlook forecasts for the first time the scale of the overall infrastructure investment gaps at both country and sector level in 10 Compact with Africa countries, and how these relate to meeting the SDGs.
OECD-FAO Agricultural Outlook 2018-2027: Poorer countries set to be ‘increasingly dependent’ on food imports (UN)
Global agricultural and fish production is projected to grow by around 20% over the coming decade, but with considerable variation across regions. Strong growth is expected in Sub-Saharan Africa, South and East Asia, and the Middle East and North Africa. By contrast, production growth in the developed world is expected to be much lower, especially in Western Europe. As a baseline projection, the Agricultural Outlook 2018-2027 assumes policies currently in place will continue into the future. Beyond the traditional risks that affect agricultural markets, there are increasing uncertainties with respect to agricultural trade policies and concerns about the possibility of rising protectionism globally. Extract:
The important contribution from Sub-Saharan Africa and India reflects in large measure continued strong population growth in these regions (Figure 1.4). The global population growth rate is expected to fall from 1.1% at present to 0.9% per year in 2027. Since around 2013, growth has also been falling in absolute terms, although world population will still grow by around 74 million people per year by 2027. Most of this growth occurs in Sub-Saharan Africa and India, as well as the Middle East and North Africa. Population growth in Sub-Saharan Africa is accelerating in absolute terms: while the region’s population increased by 27 million in 2017, this rate will increase to 32 million extra people per year in 2027. In addition to population growth, food demand is influenced by the growth of per capita incomes. The macro-economic assumptions underlying this Outlook suggest strong growth in per capita GDP in India (6.3% p.a.) and China (5.9% p.a.). For Sub-Saharan Africa, 2.9% p.a. per capita growth is expected over the coming decade, but with variations across the continent. Moreover, high growth in average incomes does not necessarily translate to income growth for poorer households. Per capita food demand in Sub-Saharan Africa is therefore expected to remain at relatively low levels. [The 41st Session of the Codex Alimentarius Commission is taking place in Rome: conference documentation]
Wednesday’s Quick Links: JICA’s World, July 2018: a focus on Southern Africa Nigeria: ActionAid, ECOWAS, others want improved safety measures on food Falling EAC trade worries regional business leaders KEBS doesn’t know who imported substandard sugar The AfDB has posted an EOI for a consultant to coordinate the production of the African Development Report, 2018 WAIFEM, IMF convene forum on balance of payments statistics The Gambia Revenue Authority hosts OECD, ATAF tax forum COMESA signs aviation cooperation pact Stears: The problem with Nigeria’s ports |
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Declaration of the BRICS Industry Ministers’ Meeting
Trade Ministers resolve to establish BRICS partnership on New Industrial Revolution
the dti hosted the third BRICS Industry Ministers’ Meeting in Magaliesburg on Wednesday, 4 July 2018. The objectives of the meeting were to discuss the continuation of work on the implementation of existing cooperation projects and how to speed up industrial development by leveraging opportunities of the Digital Industrial Revolution (DIR).
The Ministers of the Federative Republic of Brazil, the Russian Federation, the Republic of India, the People’s Republic of China and the Republic of South Africa resolved to establish the BRICS Partnership on the New Industrial Revolution (PartNIR), which aims to translate the vision of the second Golden Decade of BRICS cooperation into reality through deepened cooperation on industrialisation, innovation, inclusiveness and investment. The partnership will see the establishment of a new industrial revolution advisory group comprising policymakers and experts from all BRICS countries.
The meeting resolved to determine key common areas of focus, including policy coordination, opportunities for cooperation in advanced technical skills and training, and the sharing of best practice in digitisation. The Ministers also resolved to work for closer coordination between BRICS countries on capacity building and developing projects that secure inclusive and equitable growth.
In his opening remarks, Minister of Trade and Industry Dr Rob Davies (MP) highlighted the increasing penetration of technology on industry not only in production, but also in the service sectors.
“Day by day we are seeing quantum leaps in technology. The change we are seeing will not be incremental, it will be disruptive,” said Minister Davies. “Tech has the potential to offer innovative solutions to developmental challenges and improve government services, but it also has the potential to widen inequality.”
Minister Davies reminded his BRICS counterparts that if the group did not work together it could miss an opportunity to achieve the inclusivity the bloc aims for. “We must avoid a situation where the mastery of the fourth industrial revolution is in the hands of a few countries or multinational corporations,” the Minister said.
This view was echoed by other Ministers present.
“In this digital age no country can harness its full potential if it is not equipped to face the future. We must stand together, cooperate and share our learnings. This will help to foster growth in this digital era,” said the Minister of State of Commerce and Industry in India, Chaudhary Chhota Ram.
Declaration
The Ministers of the Federative Republic of Brazil, the Russian Federation, the Republic of India, the People’s Republic of China and the Republic of South Africa, met in Magaliesburg, 4th of July 2018, take note of the following:
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The global economy is demonstrating positive signs of economic recovery with output growth accelerating to nearly 4%. BRICS countries continue to play an important role as engines of economic growth. The recovery from the financial crisis that rocked the global economy a decade ago has been long and uncertain. Although the outlook for global growth does appear brighter, certain risks remain.
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In the context of a generally positive global trend, emerging markets and developing economies have become increasingly important in the global economy, making progressively higher contributions to global output, trade and investment. These economies now account for a significant amount of global GDP, compared to the previous two decades.
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The New Industrial Revolution (Fourth Industrial Revolution) and the drive for sustainable, less carbon and waste intensive production, is and will have profound disruptive impacts on the structure of global production, trade, investment, employment and education. Quantum leaps in technology and innovation are and will carry both enormous potential opportunities and benefits for industrial development but also carry significant challenges for broader, inclusive socio-economic growth and development, especially for developing countries. These opportunities and challenges will call for new high-tech driven innovative policy and regulatory frameworks by individual member countries and a closer mutually beneficial and collaborative efforts, including new and existing multilateral mechanisms of cooperation to secure equitable and inclusive growth.
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As was noted in the 2017 Hangzhou BRICS Industry Ministers Meeting’s Action Plan for deepening industrial cooperation among BRICS Countries, all the BRICS member countries are in the process of implementing their own industrial development strategies in order to strengthen and build their respective industrial capabilities.
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In this context, the action plan of this Third BRICS Industry Ministers Meeting, seeks to build on previously adopted directions and further expand industrial cooperation to secure mutually beneficial outcomes in an increasingly complex global environment.
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The BRICS Industry Ministers resolved to implement the BRICS Economic Partnership Strategy to secure mutually beneficial accelerated economic and industrial growth amongst member states, including placing further and concrete emphasis on the strengthening of business-to-business contacts in all the respective BRICS member countries and support the implementation of specific initiatives and projects in various fields and across a variety of industrial sectors.
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The Ministers meeting further resolved:
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To establish the BRICS partnership on the New Industrial Revolution (PartNIR) that aims to translate the vision of the second Golden Decade of BRICS cooperation into reality through deepened BRICS cooperation on Industrialisation, Innovation, Inclusiveness and Investment. Under the partnership, in support of the manufacturing sectors, a new industrial revolution advisory group comprised of policy makers and experts from all BRICS countries will be established. The advisory group will develop a terms of reference and a work plan.
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In the context of the New Industrial Revolution, determine key common areas of focus, including but not limited to:
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Policy coordination in the context of New Industrial Revolution;
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Opportunities for cooperation in advanced technical skills and training;
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Exchange of information and best practices with respect to digitization;
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Capacity building;
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Projects which secure inclusive and equitable growth; and
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Cooperation with stakeholders for greater synergy of human and financial resources.
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The Advisory group will work closely with BRICS Business Council (BBC) in order to encourage the involvement and participation of the private sector in BBC working groups to accelerate mutually beneficial industrial cooperation across a wide variety of industrial and manufacturing sectors.
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In keeping with the objectives set out in the BRICS Economic Cooperation Strategy, the advisory group will work on the implementation of existing cooperation projects, making full use of experiences of member states.
We, the Ministers of the Federative Republic of Brazil, the Russian Federation, the Republic of India, the People's Republic of China and the Republic of South Africa, resolved to further strengthen existing collaborative and mutually beneficial efforts and projects in the industrial development arena, taking into account contemporary challenges related amongst others to global digital transformation, the imperative for sustainable economic development and the necessity to address the challenge of equitable and inclusive economic growth and industrialisation.
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Nigeria: State of play on the AfCFTA sensitization and consultation exercise
As directed by President Muhammadu Buhari, the Nigerian Office for Trade Negotiations (NOTN) conducted a nationwide, sectoral and industry-wide consultation and sensitization exercise on the African Continental Free Trade Area from 15 March to 14 June 2018, to ensure that signing the Agreement would bring maximum benefits for the Nigerian economy.
Nigeria had made a last minute withdrawal from attending the Extraordinary Summit of African Union Heads of State and Government on 21 March 2018 in Kigali, Rwanda, where the draft consolidated AfCFTA Agreement was presented for signature, in order to allow more time for further consultations before committing to the pact.
Following the conclusion of the AfCFTA sensitization exercise, the Presidential Committee charged with the responsibility of widening consultations on the framework Agreement establishing the AfCFTA met in a closed session at its second meeting on Tuesday, 19 June 2018.
Ambassador Chiedu Osakwe, Chief Negotiator and Director-General of NOTN, was invited to report on the feedback from the stakeholders’ sensitization and consultation across Nigeria’s 6 geopolitical zones; and with industry, sector-specific groups, labour, think thanks and civil society; and to exchange views on the draft report that will be sent to the President.
Ambassador Osakwe officially launched the pdf Independent Study Report on The Potential Benefits of the African Continental Free Trade Area (AfCFTA) on Nigeria (4.34 MB) on 3 July 2018.
AfCFTA Sensitization and Consultation
The process of nation-wide sensitization was transparent and substantive. It set a standard for openness. Complex technical issues were explained, rigorously to both Government and Private Sector Stakeholders. It was a hugely beneficial exercise in the sustained efforts by Government to explain, consult and, in turn, improve understanding on trade-related competitiveness issues.
The adopted Communiqués, Factual Summary and autonomously submitted communiqués attest to the rigour and scope of the exercise. These outputs have been submitted to the Government and have been posted on the NOTN website (and available to download below).
A total of twenty-seven (27) groups were consulted in dedicated meetings, including the National Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA); Nigerian Association of Small and Medium Enterprises (NASME); Manufacturers Association of Nigeria (MAN); Federation of South-South Chambers of Commerce, Industry, Mines and Agriculture (FESPAN); Rice Processing Association of Nigeria (RIPAN); PAN; and the Nigerian Labour Congress (NLC). The sensitization exercise also included meetings within consultative forums in all the 6 geopolitical zones, involving 1,751 persons.
The results of consultations with Stakeholders in the 6 Nigerian Geopolitical Zones were reflected in 5 Communiqués and 1 Factual Summary, openly, and transparently adopted and available to the public.
In addition, the NOTN invited inputs from the entirety of the Nigerian public and private sector inputs to accompany the submission of autonomous inputs to the Government. The requests for inputs were called for through radio, TV, daily newspapers and social media. Eleven (11) private sector Stakeholders, autonomously, submitted signed inputs to the Federal Government of Nigeria.
In terms of the state of play on the substance of the AfCFTA, Nigeria is currently re-focused on its continued working relationships with relevant MDA’s and the Organised Private Sector (OPS), to coordinate a joint position for Nigeria on the AfCFTA.
The preparation of the draft list of tariff lines that would eventually be validated as a Draft Schedule for Tariff Concessions for Trade in Goods is an active process underway. The process was initiated with a communication to MAN, requesting for inputs, on 11th May. The request for inputs from MAN followed dedicated meetings with MAN on 15th March, 27th April and telephone contacts. Technical inputs were received from MAN, based on which the non-draft offer was forwarded to MAN on 11th May. A technical feedback is still being awaited from MAN.
Furthermore, on 6th June, the same non-draft offer was circulated to the OPS (NASME, NACCIMA, Lagos Chamber of Commerce and Industry (LCCI), and re-circulated, again to the MAN).
On 26th June, the Technical Working Group on Goods, chaired by NOTN, started the process of reviewing the Non-Draft Offer on Goods, with the participation of MAN. This process is envisaged to continue for the next 1 month to be finalized, following a final review with the Tariff Technical Committee (TTC), with competent jurisdiction for Nigerian Tariffs.
Concerning Rules of Origin, Annexed to the AfCFTA Protocol on Trade in Goods is the Annex on Rules of Origin, with general provisions on the RoO (specifically, wholly obtained, substantial transformation, proof of origin, verification of origin and processes not conferring origin). As agreed in the AfCFTA, product-specific RoO shall be a work in progress, over a 24-month period.
In addition to this, safeguard measures have been negotiated, and are reflected in the Annex on Trade Remedies to the Protocol on Trade in Goods (Annex 9). These Trade Remedies encompass Preferential Safeguard Measures; Anti-Dumping; and Subsidies and Countervailing Measures. This Annex shall come into force with the coming into force of the AfCFTA.
However, one of the deficiencies in Nigeria’s conduct and management of trade policy is the absence of a Trade Remedy Infrastructure. This is one of the mandates by the Federal Executive Council in the establishment of the NOTN. Currently, Nigeria’s capacity for the invocation and application of a trade remedy infrastructure is being developed. The calendar for establishment of the Trade Remedy Infrastructure is December 2018.
“As we build the partnership and expand the constituency for trade and investments as engines for growth in the Nigerian economy, the NOTN office welcomes and appreciates the inputs, technical and professional support received from the OPS and partner MDAs [Ministries, Departments and Agencies], through the course of this exercise.
Fact Sheet on the AfCFTA: Benefits for Africa and Nigeria
The AfCFTA is the first step in the implementation of AU Agenda 2063: the “Vision” for an integrated, prosperous and peaceful Africa.
The AfCFTA is a negotiated rules-based system, to establish the rule of law in trade, deepen, and expand intra-Africa trade from its very low base of 14%.
For Africa, the benefits are considerable. The AfCFTA would:
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cover a market of 1.2 billion Africans with a combined GDP of US$2.5 trillion.
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would increase intra-African trade by up to 52.3%.
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enable all AU countries to share in the welfare gains, which are estimated at around 2.64% of continental GDP – roughly $65 billion in 2018 terms.
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increase real wages for unskilled workers in the agricultural and nonagricultural sectors, as well as for skilled workers, with a small shift in employment expected from agricultural to non-agricultural sectors.
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be accompanied by additional dynamic benefits, notably, export diversification, durable sustained growth, an enlarged regional market that better attracts FDI, with wider economic space for industrialization and catalytic effects for structural transformation.
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expand the size of Africa’s economy to US$29 trillion by 2050, as estimated by the United Nations Economic Commission for Africa (see pdf AfCFTA Questions and Answers, March 2018 (354 KB) ).
For Nigeria, the gains are significant. The AfCFTA would:
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expand market access for Nigeria’s exporters of goods and services, spur growth and boost job creation.
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eliminate barriers against Nigeria’s products.
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provide a Dispute Settlement Mechanism for stopping the hostile and discriminatory treatment directed against Nigerian natural and corporate business persons in other African countries.
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establish rules-based trade governance in intra-African trade to invoke trade remedies, safeguard the Nigerian economy from dumping and unfair trade practices;
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support the industrial policy of Nigeria through the negotiated and agreed “Exclusion and Sensitive category lists” to provide space for Nigeria’s infant industries.
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improve competitiveness, the and the ease of doing business.
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provide a platform for Nigeria’s continued leadership role in Africa.
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consolidate and expand Nigeria’s position as the number 1 economy in Africa.
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stimulate, specifically, an estimated 8.18 percent increase in Nigeria’s total exports, with a small structural shift in Nigeria’s economy towards manufacturing and services. This is expected to lead to a total increase in Nigerian economic welfare by 0.62% – equivalent to around US$2.9 billion in 2018 terms. Changes would result from tariff reduction, ease of doing business and, trade facilitation.
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provide a platform for Small and Medium Enterprises (SMEs) integration into the regional economy and accelerate women’s empowerment.
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provide an expanded platform for Nigerian manufacturers and service providers for connection to regional and continental value chains.
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Urgent US$621 billion need for Africa to meet UN Sustainable Development Goals for drinking water, sanitation and electricity
The Global Infrastructure Hub, a G20 initiative, on 3 July 2018 published two reports that reveal an urgent need for infrastructure investment in 10 Compact with Africa countries, and highlight the reforms required to encourage greater investment.
The first of these reports, Global Infrastructure Outlook: Infrastructure Investment Need in the Compact with Africa Countries, reveals that, unless US$621 billion is invested in these 10 countries by 2030, they will fail to meet the UN Sustainable Development Goals (SDGs) for universal access to drinking water, sanitation and electricity.
This amount is three times what is expected to be delivered based on current investment trends (US$206 billion), exposing an investment gap of US$415 billion.
Moreover, the required US$621 billion is part of a greater total infrastructure investment need of US$2.4 trillion for energy, telecommunications, airports, ports, rail, roads and water to 2040, if these 10 countries are to meet the demands of accelerating economic and population growth. Based on current trends, forecast investment is US$1.4 trillion, leaving a US$1 trillion investment shortfall.
In delivering these findings, Outlook forecasts for the first time the scale of the overall infrastructure investment gaps at both country and sector level in 10 Compact with Africa countries, and how these relate to meeting the SDGs.
Ludger Schuknecht, German G20 Finance Deputy and Co-Chair of the G20 Africa Advisory Group said: “We welcome the Global Infrastructure Hub’s activities towards analysing investment conditions in Compact with Africa countries. This will help Compact Countries, together with partners, in developing sound policy frameworks for sustainable private investment.”
Currently, 40 per cent of people living in 10 Compact with Africa countries don’t have ready access to electricity, and 59 and 53 per cent live without readily available drinking water and sanitation respectively. The Global Infrastructure Hub CEO Chris Heathcote said that time is running out if the world is to meet the UN SDGs in these Compact with Africa countries.
“Recently, UN General Assembly President Miroslav Laj?ák called for a sense of urgency in financing the UN SDGs. Today’s Outlook report reveals the magnitude of that need at a country and sector level, helping public and private investors to better direct their financing,” Mr Heathcote said.
“However, the huge challenge of delivering the UN SDGs is not only a matter of finance, but also of policy reform – we need strong governance and well-planned projects in these 10 countries.”
The second report published by the Global Infrastructure Hub, InfraCompass: Set your Infrastructure Policies in the Right Direction in the Compact with Africa Countries, provides a holistic view of the policy drivers that deliver more and better infrastructure. According to the report, to maximise the investment opportunities for the 10 countries, work needs to be done to improve governance and regulatory and institutional frameworks.
InfraCompass finds that Morocco and Rwanda are notable performers, marked by their improvements to their regulatory quality, rule of law, and investment and competition frameworks.
“Private investors are a key component to bridging the infrastructure investment gaps and, although institutional investors are willing to participate, they are also wary of the risks,” Mr Heathcote explained.
“Working with these countries to undertake reform and capacity building will pay dividends in encouraging higher levels of sustainable economic growth.”
Head of Infrastructure Policy and Project Preparation at the European Bank for Reconstruction and Development (EBRD) Matthew Jordan-Tank said, “The Outlook and InfraCompass reports resonate with our experience in Africa.
“The findings point to clear and important guidance for public and private sector stakeholders alike. In order to plan, prioritise, tender, finance and monitor infrastructure of high quality, there needs to be a focus on improved regulatory approaches and the strengthening of national institutions. EBRD looks forward to collaborating with the Global Infrastructure Hub on these efforts.”
The two reports were researched and developed over a six-month period in partnership with Oxford Economics (Outlook) and KPMG (InfraCompass).
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OECD-FAO: Predictable agricultural trade conditions needed to address food security challenges
Slowing population growth is expected to lead to decelerating demand for for food
Global agricultural production is growing steadily across most commodities, reaching record levels in 2017 for most cereals, meat types, dairy products and fish, while cereal stock levels have climbed to all-time highs, according to an annual report from the Organisation for Economic Cooperation and Development and the UN’s Food and Agriculture Organization.
The report stresses that agricultural trade plays an important role in promoting food security, underscoring the need for an enabling trade policy environment.
OECD-FAO Agricultural Outlook 2018-2027 sees weakening growth in global demand for agricultural commodities and food, while anticipating continuing productivity improvements in the sector. As a result prices of main agricultural commodities are expected to remain low for the coming decade.
The report, presented in Paris by OECD Secretary-General Angel Gurría and FAO Director General José Graziano da Silva, attributes the demand slowdown to a deceleration of demand growth in major emerging economies, stagnating per capita consumption of staple foods, and a further gradual decline in global population growth rates.
The Outlook finds that global agricultural and fish production is projected to grow by around 20 percent over the coming decade, but with considerable variation across regions. Strong growth is expected in developing regions with more rapid population growth, including Sub-Saharan Africa, South and East Asia, and the Middle East and North Africa. By contrast, production growth is expected to be much lower in developed countries, especially in Western Europe.
The Outlook projects that the weakening of global demand will persist over the coming decade, sapped by declining population growth, flat levels of per capita consumption for staple foods and slowing demand growth for meat products. Declining demand growth for meat products will put a brake on the demand for cereals and protein meal used in animal feed.
With slower consumption and production growth, agricultural and fish trade are projected to grow at about half the rate of the previous decade. Net exports are expected to increase from land-abundant countries and regions, notably the Americas. Countries with high population growth, in particular in the Middle East and North Africa, Sub-Saharan Africa and in Asia, will see rising net imports.
“While overall exports from countries and regions abundant in land are set to increase, notably in the Americas, many poorer countries with rising populations and limited land resources will be increasingly dependent on food imports to feed their people,” said Mr Gurría. “It will be essential that exporters and importers alike have access to an open and predictable trade policy environment.”
“The Green Revolution of the last century largely increased the world’s capacity to feed itself but now we need a sustainability revolution,” said FAO Director-General José Graziano da Silva. “This includes tackling high-input and resource-intensive farming systems that impose a high cost to the environment. Soil, forests, water, air quality and biodiversity continue to degrade. We need to adopt sustainable and productive food systems that offer healthy and nutritious food, while also preserving the environment and biodiversity.”
Demand for cereals and vegetable oil for the production of biofuels is expected to be largely unchanged over the forecast period, in contrast with the past decade, when biofuels expansion led to more than 120 million tonnes of additional cereals demand, predominantly maize. With existing policies in developed countries unlikely to support biofuels expansion, most demand growth will come from developing countries that have introduced policies favouring biofuel use. In particular, the use of sugarcane for biofuel production is expected to increase.
Special regional focus
This year’s edition of the Agricultural Outlook includes a special chapter on the Middle East and North Africa (MENA), which faces simultaneous issues of food insecurity, rising malnutrition and management of limited natural resources.
Undernourishment is concentrated in countries riddled by conflict and political instability. In other countries of the region, food demand is rising fast, due mostly to population growth. Very high consumption levels of wheat together with a continually rising sugar and fat consumption are leading to an alarming spread of overweight and obesity in the region.
While the region’s agriculture and fish production is expected to increase by 1.5% annually, it will be increasingly challenged by both limited land and water resources and the expected impact of more frequent extreme climate-related events. As a result, import dependence will remain high for most commodities.
The Outlook recommends that countries in the region reorient policies away from supporting water-thirsty cereals, toward greater support for rural development, poverty reduction and farming of higher-value horticulture products.
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Profiled newsletter: African Cotton, Textiles & Apparel Monitor – #16
China and the World Trade Organization: a new White Paper (State Council Information Office)
The Chinese government is publishing this white paper to give a full account of China’s fulfillment of its WTO commitments, to explain China’s principles, stances, policies, and propositions regarding the multilateral trading system, and to describe China’s vision and actions in advancing higher-level reform and opening-up, according to the white paper. Box 2. China takes concrete action to expand imports (extract): From 1 July 2018, China is to reduce the most-favoured-nation tariffs for automobiles from 25% and 20% to 15%, and for auto parts from 25% to 6%. As a result, China’s average MFN rates will have fallen to 13.8% for automobiles and 6% for auto parts. From 1 July 2018, China is to cut MFN tariffs for 1,449 consumer products from an average MFN rate of 15.7% to 6.9%, representing an average reduction of 55.9%. Table of contents: China has faithfully fulfilled its WTO accession commitments (p3); China firmly supports the multilateral trading system (p10); China’s significant contribution to the world after accession to the WTO (p15); China is actively advancing opening-up to a higher level (p20); Conclusion (p26). [Washington Post: Trump’s trade war is getting very real]
Understanding global remittances corridors in the DRC (FinMark Trust)
In light of these diverse migrant flows, this report has sought to obtain an understanding of the major global remittance corridors of the DRC, including the split between formal and informal channels, the value of funds sent and received, the regulatory environment, and the remittance product market. Information and data was obtained through a review of existing research on DRC migration and remitting patterns, as well as primary research interviews with senders and receivers of remittances domestically, the Congolese diaspora in Belgium, (in Belgium, USA, Canada, China, India, South Africa and Angola), and foreigners living in the DRC. Extract from the conclusion (pdf):
However, political and economic instability have also destabilised the formal payments system, and driven a high proportion of payments into the cash economy, and informal transacting methods. Simultaneously, the regulatory environment seems to have become more focused on preventing money laundering abuses than on enabling access to finance. The opportunity to facilitate remittance markets in the DRC, and by doing so to improve the access of extremely vulnerable populations to financial services and resources, is thus large. Given that the bulk of remittances likely come from other African countries, a focus on facilitating regional markets would be appropriate. [Note: The report is also available in French, pdf]
Related: Blog commentary by Nikki Kettles. The total remittances into DRC from these nine destination countries are found to be in the region of $305m per annum, of which 81% is estimated to flow via informal channels. The largest of these remittance markets is Angola, followed by France and Congo-Brazzaville. 58% of remittances come from other African countries, and 92% of African remittances travel informally.
Eswatini: FinScope MSME 2017 survey (FinMark Trust)
Thus, in trying to understand and unlock the full potential of the sector, a FinScope MSME survey was conducted between October 2016 and March 2017. The main objective was to size and scope the MSMEs in Eswatini while describing the levels of access to financial products and services (both formal and informal). The following useful insights have been gained (extract, pdf):
Country updates
Ghana: Fifth National Annual Civil Society Forum (GhanaWeb)
The Civil Society Platform has advised government to position itself economically to avoid going back to the IMF after its exit from the programme in 2018. It explained that gross indiscipline in the management of Ghana’s resources had been responsible for the country’s financial woes. However, to restore policy credibility and macro-economic stability due to poor economic management and enhance investor confidence, the current government asked for a one-year extension of the IMF programme to address key challenges. At the opening of the Fifth National Annual Civil Society Forum in Accra on 28 June, Francis Tsegah, a former Ambassador and Senior Research Fellow with the Ghana Centre for Democratic Development, urged the government to make more efforts to strengthen fiscal discipline. He said although the government had announced an exit from the programme by the close of 2018, the fiscal performance under the current ECF-backed programme has been generally disappointing.
Tanzania: LNG project to create over 10,000 jobs, says PM (IPPMedia)
The planned liquefied natural gas project in the southern region of Lindi is set to create more than 10000 jobs, Prime Minister Kassim Majaliwa has said. “Talks are on-going between the government negotiation team and international oil companies on how implementation of the economically viable project could begin,” Majaliwa told the National Assembly. The $30bn project will cover 2,071.1 hectares in southern Tanzania, said Majaliwa, adding that once completed it will see Tanzania becoming a gas exporting country as well as increasing government revenues. [World Bank supports aim to turn Egypt into regional hub for oil and gas trading]
Tanzania: Acacia Mining’s economic and tax contributions in Tanzania, 2017 (pdf, Acacia Mining)
A recent independent report released by Ernst and Young demonstrates the significant contribution that Acacia’s three mines – North Mara, Bulyanhulu and Buzwagi – continue to make to Tanzania’s economy as well as the country’s broader social development. The report, entitled Acacia Mining plc Total Economic and Tax Contributions in Tanzania, 2017 (pdf), concludes that during the year Acacia’s businesses purchased $434m of goods and services from suppliers located in Tanzania. This represented 67% of our total spend on goods and services in 2017. Of this amount, approximately $120m of goods and services were purchased from businesses in the direct locality of the three mines in the country’s Lake Zone. Despite facing several challenges during the year, in 2017 Acacia contributed $712m to the national economy, which represents around 1.5% of Tanzania’s total GDP. This compares with a total contribution of $724m the previous year.
Nigeria’s export earnings rise by 10% to $14.4bn in Q1 2018 (Central Bank of Nigeria)
Millennium Challenge Corporation announces new collaboration with the AfDB
MCC and the African Development Bank will also work together to implement MCC’s new authority to make regional investments. In April 2018, Congress passed and President Trump signed the AGOA and MCA Modernization Act giving MCC increased flexibility to promote regional collaboration, trade, and economic growth by authorizing MCC to enter into an additional, concurrent compact with a country partner specifically to promote regional integration. This new authority aligns with AfDB’s Regional Integration Policy and Strategy for 2014-2023 that seeks to create larger, more attractive markets, link landlocked countries to international markets, and support intra-African trade. [USTDA, AfDB expand procurement partnerships]
Implementing a survey on exports of ICT-enabled services: findings and lessons learnt from survey implementation during 2017 (pdf, UNCTAD)
This project lies within the perspective of statistics on the digital economy. It stems from the observation that no comparable statistics on trade in ICT-related services are currently available while there is a growing demand for better data from countries exporting such services. In India, the survey found that 70% of total services exports could be ICT-enabled in the financial year 2016-17. Some 81% of the services exports that could be ICT-enabled were actually delivered over ICT networks. ICT-enabled services thus accounted for 57% of total services exports from India. Computer services were the biggest contributor accounting for almost two-thirds of the total amount. For services exporting SMEs, delivery over ICT networks constituted the predominant mode of supply (more than 99%). In Costa Rica, the survey found:
Global value chains and industrial development: lessons from China, South-East and South Asia (pdf, UNIDO)
This volume brings together the findings from a series of studies carried out for a joint project of UNIDO and the University of International Business and Economics. Part One takes a macro perspective, in which linked input-output tables are used to map participation of the Asia region in value chains over time. In Part Two, firm-level surveys and case studies of individual firms and GVCs from China, India and Viet Nam are analysed to further understand the drivers and consequences of successful integration and upgrading. To deepen our understanding at the firm level, the project focussed on the electronics and apparel industries, which have been at the foundation of Asian GVCs. Part Three presents the main conclusions on these issues and policy implications drawn therefrom.
Could Japan become a role model for the Fourth Industrial Revolution (WEF)
In recent months, I have worked closely with Japanese government, business and civil society leaders to establish the World Economic Forum Centre for the Fourth Industrial Revolution Japan — the first Centre in the Forum’s new global network to be established outside the United States. Supported by the Japanese government and businesses, Centre for the Fourth Industrial Revolution Japan will co-design pilot projects to speed up Japan’s response to technological change. The goal is two-fold: First, to help Japan make the most of technology as it confronts critical issues like an aging and shrinking population — part of an ambitious program of social transformation that Japanese leaders are calling Society 5.0. And second, to create new governance models for other countries to follow. Japan is, in many ways, a canary in the global coal mine: [The author, Murat Sönmez, heads the WEF’s 4th Industrial Revolution & Global Network]
The rise of the robot reserve army: working hard or hardly working? (CGD)
What does automation mean for developing countries? Are the East Asian pathways to development based on job creating manufacturing-led growth gone forever? Will 1.8bn or two-thirds of the workers in developing countries need to find new jobs (as the World Bank says they will)? Is a global universal basic income needed as Indonesian Minister of Finance proposed at the IMF and World Bank meetings? Does every developing country need to set up a ministry of automation as Thailand has done? [The authors: Lukas Schlogl, Andy Sumner]
Tuesday’s Quick Links: Fred K. Nkusi: African arbitration association is a welcome initiative Egypt, Poland discuss Polish industrial zone in Suez Canal Economic Zone World Bank: New country classifications by income level – 2018-2019 Q2 2018 update: World Development Indicators Five ways Nigeria can realize mobile technology’s potential for the unbanked |
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SA signs African Continental Free Trade Area agreement
South Africa has signed the African Continental Free Trade Area (AfCFTA) agreement with the African Union, which will pave the way for the country to benefit from inter-regional trade within the African continent.
“This agreement is an important step towards South Africa’s participation in a market of over one billion people and will create opportunities and many benefits for South Africa, which would enable South African companies to export goods and services across the continent.
“It will contribute to the growth and diversification of our economy and therefore create jobs, as well as reduce inequality and unemployment,” said President Ramaphosa.
The President signed the agreement during the AU Summit that took place from 1-2 July 2018 in the Republic of Mauritania under the theme “Winning the Fight against Corruption: A Sustainable Path to Africa’s Transformation.”
“South Africa remains committed to a coordinated strategy to boost intra-Africa trade and to build an integrated market in Africa that will see a market of over one billion people and approximately $3.3 trillion in GDP.
The main objectives of the AfCFTA are to:
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Create a single continental market for goods and services, with free movement of business persons and investments;
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Accelerate the establishment of the Customs Union;
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Expand intra-African trade through better harmonization and coordination of trade liberalisation and facilitation and instruments across the RECs and across Africa in general and
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Enhance competitiveness at the industry and enterprise level through exploitation of opportunities for scale production, continental market access and better reallocation of resources.
President Ramaphosa said to take full advantage of this agreement, investment in infrastructure that connects countries must be made.
“There are many other areas of cooperation where we can foster integration, particularly at a regional level, such as tourism, energy and transport. This agreement offers the prospect of a new dawn for Africa,” said the President.
The pdf Agreement Establishing the AfCFTA (973 KB) will soon be submitted to Parliament as part of the process towards its ratification.
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China makes great contribution to the world as WTO member: White paper
The State Council Information Office of China on Thursday released a white paper, titled “China and the World Trade organization”, highlighting China’s significant contribution to the world since its accession to the WTO.
“China has embraced the world with open arms, made a significant contribution to promoting international trade and increasing global wellbeing, and become a key anchor and driver for the world economy,” says the white paper.
Since 2002, China’s contribution to global economic growth has approached 30 percent on average. The Chinese economy has become a major engine for global economic recovery and growth, it says.
“China has comprehensively fulfilled its commitments to the WTO, substantially opened its market to the world, and delivered mutually beneficial and win-win outcomes on a wider scale,” the white paper says.
China’s imports accounted for 10.2 percent of the world total merchandise import in 2017, and its exports 12.8 percent, making China a major trade partner of more than 120 countries and regions, the white paper quotes the WTO statistics as saying.
The country’s exports have provided high-quality and inexpensive products to businesses and people around the world.
Meanwhile, China has remained a magnet for foreign investment. After China’s accession to the WTO, its foreign direct investment (FDI) increased from 46.88 billion U.S. dollars in 2001 to 136.32 billion dollars in 2017, up by an annual average of 6.9 percent.
Citing a report by the American Chamber of Commerce in China, the white paper says that nearly 60 percent of the interviewed enterprises ranked China as a top three investment priority, with some 74 percent of the member enterprises planning to expand their investments in China in 2018.
Another survey by the European Union Chamber of Commerce in China showed more than half of its member enterprises plan to expand their presence in China.
In 2017, newly founded foreign invested enterprises in China reached 35,652, an increase of 27.8 percent, according to the white paper.
In terms of annual flow of outward direct investment (ODI), China’s world ranking rose from the 26th place after its accession to the WTO to the third in 2017.
“China’s outward investment cooperation has accelerated technological progress in the host countries, advanced their economic development, improved their people’s well-being and created many jobs,” says the white paper.
China is committed to building an open platform of cooperation, upholding and growing an open world economy, and working together with other countries to build a broad community of shared interests, the white paper says.
The Belt and Road Initiative proposed by China in 2013 plays an important role in promoting in-depth cooperation and common development between countries and regions, it says.
By the end of 2017, Chinese enterprises had set up 75 overseas economic and trade cooperation zones in countries participating in the Belt and Road Initiative, contributed more than 1.6 billion dollars in taxes to the host countries and created 220,000 local jobs.
Initiated by China, the China International Import Expo is an international public product that promotes inclusive and mutually beneficial development around the globe, the white paper says, adding it will bring together multiple international organizations and more than 100 countries.
“China is willing to work hand-in-hand with its global trading partners to make economic globalization more open, inclusive, balanced and win-win with benefits to all,” the white paper says.
China’s Significant Contribution to the World After Accession to the WTO
China steadfastly pursues a mutually beneficial opening-up strategy, upholds the WTO’s principle of free trade, and has lived up to its responsibilities as a major country in the process of opening-up. From its WTO accession in 2001 to the Belt and Road Initiative in 2013, China has embraced the world with open arms, made a significant contribution to promoting international trade and increasing global wellbeing, and become a key anchor and driver for the world economy.
Foreign trade development benefiting the world
Since China’s entry into the WTO, China’s foreign trade has maintained sustained development, benefiting more than 1.3 billion Chinese and other peoples across the world.
Confronted with unprecedented difficulties and challenges including the global financial crisis in 2008, China has taken effective measures to stabilize and revitalize its foreign trade. According to WTO statistics, China’s imports accounted for 10.2 percent of the world total merchandise import in 2017, and its exports 12.8 percent, making China a major trade partner of more than 120 countries and regions.
China’s exports have provided high-quality and inexpensive products to businesses and people around the world. From 2001 to 2017, China’s imports increased by an annual average of 13.5 percent, 6.9 percentage points higher than the global average; and China has become the world’s second largest importer. Since 2009, China has been the largest export market for the LDCs, and absorbed 20 percent of their exports.
China’s services imports increased from USD39.3 billion in 2001 to USD467.6 billion in 2017, up by an annual average of 16.7 percent, and accounting for nearly 10 percent of the world total. Since 2013, China has been the world’s second largest service importer, making significant contributions to stimulating consumption, creating jobs and boosting economic growth in the exporting countries.
Taking tourism services as an example, China has been the world’s largest source of outbound tourists for many years in a row. In 2017, outbound tourist trips made by Chinese citizens exceeded 130 million person-times, generating USD115.29 billion of overseas tourism spending.
China’s innovation in trade models has also given new impetus to world trade growth. Cross-border e-commerce and other new types and modes of foreign trade have flourished in China, providing an ever-expanding market to its trading partners. In 2017, the value of imported and exported goods in cross-border e-commerce checked and released by China Customs totaled RMB90.24 billion, up by 80.6 percent on yearly basis, of which imports stood at RMB56.59 billion, up by 120 percent compared with the previous year.
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Understanding global remittances corridors in the Democratic Republic of Congo (DRC)
Is there any hope of reducing informal cross border remittances – or are informal channels really that bad?
The current global remittance market is estimated to be in the region of USD 500 billion annually and is expected to grow in future due to increasing international migration population, decreasing remittance costs, increasing disposable income, improving economic growth, growing refugees population and growing urbanization.
Over the last five to six years there has been an explosion of interest and focus on this market by financial service providers, donors, regulators and fintechs, and much has changed with many new formal products and innovations entering the market. What has not changed however, is the size of the informal market, which remains large. FinMark Trust estimates that 70% of all cross border remittances between SA to SADC remittance market are informal.
The current study of remittances in and out of the DRC estimates that 81% of the remittances sent and received are informal. These informal channels include – physical delivery of cash known as at the envelope system, Informal hawala-type remittance business models, and goods remittances.
Much has been written about these informal remittances, what causes them and the potential there is for new innovative formal products that are cheaper and more convenient. And of course the need to reduce the regulatory burden on financial service providers and consumers.
The current study reveals that DRC’s informal remittance market is well established and is currently much cheaper than its formal counterpart particularly for smaller remittances. The formal remittance cost from Belgium is in the region of 8,5% on a transaction of USD 175 and 16.17% from South Africa. By contrast this research found that the standard fee for the informal remittance market is in the region of 5%.
There are many other reasons why remitters use informal channels but on price alone, it is clear that formal products still have a very long way go to particularly in the corridors from African countries into the DRC. Ensuring customer value needs to be at the centre of formal product development if it is to compete with the informal market.
The total remittances into DRC from these nine destination countries are found to be in the region of US$305 million per annum, of which 81% is estimated to flow via informal channels. The largest of these remittance markets is Angola, followed by France and Congo-Brazzaville. 58% of remittances come from other African countries, and 92% of African remittances travel informally.
Table 1: Remittances to DRC from nine migrant destinations
Understanding global remittances corridors in the Democratic Republic of Congo (DRC)
The Democratic Republic of Congo (DRC) has a long standing history of migrant flows, and historically flows to and from Europe have been of particular importance. However, substantial political and economic upheavals from the 1990s onwards have been associated with major changes to the pattern of Congolese migration. Congolese emigrants increased in numbers, were increasingly undocumented, became less likely to return to DRC, and began to move to a greater variety of international destinations. In Europe and Africa respectively, France and South Africa became increasingly popular destination countries. While educated, wealthier Congolese are still more likely to migrate, since the 1990s political pressure has meant that emigrants have increasingly come from all social classes.
In light of these diverse migrant flows, this report has sought to obtain an understanding of the major global remittance corridors of the DRC, including the split between formal and informal channels, the value of funds sent and received, the regulatory environment, and the remittance product market. Information and data was obtained through a review of existing research on DRC migration and remitting patterns, as well as primary research interviews with senders and receivers of remittances domestically, the Congolese diaspora (in Belgium, France, USA, Canada, China, India, South Africa and Angola), and foreigners living in the DRC.
The regulatory environment
While some aspects of the regulatory environment for remittances in the DRC were found to be fairly permissive (with, for example, microfinance institutions allowed to offer remittance services, which is fairly rare in the region), other aspects of the regulatory framework are likely to increase the barriers to formalisation of the industry. In order to obtain a Category B licence to conduct foreign remittances, operators must offer remittance services as their main activity, which limits their ability to cross-subsidise their overhead costs by offering other financial services.
In addition, DRC has implemented fairly strict interpretations of money laundering requirements in the remittance market. Restrictions on large value transactions are often stricter in terms of transaction size limits than FATF recommendations.
Remittance market dynamics
High levels of economic and political stability in the DRC, including a period of hyperinflation and subsequent dollarization of the economy, led to the collapse of the retail banking system in the 1980’s. While the banking system did begin to revive in the mid-2000’s, much of the Congolese economy, including remittance markets, still operates informally.
Informal remittance channels include:
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Physical delivery of cash: referred to by some commentators as the envelope system, the physical transmission of cash either by oneself or by an intermediary is a major remittance channel to and from DRC. The primary research we conducted found widespread use of the envelope system, and found that individuals may make substantial efforts to hide the money transported in their luggage, to avoid airport and border controls.
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Informal remittance businesses with hawala-type business models are fairly prevalent. Typically, they occur where a legitimate business owner has operations in both the origin and destination country for the remittance. The remitter usually has a relationship of trust with the business owner. On this basis, they deposit money with the business in the sending country, and the recipient can then pick up funds from the branch in the receiving country.
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Goods remittances are not only common, but are sometimes used as a means of dealing with restrictions on cash remittances, particularly when the sender is in Asian countries (China, India, etc.)
The formal remittances channels identified in the study included:
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Commercial banks: All the 15 banks operating in the DRC offer international bank transfer services to their clients. Overall though the use of formal banking channels has been limited and instead banks have been used largely to complete the back end of a transaction.
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NGOs: A specific channel used between France and DRC is via NGOs. These are businesses which are registered as NGOs in France, which means they are not liable for tax, but in DRC are “private businesses involved in many activities (travel, telephone booths, etc.).” This type of remittance is formal to the extent that it involves use of a registered NGO, which is regulated as regards the manner in which it undertakes a transaction
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Money transfer agencies play a crucial role in DRC remittance markets. The primary research revealed that among the various money transfer agencies, Western Union, MoneyGram and Banques were among the most popular remittance agencies with 54%, 29% and 18% of respondents interviewed being aware of these agencies respectively.
Conclusions
Substantial migration from DRC has been driven by severe economic and political upheaval. As a result, the remittances sent by Congolese migrants are disproportionately important to the households that receive them, and play a crucial role in stabilising household income for many recipients. However, political and economic instability have also destabilised the formal payments system, and driven a high proportion of payments into the cash economy, and informal transacting methods.
Download the report in English or French on the Finmark Trust website.
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Nigeria’s export earnings rise by 10% to $14.4bn in Q1 2018
Brief on Balance of Payments Statistics for First Quarter of 2018
The provisional Balance of Payments (BOP) estimates for Q1 2018 showed a significant improvement in the country’s position as the overall balance of payments indicated a surplus of US$7,321.96 million compared with a surplus of US$6,180.40 million in the preceding quarter. It also indicated a better position when compared to a surplus of US$2,975.99 million recorded in the corresponding period of 2017.
The current account balance (CAB) also improved significantly from a surplus of US$3,656.15 million in Q4 2017 to a surplus of US$4,468.61 million in Q1 2018. The financial account balance indicated a net acquisition of financial assets of US$10,292.68 million in the review period as against US$3,858.67 million recorded in the preceding period.
Current Account Balance
The current account witnessed a positive outcome during the review period, recording a higher surplus of US$4,468.61 million as against a surplus of US$3,656.15 million and US$3,417.37 million in the previous quarter and corresponding period of 2017, respectively. This development was largely attributable to the increased export earnings and the net surplus in current transfers.
Goods Account
The surplus in the Goods Account increased to US$5,752.01 million in Q1 2018 from a surplus of US$5,472.74 million in the preceding quarter and US$2,271.18 million recorded in the corresponding period of 2017.
Export earnings rose by 10.2 per cent to US$14,393.61 million in Q1 2018 when compared with Q4 2017. It also indicated an increase of about 44.4 per cent when compared to Q1 2017. Earnings from crude oil and gas, which accounted for 93.3 per cent of total export earnings during the review period, increased by 10.1 per cent to US$13,426.53 million in Q1 2018 when compared with the preceding quarter. Earnings from non-oil and electricity exports also increased by 12.3 per cent to US$967.08 million in Q1 2018 when compared with the preceding quarter.
Available data showed that payments for import of goods (fob) to the economy in the review period grew by 13.9 per cent to US$8,641.60 million above the level recorded in the preceding period. This was largely as a result of 99.5 per cent increase in the imports of petroleum products.
Services, Income and Current Transfers
Net out-payments for services during the review period decreased by 5.1 per cent to a deficit of US$4,445.49 million when compared with the level recorded in Q4 2017. However, when compared with the level in the corresponding period of 2017 it indicated a significantly increase of about 201.2 per cent.
Income account (net) worsened to a debit of US$3,272.17 million in the review period from US$2,983.45 million recorded in the preceding period. This is significantly different from US$2,278.33 million recorded in the corresponding period of 2017.
Current transfers (net) increased by 9.9 and 31.3 per cents to a surplus of US$6,434.25 million in Q1 2018 when compared with the levels in the preceding quarter of 2017 and corresponding period of 2017, respectively.
Direct, Portfolio and Other Investments
Direct Investments inflow declined by 15.7 per cent and 5.3 per cent to US$808.56 million when compared with the preceding quarter and corresponding period of 2017. On the other hand, Portfolio Investments inflow to the economy increased to US$5,141.95 million in Q1 2018 from US$3,787.16 million and US$438.47 million when compared with the preceding quarter and corresponding period of 2017, respectively. Also, other investment liabilities increased to US$6,637.92 million when compared with the level in the preceding quarter of US$23.71 million.