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UN to partner with Africa to lower cost of remittances
The UN specialized agency for the postal sector on Monday said it will partner with African governments to lower the cost of remittances flowing into the continent.
Bishar Hussein, Director General of the International Bureau of the Universal Postal Union (UPU), told Xinhua in Nairobi that the Regional Project on Electronic Postal Payment Services in Africa will make the national postal sector play a key role in facilitating financial remittance for international migrants.
“We are going partner with the International Organization for Migration (IOM) to leverage on the expansive network of government owned postal sector to bring down the cost of remittances in Africa to about 5 percent in order to promote financial inclusion,” Hussein said during the 25th East African Communications Organization (EACO) meeting of assemblies.
The event that runs from June 11-15 will involve delegates comprising policy makers, legislators, academia, regulators, service providers in the Information and Communication Technology sectors (ICT) in the East African region.
The theme for this year’s EACO Assemblies is “Sustainable and Resilient Infrastructure for Inclusive Social and Economic Development” which will see discussions on technology trends and key issues in the communications sector.
Hussein said that some commercial firms charge above 10 percent for African migrants to remit money back home.
He said that in order to tackle the high remittance fees, the UN have made a decision to collaborate with African governments to reduce the costs of transferring money to the continent.
He said that state owned postal firms are ideal partners because they are mostly nonprofit making entities and have branches in even the remotes villages of Africa.
The first beneficiary of the Regional Project on Electronic Postal Payment Services in Africa will be Burundi.
Hussein said that 150 post offices in Burundi have been equipped to facilitate affordable remittances of money from the country’s migrants living in Europe.
He noted that experiences and lessons learnt from Burundi will enable the UPU to roll out affordable remittances to the rest of Africa.
During the 2017-2020 cycle, UPU is running a minimum of eight technical assistance projects with the East Africa Community bloc. Some are national programs targeted at specific countries while others are of regional nature.
Hussein said that for many decades, the post was the most visible form of communication in Africa largely due to the affordability and accessibility of its services to the public.
He added that the situation has since changed owing to the dynamics in technology advancement as well as customer needs.
“In particular, both the mobile and the internet have had a big impact in the way people communicate and has eroded the post business especially in the delivery of letters,” he said.
Hussein added that on the positive side, technology has brought many opportunities for the postal sector.
“The new services, coupled with the large physical network and experience with customer service has made it possible for the post to be competitive in the market,” he said.
According to UPU official, the biggest impact of technology in the post has been felt in the field of electronic commerce and financial services, noting that there is big potential for e-commerce especially in African countries with relatively good internet connectivity.
He observed that with a huge young population and a steady growing middle class, Africa holds the promise to success in e-commerce business.
The UPU official said that unfortunately, Africa only accounts for less than two percent of the global e-commerce.
He noted that UPU’s focus on e-commerce is based on the fact that growth in online business results in increased volume of parcels that need to be delivered.
“The post should, therefore, not just position itself to take advantage of this growing business opportunity but should actually participate in growing it,” he added.
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Starting today, in Accra: Africa Trade Network’s multi-stakeholder AfCFTA consultation
The new head of the UNDP’s Regional Bureau for Africa: Ms Ahunna Eziakonwahead
Diarise: 31st Ordinary Session of the Assembly of the Union (1-2 July, Nouakchott, Mauritania). Major agenda items include reports by President Paul Kagame: Institutional reform of the AU - status of implementation; President Mahamadou Issoufou: African Continental Free Trade Area; AUC Chairperson, Mr Moussa Faki Mahamat: Western Sahara; African Common Position on ACP Post-2020
Brahima Coulibaly: Industries without smokestacks – Africa’s new path to structural transformation (Brookings)
To avoid the Yogi Berra syndrome, new research by the Africa Growth Initiative at Brookings and UNU-WIDER has looked in unfamiliar places and discovered evidence to suggest that Africa might be undergoing a more profound structural economic transformation than we think. It is occurring, not through the traditional industries, where we have been looking, but in tradable services and agro-industries that resemble traditional industries. These industries include horticulture, agri-business, tourism, and information and communication technology (ICT)-based services. For example, services exports from Africa grew more than six times faster than merchandise exports between 1998 and 2015. In Kenya, Rwanda, Senegal, and South Africa, the ICT sector is flourishing. In Rwanda, tourism is now the single largest export activity, accounting for about 30% of total exports. Ethiopia, Ghana, Kenya, and Senegal are all integrated into global horticultural value chains, and Ethiopia has become a leading player in global flower exports.
While economic development experts have been increasingly confident that Africa’s development model will be different, they have been less certain about what shape it will take. The industries-without-smokestacks model offers one possible answer. From a policy perspective, African leaders and Africa’s development partners should explore ways to support the growth of these industries through targeted reforms, and by incorporating them into national industrialization strategies and broader development agendas. From a private sector development perspective, this research suggests that interventions aimed at boosting job creation and economic transformation in Africa should prioritize these industries. [The author is the Director of the Africa Growth Initiative] [See the table of contents for the forthcoming OUP book: Industries without smokestacks – industrialization in Africa reconsidered]
Drones on the horizon: Transforming Africa’s agriculture (NEPAD)
Driven by increasing demand, drone technology is expanding at an exponential scale in the West and agriculture is one of the top economic sectors where they are being used. Africa should not lag behind. Therefore, through a consultative process, AU member states need to develop and enact national UAV regulatory frameworks, which ensure safety, encourage innovation and do not restrict the emergence of UAS agro-service providers or discourage private sector investment in the industry. With the current status of drone technology uptake and the opportunities it offers in crop scouting and monitoring, crop volume assessments, inventory, precision spraying, and crop damage assessment, Africa is set to increase its agricultural productivity in the next decade. In this regard, the African Union High-Level Panel on Emerging Technologies recommends the following for the national and continental levels: [Note: this is a report of the High-Level African Panel on Emerging Technologies, chaired by the late Prof Calestous Juma and Yaye Kène Gassama (Université Cheikh Anta Diop de Dakar, Senegal]
Agriculture in Africa: telling myths from facts (World Bank)
New IMF analyses: Angola, Rwanda
(i) Angola 2018 Article IV Consultation: External Sector Balance Assessment (extract): Since the fall in oil prices in mid-2014, Angola’s current account (CA) position slipped into deficits. Prior, the CA recorded surpluses averaging 10 percent of GDP during 2010–2013 underpinned by large trade surpluses. Since 2014, the CA shifted into deficits, peaking at 10% of GDP in 2015 and narrowing to 5¼% of GDP in 2017. Between 2014-17, imports contracted by 40¼%, reflecting lower public investments and foreign exchange shortages, while exports declined sharply by 44½ % owing to lower oil prices. Trade surpluses have since declined significantly from an average of 40¼% of GDP during 2010–2013 to 13¾% in 2017.
(ii) Angola – Selected Issues report (pdf): Public ownership of banks exposes the sovereign to direct fiscal costs in Angola. Public sector entities have equity interests (minority stakes) in six banks and, as noted above, the government directly controls three banks that hold about 11% of banking system assets. State-owned banks operate against a backdrop of explicit and implicit government guarantees that generate bi-directional spillovers between the sovereign and banks. Since the oil price shock, the government has spent about 4% of GDP in recapitalizing such banks, and costs are expected to be above 1% in 2018 (Figure 8).
Ghana: AGI against Africa free trade pact (Graphic)
The Association of Ghana Industries says the ratification of the AfCTA by Ghana will expose the country to a flood of foreign goods from African countries. It, therefore, questioned why Parliament was swift to approve the agreement which could dwindle revenues from import duties, because imports from Africa would not be liable to pay duties. “Every revenue Ghana is getting from imports from Africa is going to be eroded, because importers could bring in anything to Ghana. Even if they are made in Europe, you just take them to any African country and bring them to Ghana to avoid the payment of duties,” it stated. [Ghana-South Africa Business Chamber: Ghanaian trade delegation to visit SA]
South Africa’s ABSA Group targets Nigerian banking license (BusinessDay)
South African financial services group ABSA, formerly the whole owned subsidiary of Barclays Africa Plc, is considering getting a banking license in Nigeria after it begins trading on the Nigerian stock exchange by the end of July, as part of its plans to provide financial services to its international clients who are willing to get exposure to the Nigerian market and vice versa. Garth Klintworth, head of markets for Barclays Africa Group, said is was important that ABSA had a presence in Nigeria for the bank to be seen as an African bank in Africa. He disclosed that all is set for the securities subsidiary to open in July on the Nigerian Stock Exchange.
Kenya: Remittances up 50% to remain top forex earner (Business Daily)
Remittances by Kenyans living abroad rose 50% in the first four months of the year compared to a similar period in 2017, cementing the inflows’ position as the leading source of foreign exchange in the country. Latest Central Bank of Kenya data show the cumulative inflows in the four months to April stood at Sh86.7 billion ($858.6m), compared to Sh57.7 billion ($571.2m) in a similar period in 2017, with the increase mainly backed by huge growth in the dominant North American remittances.
Kenya’s food import costs jump to Sh68bn (Business Daily)
Kenya’s food imports in the first four months of the year grew by a third to Sh68.63 billion compared to a year earlier, reflecting the country’s reliance on foreign markets despite improved weather. Official statistics collated by the Central Bank of Kenya shows food import bill rose by 30.10% in the January-April period compared with Sh52.75 billion in the same period of 2017.
Anatomy and impact of export promotion agencies (World Bank)
This paper describes the characteristics of export promotion agencies (EPAs) around the world, using a novel database from the World Bank, in collaboration with the International Trade Center in Geneva, covering 2005-2010. In addition, it presents a short summary of the literature on the impacts of export promotion agencies. Extract (pdf):
The survey asked the EPAs to rank their strategic objectives from 1 to 8 in order of their importance (1 being the most important strategy and 8 the least important). The following options were considered as possible strategies: i) increase exports across all sectors and destinations (All); ii) diversify exports by encouraging new products (Products); iii) diversify exports by encouraging new destinations (Destination); iv) encourage the development of industry clusters (Clusters); v) help firms enter global supply chains (Supply chain); vi) support exports and competitiveness of small and medium enterprises (SMEs); vii) attract investments by export-oriented multinationals (EOM); and viii) other strategies.
The large majority (86%) of the agencies reported that the promotion of exports across all sectors and destinations is one of their strategies, with an average ranking of 1.6. Moreover, almost the same share of EPAs (85%) reported diversification of export destinations as one of their strategies, with an average ranking of 2.8. Diversification of markets is a more common strategy than product diversification according to 73%of EPAs, with an average ranking of 3. Also, several agencies ranked the attraction of export-oriented multinationals, the development of clusters and inclusion in global supply chains as part of their strategies, but with a lower average ranking. As such, we can infer that, for the majority of EPAs, increase in overall exports and diversification are more often their top priorities, not necessarily through inclusion in global supply chains, clusters or attraction of multinationals.
Miracle or Mirage: What role can trade policies play in tackling global trade imbalances? (pdf, OECD)
Simulations of the OECD’s METRO model show liberalisation of existing trade distortions would modestly narrow aggregate trade imbalances in the medium term for some countries. Reducing tariffs, non-tariff measures and the combined market access and productivity-enhancing effects of pro-competitive measures in services all have some rebalancing potential. Liberalisation would also offer economically significant income gains for all countries. By contrast, narrowing trade imbalances using trade restrictions would come at disproportionately high economic costs for all countries.
Today’s Quick Links: African Cotton, Textiles & Apparel Monitor: Issue #13 is posted Namibia Trade Forum: Namibia’s trade analysis for 2017 SA eyes region’s building and mining sectors for exports of steel products UNDP’s Ayodele Odusola: Addressing the foreign direct investment paradox in Africa Zimbabwe-China Business Forum: President Mnangagwa charms Chinese investors Third China-Uganda Business Forum: Yes, China can deliver African continent’s growth miracle COMESA, IOM, sign co-delegation agreement on cross border trade The Gambia: Social safety nets diagnostic Privacy law and services trade: resolving the conflict Toxic and untaxed: perils of global trade in bootleg liquor exposed |
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Namibia’s trade analysis for 2017
An update by the Namibia Trade Forum
The total value of exports in 2016 was N$ 66 billion, which dropped by -5% in 2017 to N$ 63 billion. Imports also reduced by -10% (N$ 9.5 billion) in 2017.
Thus, there was an N$ 3.3 billion drop on exports in 2017 which hinders the country’s economic development objectives especially industrialization.
Namibia’s economy is experiencing a 2-year recession due to reduced government expenditure and fiscal consolidation. Various businesses rely on government expenditure for survival which they use to create employment opportunities.
1. The major export shortfalls in 2017 was by copper, gold, fish, meat
The shortfalls where caused by copper ores (-64%), copper cathodes (-76%) and unrefined copper exports. Gold exports flourished during 2016 but not in 2017.
The fishing sector slumped in most categories especially frozen fish (-41%), frozen mackerel (-35%), frozen hake (-47%), sardines (-30%), fish meal (-39%) and hake (-46%).
The global exports of copper ores increased by 28% and refined copper by 17% in the same year, this leaves Namibia in an unfavorable position in this sector.
Meat exports dropped by a -21%, followed by lamp carcasses by -43%. The export of live cattle reduced considerable in 2016 and 2017, compared to the previous years. Beer exports also plummeted by more than -26% since 2015.
Major primary and secondary sector jobs are dependent on the stability of the fishing sector and the poor performance in the fishing industry signal serious caution for the industry.
2. Stable exports by diamonds, zinc, fresh grapes, live sheep, salt and phosphorous
The various products that maintain a stable export trend are gold (5.6 billion), fresh grapes (498 million), live sheep (380 million), salt (334 million), pure zinc (1.8 billion), zinc ores (939 million), phosphorous (521 million), diamonds (12 billion).
Others are marble (276 million), hake blocks (3.4 billion), beer (843 million) and vehicles.
There is a need to address the various setbacks and challenges experienced by the private sector by imposing strategic measures to support these industries.
Chart 1: Total trade versus exports (2008 – 2017)
As per the chart below, total trade has reduced in 2017, since its highest peak in 2016.
Chart 2: Percentage change in exports values (2008 – 2017)
As per the chart below, 2010 experience a huge slump in exports, followed by 2015 and 2017. The best export spikes where in 2013 and 2016.
This article was prepared by Rodney Dan-Ao !Hoaeb of the Namibia Trade Forum.
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Reports on Emerging Technologies officially launched at Africa Innovation Summit
Advances in modern technologies are occurring at an accelerating pace, ranging from the fields of robotics, nanotechnology and biotechnology to materials science and artificial intelligence.
Globally, these technologies are bringing about transformation in all dimensions of life, and this provides an opportunity for Africa to harness these technologies to advance its socio-economic development agenda and position itself as a frontrunner in the 4th Industrial Revolution (4IR).
Hence, on 8 June 2018, three reports were launched by Honourable Mr. Jean de Dieu Rurangirwa, Minister of information, Technology and Communications of Rwanda and the African Union (AU) High Level Panel on Emerging Technologies (APET) at the Africa Innovation Summit II held in Kigali, Rwanda. The reports focus on malaria control and elimination, increasing Africa’s agricultural productivity and enhancing Africa’s energy security.
Recognising the role of science, technology and innovation, the APET was established by the AU to provide advice on emerging technologies and has since identified three emerging technologies that have the potential to benefit Africa; (i) Gene Drives for Malaria Control and Elimination in Africa; (ii) Drones on the Horizon: Transforming Africa’s Agriculture; and (iii) Micro-grids: Empowering Communities and Enabling Transformation in Africa. In addition, APET has called for functional regulatory systems at national and regional levels in order to ensure timely and safe application of these technologies for Africa's economic development.
Speaking during the official launch of the three reports, Honourable Mr. Jean de Dieu Rurangirwa, Minister of Information, Technology and Communications of Rwanda commended the High Level Panel for the achievement of this milestone. He further reiterated his government’s commitment and urged other Member States to harness emerging technologies for accelerated socio-economic transformation of the continent. Hon. Rurangirwa was speaking on behalf of His Excellency Paul Kagame, President of Rwanda and Chair of the African Union.
Chair of the High Level Panel Prof. Yaye Gassama Dia emphasized the need to strengthen regulatory systems in order to ensure timely access and effectiveness of these technologies. She also stated that there are perceived risks associated with these technologies and further research is encouraged with full participation of African scientists, policy makers, with active engagement of the target communities.
“Advances in science, technology and innovation, particularly in gene technology, big data, artificial intelligence and robotics, offer unprecedented opportunities to speed up Africa’s development and transformation process. High-tech, reliable technologies at affordable cost, exist to address many problems in agriculture, energy production and health,” Prof. Yaye said.
Prof Yaye Gassama Dia was speaking while presenting the three reports to the Guest of Honour, Honourable Mr. Jean de Dieu Rurangirwa, of Rwanda. Prof. Yaye is also the Vice President of the Senegalese Academy of Sciences, former Chairperson of the African Ministerial Conference on Science and Technology (AMCOST) and former Senegalese Minister of Scientific Research.
Earlier during the summit, the Chief Executive Officer of the New Partnership for Africa’s Development (NEPAD) Agency, Dr. Ibrahim Assane Mayaki, noted that African scientists are actively involved in innovations and have necessary competences to apply the three technologies to address Africa’s challenges and opportunities for transformation.
“[I]n order to effectively advance science, technology and innovation, Africa needs to adopt a co-evolutionary approach in which technology development should go hand in hand with regulation. The function of regulation is to promote innovation,” Dr Mayaki argued.
The three reports will serve as valuable resource in unpacking emerging technologies and building a culture of science, technology and innovation in Africa. The APET has made its recommendations on the three emerging technologies taking into account the capacity strengthening needs, regulatory and ethical considerations, and requirements for domestic and international investment.
APET further argues that Africa cannot afford to play the “waiting-game” in putting together regulatory requirements for technologies that are on the horizon but should be actively involved and come up with harmonised policies, guidelines and standard operating procedures taking advantage of its regional integration agenda.
The APET calls upon research and development institutions and entrepreneurs to examine these recommendations, and further calls upon African governments, regional organisations and partners to support them in taking this work to the next level.
Drones on the Horizon: Transforming Africa’s Agriculture
This report provides a contextualized review of drones as a vital precision agriculture-enabling technology and its range of relevant uses for providing detailed and on-demand data in order to enhance decision-making by farmers and hence facilitate much needed support.
Drones for precision agriculture is a farming management concept which is based upon measuring and responding to inter- and intra-field variability in crop and animal production. It is not just the application of new technologies, but rather it is an information revolution that can result in a more precise and effective farm management system. Drones, described as unmanned aerial vehicles (UAVs) or unmanned aerial system (UAS), the latter including the sensor, software, and so forth, have many applications. These include, but are not limited to, land mapping and surveying, land tenure and land use planning, inspection monitoring and surveillance, cargo delivery, scientific research, management of agricultural assets and insurance and crop/infrastructure damage assessment.
The deployment of drone technology in Africa has its own challenges, which may be classified under four broad categories; namely technological, economic, social, and legal and regulatory. These include capability, reliability and battery autonomy; commercial batteries for small UAVs allow 24-40 minutes flight fully charged before battery replacement is required. UAV’s reliance on communications from a ground operator for control make them vulnerable to signal loss from interference, flying out of range or hacking. While the demand and provision of UAS services is increasing exponentially where crops are grown as monoculture on large holdings, the adoption of UAV technology in the framework of small-scale, multi-crop farming systems in African countries remains a challenge.
More importantly, a skilled workforce is required by the UAV industry whose competences range from planning flight itineraries, piloting UAVs, operating GIS and data analysis software, interpreting data, and providing agronomic or spatial planning advice. There exist social challenges, which span a range of issues including security, the right for privacy, data acquisition, storage and management, causing harm or nuisance to people and animals, damaging property, employment, etc. UAV regulations are still in its infancy in Africa, the making and the presence of too restrictive, or even disabling regulations governing the import and use of UAVs can hinder the development of a very promising industry, which could attract and engage educated youth in rural areas. In some cases, government agencies or the private sector are already working on solutions that are described in this report.
In conclusion, this report considers drone technology for precision agriculture as a potential game-changer for the African continent. The report recommends that the adoption, deployment and upscaling of UAS in the context of precision agriculture is considered as a priority. Key areas to be considered in upscaling the technology and realising its potential include capacity-building, enabling or supporting infrastructure, regulatory strengthening, research and development and stakeholder engagement. In this regard, the AU High Level Panel recommends the following to the AU organs, member states and Regional Economic Communities (RECs):
At the national level:
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Assess the opportunity cost of UAV technology including external factors and balance it against expected outcomes such as food security, improved health and the potential for drones to make agriculture attractive to the youth.
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Ensure that stakeholders are engaged in all aspects related to the introduction of UAV technology so that potential resistance is understood and dealt with systematically.
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Conduct public awareness around UASs and their civil applications to clearly distinguish between civil and military uses and thereby improve public acceptance. Safety, security and privacy concerns need to be dealt with as part of this process.
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Address cost and technical barriers to adoption through either subsidies, licensed SMEs or cooperatives and build a supportive framework for drone governance and regulation to facilitate adoption (including licensing and registration).
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Encourage and support public-private partnerships for UAV technology uptake.
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Ensure that appropriate national UAV regulations are put in place. Appropriate regulation should strike a balance between competing public security concerns on the one hand and the need to encourage innovation, economic development and youth entrepreneurship on the other. In this context, encourage National Civil Aviation Authorities to establish enabling regulatory frameworks for UAV technology to be deployed and up-scaled to serve precision agriculture.
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Allocate resources for R&D (cost & benefits) and capacity building to build a critical mass in all aspects of drone technology such as licensed pilots, scientists and regulators.
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In the context of smallholder farmers, support crop intensification via stimulating the planting of the same crops simultaneously in contiguous areas to form larger and more rational holdings, which could reap the benefits of UAV technology for precision agriculture.
At the continental level:
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Develop a continental regulatory framework for the use of UAVs in Africa, and harmonize policies across countries and regions (regional economic communities)
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Enhance South-South and regional collaborations, partnerships, networks and knowledge-exchanges to facilitate the upscaling and use of drone technology
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IMF Executive Board 2018 Article IV Consultation with Angola
Angola: The Road to Economic Reform
The IMF recently completed its annual health check of the Angolan economy and found that the country, under a new administration, has made strides in setting a reform agenda geared towards macroeconomic stability and growth that benefits all its people.
Angola was for many years mired in civil conflict, which destroyed its physical and human capital, and undermined the state’s ability to function normally. Since the conflict ended in 2002, the country has been working to improve its governance, and the 2017 election of a new president has helped regain confidence in Angola's overall outlook.
As the sub-Saharan region’s second largest oil exporter, Angola was hard hit by the decline in oil prices that started in mid-2014, the pain of which is still being felt. With stringent attention to needed reforms, the economy could grow modestly in 2018.
Here are some of the report’s highlights:
The new administration is committed to restoring macroeconomic stability and implementing reforms. Since the election last year, the administration of President João Lourenço has started to implement policies aimed at restoring macroeconomic stability and improving governance, including dismissing officials linked to the previous administration, launching investigations into possible misappropriation of funds at several public entities, and creating a specialized anti-corruption unit.
Lower oil prices and policies in the run-up to the elections placed the economy under strain. The dramatic drop in oil prices that started in mid-2014 substantially reduced tax revenues and exports, with growth coming to a halt and inflation accelerating sharply. This brought to the fore the need to address vulnerabilities more forcefully and diversify the economy away from oil. The authorities undertook steps to mitigate the impact of the oil price shock, including a significant – 17½ percent of GDP – improvement in the non-oil primary fiscal balance over 2015-16, mainly through spending cuts that included the removal of subsidies, and devaluing the kwanza against the U.S. dollar by over 40 percent between September 2014 and April 2016. The exchange rate, however, was re-pegged to the U.S. dollar in April 2016.
Policies in the run-up to the August 2017 elections – fiscal expansion and a pegged exchange rate – led to a further erosion of fiscal and external buffers. The overall fiscal deficit worsened to 6 percent of GDP and public debt, including that of the state-owned oil company Sonangol, reached 64 percent of GDP in 2017. Gross international reserves declined to $17¾ billion – equivalent to 6 months of imports – while the spread between the parallel and official exchange rate was 150 percent in 2017.
The new government is implementing a macroeconomic stabilization program (MSP). The government launched the MSP in early January 2018. The plan envisages upfront fiscal consolidation, greater exchange rate flexibility, reducing the public debt-to-GDP ratio to 60 percent over the medium term, improving the profile of debt through a liability management operation, settling domestic payments arrears, and ensuring effective implementation of anti-money laundering legislation.
The National Assembly approved a prudent budget for 2018 that targets a 2 percent of GDP improvement in the non-oil primary fiscal balance. In January, the central bank exited from the peg to the U.S. dollar and has increasingly sold more foreign exchange in regular auctions as opposed to direct sales. The central bank is also revamping its monetary policy framework to include base money targeting.
Structural reforms are correctly focused on fostering growth in the private sector. The new government is making concerted efforts to improve the business environment.
The National Assembly recently approved a Law on Competition that introduces a framework to support competition in domestic markets and address monopolistic practices in key sectors, such as telecommunications and cement production. A Private Investment Law was also recently approved by the National Assembly that removes entry barriers to foreign direct investment. The government has also launched a program for diversifying exports and substituting imports.
There is a need to create room in the budget to close social gaps. Angola’s social gaps are large and widespread, including higher poverty incidence than predicted by income levels, and higher mortality rates than regional peers. Public spending is insufficient in critical areas like education. A well-designed conditional cash transfer program could help alleviate poverty and other social problems.
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AfCFTA Ratification Barometer: Niger becomes the fourth state to deposit its instrument of ratification with the African Union
Starting today, in Cape Town: COMESA-EAC-SADC Tripartite meeting on TFTA issues. The trade ministers meet on 18 June. A preview by Dr Francis Mangeni:
The Tripartite as the tipping point for the recent high momentum in continental integration is not adequately recognised in some circles. What is more, is that negotiating the Tripartite for three years and a half imbued a large number of the very same negotiators with practical experience and insight on issues that came up for ACFTA. Most of the ACFTA instruments, especially the annexes, were in fact derived from the Tripartite versions; the similarities are there for everyone to see. This backdrop means that the COMESA-EAC-SADC Tripartite Ministers might wish to envisage the Tripartite as a fast-track for the ACFTA. The Tripartite has started formulating tools and instruments for trading under the FTA and continues to use existing mechanisms on addressing NTBs. The Tripartite RECs have already negotiated four priority services sectors, namely, transport, communication, finance and tourism, which could be early harvest for the AFTA. And the robust technical committees and trade facilitation instruments of the Tripartite RECs could provide institutional frameworks for implementing AFTA at the regional levels.
South Africa’s ratification of the TFTA moves a step closer this week. The National Assembly’s Portfolio Committee on Trade and Industry meets on Wednesday to consider the Tripartite Free Trade Agreement
AfCTA: Towards the finalization of modalities on goods – toolkit (ATPC/UNECA)
African Union 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, which are, as mentioned previously, Djibouti, Ethiopia, Madagascar, Malawi, the Sudan, Zambia and 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. According to the modalities agreed at the AU Ministers of Trade meeting in Niamey in June 2017, the remaining 10% 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. Against that background, the present toolkit aims to provide guidance for African 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.
Conclusion and recommendations: extract (pdf): The findings, as illustrated by the case of ECCAS for a model tariff offers, clearly indicate that a double qualification approach is more aggressive than an approach relying only on tariff lines, as far as tariff cuts are concerned. It should be noted that although there are pronounced differences across countries and regions (due to different tariffs and import structures), the main messages coming out from the example of ECCAS can be generalized to all other African countries and regional groupings. In other words, a tariff line approach (scenario 1) — even if extremely ambitious (for example, up to 99 per cent of tariff lines liberalized) — will result in relatively limited liberalization of imports for most countries and regional groupings as compared to a double qualification approach (scenario 2). This suggests that a tariff line approach for liberalization of goods under the AfCFTA agreement could lead to at least four potential issues:
Underway in Lilongwe: The Southern Africa Regional Integration Stakeholder Forum. The theme: The private sector and regional integration in Southern Africa - accelerating opportunities for investment and growth. Extracts from the background paper:
Furthermore, it is worth mentioning that the generally high degree of de jure openness of SADC’s services trade policies may not always imply de facto openness as most countries still retain a significant degree of regulatory and policy discretion. For instance, from retail to banking and insurance, the allocation of new licenses remains opaque and discretionary in a number of countries. In the same vein, there are instances in which sectors appear de jure entirely open, yet the license fees are prohibitively high.
In summary, while the overall picture of services trade liberalization in the regional economies seems reasonable when compared to established policies outside the region and the continent, it is clear that there is potential for improvements, especially in countries such as Zimbabwe and DRC. It is generally recognized that liberalizing trade in services is not an easy task and involves addressing complex technical issues related to regulations and standards. However, the benefits to be derived are immense. Considering the complexity of the process, it might be relatively easier and less challenging to deepen and strengthen integration of services markets at the regional level, while smoothly integrating to the global markets. Evidently, to the extent feasible, policies should not systematically discriminate against services providers outside the region. It is also important to emphasize that the regional integration of services markets is closely linked to the aspired integration of goods markets, especially with regard to services providing connectivity such as transportation and telecommunications.
Deeper regional integration would inject greater competition in the markets and create many investment opportunities for the private sector. This is true not only for backbone services such as telecommunications, banking and transport, but also possibly to a larger extent, for business services, including professional services, where the issue of labour mobility within the region becomes particularly relevant. As the restrictiveness index in professional services (Figure A5) shows, the sector is highly protected in most of the countries and substantial gains can be expected to be derived from greater integration given the underdevelopment of this sector in the region.
The transition from Least Developed Country status (Development Matters)
Looking ahead, an unprecedented number of LDCs will graduate by 2021, with four countries recommended for graduation and two more scheduled for graduation in 2020 and 2021. However, forthcoming LDC graduates will do so mainly because of their country income status as opposed to substantial progress on the reduction of economic vulnerabilities. This raises obvious concerns regarding sustaining their development momentum as well as advancing on the broader 2030 Agenda and the Sustainable Development Goals. Thus, what can be done?
In view of this, we have pioneered an approach, for example, to assess the attractiveness of a country for infrastructure financing, which we piloted in Mozambique in partnership with the City of London. Major findings suggest the potential for leveraging the principles embodied within the Commonwealth Charter for Infrastructure Development. Given this, the Commonwealth Secretariat produced evidence-based research that we disseminated to transitioning member states via a toolkit. This assessment framework is an adaptation of a tool called InfraCompass developed by the Global Infrastructure Hub. The InfraCompass tool assesses six categories: Governance, Regulatory, Permits, Plans, Procure and Delivery. However, given the challenges LDCs face and based on the findings from the application of the GIH to Mozambique during March 2017, the InfraCompass assessment framework had to be modified. This entailed removing unnecessary evaluation criteria as well as creating two additional categories. [The authors: Dr Jodie Keane (Economic Adviser), Dr Howard Haughton (Quantitative Analyst), Commonwealth Secretariat]
Botswana: IMF completes 2018 Article IV visit
Nigeria’s bilateral trade relations: a suite of updates
(i) Morocco, Nigeria agree on next steps for offshore/onshore gas pipeline. Morocco and Nigeria on Sunday signed a joint declaration in Rabat laying out the next steps for the completion of a gas pipeline deal that will be built onshore and offshore, Moroccan state news agency MAP said. The two countries agreed to the pipeline in December 2016 and launched feasibility studies ending with a plan to build the pipeline onshore and offshore, it said. “For economic, political, legal and security reasons, the choice was made on a combined onshore and offshore route,” Morocco’s National Office of Hydrocarbons and Mines and the Nigerian National Petroleum Corporation, the two authorities supervising the project said in the joint declaration. “The pipeline will be 5,660 kilometres (3,516.96 miles) long and its CAPEX has been defined,” the declaration said, adding that construction will be in phases covering 25 years.
(ii) Strengthening bilateral trade relations between Nigeria, China. According to Xu Tian, executive secretary, China Chamber of Commerce in Nigeria, there are currently ‘over 100 member companies in CCCN’ in Nigeria. She said these companies cover diverse fields such as infrastructure, manufacturing, culture, science and technology, oil and gas, agriculture, mining, investment and other businesses and projects in Nigeria. “Currently there are more than 50 Chinese engineering companies and over 30 Chinese investment enterprises in Nigeria.”
(iii) NACC vows to increase Nigeria’s non-oil export through AGOA. The Nigerian-American Chamber of Commerce says it hopes to expand Nigeria’s non-oil export to the United States through the African Growth and Opportunity Act. The chamber, which stated this during its 57th annual general meeting held last Thursday in Lagos, said it would fully immerse itself in policy implementation, compliance and growth for Nigeria. Toyin Akomolafe, newly elected president of NACC, said the chamber would now establish itself as the ‘go to’ organisation on all trade related issues for AGOA. According to Akomolafe, as part of the first thrust of re-branding the chamber, his leadership would re-engage with the American official community to rebuild bridges and trust.
(iv) Nigerian-British chamber eyes bigger trade volumes through trade mission. The Nigerian-British Chamber of Commerce is targeting increased trade volumes between Nigeria and the United Kingdom through its trade mission. The five-day mission will feature a series of B2B meetings with prospective partners from various British chambers of commerce, key policy influencers and Nigerians in the diaspora, Olawore said at a press conference in Lagos. “Delegates will also have the opportunity to participate at the International Business Festival in Liverpool and the London Technology Week. A working conference themed ‘The Ease of Doing Business in Nigeria – A Sound Check’ is scheduled for the 11th of June at the Institute of Directors Pall Mall, London.”
‘Ethiopia will not do anything to harm Egypt’s share of the Nile water,’ Ethiopian PM Ahmed tells President Sisi (Ahram)
Ethiopian PM Abiy Ahmed pledged on Sunday in a joint press conference with Egyptian President Abdel-Fattah El-Sisi in Cairo that Ethiopia will not do anything to harm Egypt’s share of Nile water. During the press conference, President El-Sisi welcomed Ahmed and described the relationship between Egypt and Ethiopia as special. El-Sisi also said that he discussed with Ahmed the increasing number of Egyptian private sector companies investing in Ethiopia, promising more incentives for mutual investment and the establishment of an Egyptian development zone in Ethiopia. The Egyptian president also stressed the importance of the agreed upon joint investment fund between Egypt, Sudan and Ethiopia to facilitate infrastructure development in the three countries. The fund will hold its next meeting in Cairo on 3-4 July.
Today’s Quick Links: A raft of EAC policy workshops take place this week: a listing Kenya: Development spend falls to 15% on rise in wage bill, debt pay Africa accounts for 29% of Kenya’s international arrivals Kenya Airways launches four direct weekly flights to Mauritius Mauritius to sign MoU with South Africa in fisheries sector Afreximbank has, post-1994, approved $17bn in financing for Nigeria Imu-Ahia: The apprenticeship system building wealth in Eastern Nigeria India objects to US review of its zero duty exports |
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Niger deposits its instrument of ratification of the Agreement on the AfCFTA
Chairperson of the African Union Commission, Moussa Faki Mahamat, on 8 June 2018 received from the Permanent Representative of the Republic of Niger to the AU the instrument of ratification of the pdf Agreement on the African Continental Free Trade Area (973 KB) from Niger.
In addition, the Permanent Representative indicated that the process of ratification of the pdf Protocol on Free Movement of Persons, Right of Residence and Right of Establishment (3.80 MB) was underway. Niger is also party to the Single African Air Transport Market, which was launched during the January 2018 AU Ordinary Summit.
The Chairperson of the Commission took the opportunity of the deposit of the instrument of ratification to congratulate the Government of Niger on this new key achievement. He reiterated his appreciation to President Mahamadou Issoufou, who is the Champion for the Free Trade Area, for his resolute commitment to African integration.
The Chairperson of the Commission urges all member states that have not yet done so to make the necessary arrangements to become parties to the Free Trade Area Agreement. He also urges all the Member States concerned to sign and ratify, as soon as possible, the Protocol on Free Movement of Persons, Right of Residence and Right of Establishment, and to join the Single African Air Transport Market. Both the Protocol and the Single Market are essential and complementary tools for achieving the integration and unity the African people are yearning for.
It should be recalled that, in addition to Niger, Kenya, Ghana and Rwanda have already deposited their instruments of ratification of the Free Trade Area Agreement. Rwanda has also deposited its instrument of ratification of the Protocol on Free Movement of Persons, Right of Residence and Right of Establishment.
At the AU Extraordinary Summit held in Kigali, on 21 March 2018, forty-four (44) Member States signed the Free Trade Area Agreement and thirty-one (31) the Protocol on Free Movement of Persons, Right of Residence and Right of Establishment. These two instruments will enter into force thirty days after the deposit of the 22nd and 15th instruments of ratification, respectively. 26 AU Member States are party to the Single African Air Transport Market.
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African Continental Free Trade Area: Towards the finalization of modalities on goods – Toolkit
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.
Against that background, the present toolkit aims to provide guidance for African 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.
Key messages
On 21 March 2018 in Kigali, 44 Member States of the African Union signed the pdf Agreement Establishing the African Continental Free Trade Area (AfCFTA) (973 KB) . An additional 6 Member States of the African Union signed the pdf Kigali Declaration (209 KB) by which they committed to sign the Agreement of the African Continental Free Trade Area 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, African Union member States agreed to remove at least 90 per cent of tariffs on goods imported from other States parties.
It remains unclear, however, whether the 90 per cent of tariffs refers to 90 per cent of total tariff lines only or a combination of a minimum of 90 per cent of total tariff lines and not less than 90 per cent of total value of imports, also known as double qualification.
In addition, there are uncertainties over the remaining 10 per cent tariffs and how these are to be approached in relation to exempted and sensitive products, and how those tariffs are to be liberalized, whether partially or in full, and over what time frames.
In order to shed light on unresolved issues and to assist African Union member States to prepare tariff offers, the Economic Commission for Africa (ECA) has undertaken a comparative analysis of two possible approaches or scenarios, namely, the tariff line approach (scenario 1) and the double qualification approach (scenario 2), as follows:
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Scenario 1 – the tariff line approach
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Under the tariff line approach, it is assumed that 90 per cent of the total tariff lines are non-sensitive, that is, that the tariff lines are to be fully liberalized and at an early stage: within 5 years for non-least developed countries (non-LDCs), 10 years for LDCs and 15 years for a group of seven selected countries, namely, Djibouti, Ethiopia, Madagascar, Malawi, the Sudan, Zambia and Zimbabwe;
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The remaining 10 per cent is divided into two groups: sensitive products, that is, 9 per cent of total tariff lines to be fully liberalized but over longer periods of time than non-sensitive products (within 10 years for non-LDCs and 13 years for LDCs as well as the group of seven countries); and non-liberalized or excluded products, that is, 1 per cent;
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Scenario 2 – the double qualification approach Under the double qualification approach, it is assumed that non-sensitive products correspond to at least 90 per cent of tariff lines and not less than 90 per cent of the total value of imports, with the remainder split between sensitive (7 per cent) and excluded (3 per cent) products.
Shares of excluded products are kept relatively small, in line with a possible anti-concentration clause under the AfCFTA agreements to avoid exempting entire sectors from tariff cuts. Scenario 1 is expected to be less aggressive than scenario 2, hence the smaller apparent share of excluded products under scenario 1. In particular, any share greater than 1 per cent under a tariff line approach could potentially make the liberalization implied under the AfCFTA agreements less ambitious than the commitments made under Economic Partnership Agreements (EPAs) with the European Union, thereby undermining policy coherence within Africa.
It should be noted that the lists of non-sensitive, sensitive, or excluded products are determined by country, except for the members of the East African Community (EAC), Economic Community of Central African States (ECCAS), Economic Community of West African States (ECOWAS) and the Southern African Customs Union (SACU). A common list is determined for the members of each of the latter four regional groupings.
For ranking the lines from the most sensitive to the least sensitive and ultimately determining the lists of products under each of the three categories (that is, excluded, sensitive, non-sensitive) for the two scenarios, the following three options are suggested:
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Option 1: delaying or limiting tariff revenue losses; with the most sensitive tariff lines generating the largest tariff revenues;
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Option 2: delaying or limiting tariff revenue losses and promoting industrialization; with the most sensitive tariff lines generating the largest tariff revenues but all intermediate products are considered as non-sensitive;
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Option 3: delaying or limiting tariff revenue losses and promoting industrialization, including green industrialization; with the most sensitive tariff lines generating the largest tariff revenues but all intermediates and green products are considered as non-sensitive.
It should be noted that green products which can generally be considered as products from the nascent industry can be classified as sensitive (options 1 and 2) but cannot be excluded from trade liberalization, whatever the option, as nascent industry protection should not be permanent.
ECOWAS has a common external tariff with a fifth band (for “specific goods for economic development”), the products of which bear a 35 per cent tariff and are deemed most sensitive, is treated in a slightly different manner. Specifically, within each of the above three options, product lines classified under the fifth band of the ECOWAS common external tariff are prioritized as the most sensitive.
As expected, and using ECCAS as an example of model tariff offers, the findings confirm the pronounced differences between approaches and scenarios:
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The 90 per cent non-sensitive tariff lines under scenario 1 would account for considerably less than 90 per cent of the value of imports, whichever option is chosen. It will be below 15 per cent of the value of imports in option 1 and just above 60 per cent in options 2 and 3. This implies that under scenario 1, the first tariff phase-down would entail a relatively marginal and non-substantial liberalization of ECCAS imports compared to scenario 2 (accounting for not less than 90 per cent of the value of imports, whatever the option);
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The 9 per cent sensitive tariff lines liberalized but over longer time frames under scenario 1 would amount to significantly more than 9 per cent of the value of imports, whatever the option considered. It will be over 35 per cent of the value of imports in option 1, slightly less than 16 per cent in option 2, and 14 per cent in option 3. This implies that a non-negligible share of the liberalization efforts by ECCAS countries would be done in a second phase, potentially delaying and diminishing the expected benefits from trade liberalization;
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The remaining 1 per cent of excluded products under option 1 would account for substantial shares of value of imports that would be exempted from any tariff liberalization, whatever the option. More than 50 per cent of the value of imports would be excluded in option 1, when nearly one quarter would be excluded in options 2 and 3.
In sum, and in most cases beyond the example of ECCAS, it can be expected that exclusions would amount for considerably larger proportions of total imports under the percentage of the tariff line approach than under the double qualification. This suggests that a tariff line approach for liberalization of goods under the AfCFTA agreements could lead to at least four important consequences:
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The risk that less will be offered to African counterparts than what has been agreed with the members of the European Union under EPAs (generally 80 per cent of imports to be liberalized);
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The risk of censure through the World Trade Organization (WTO) regional trade agreement surveillance process, if all trade is not liberalized substantially. The necessity to liberalize substantially all trade was also a negotiating guiding principle set out by the African Union Ministers of Trade meeting in May 2016;
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Uneven liberalization efforts across countries and regions (90 per cent of tariff lines resulting in different values of imports to be liberalized across countries and regions);
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Limited economic gains from unambitious liberalization (limiting tariff revenue loss rather than substantial trade creation and additional revenue gains).
ECA analysis indicate that a double qualification approach (scenario 2) will deliver greater and more balanced outcomes for African countries than an approach through tariff lines only.
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Promoting private sector development as a driver of regional integration in Southern Africa
The Economic Commission for Africa (ECA) Office for Southern Africa in collaboration with the African Union Southern Africa Regional Office (AU-SARO) and Africa Business Group (ABG) is organising the Southern Africa Regional Integration Stakeholder Forum under the theme: “The Private Sector and Regional Integration in Southern Africa: Accelerating Opportunities for Investment and Growth” from June 11-13, 2018 in Lilongwe, Malawi.
The objective of the Forum is to discuss how the private sector can be a major driver of the regional integration project in Southern Africa and what are the opportunities for accelerated growth and investments for the private sector in the process.
As regional integration seeks to open up national borders for trade and investments, the private sector should position itself as a key actor and beneficiary of the process. In developing the private sector in the region, more jobs will be created, government revenue enhanced through increased taxation, and better living standards assured for the citizens.
Participants will also discuss key issues and challenges pertaining to the alignment of the regional integration agenda with the central role of the private sector in the regional economic development process.
The Forum will be attended by high-level government officials especially from the trade and industry departments, representatives of the private sector in Southern Africa, regional financial institutions including development banks, SMEs, Logistics Companies, development partners, corridor management institutions, private equity firms, insurance, private equity firms, insurance, Regional Economic Communities (RECs) as well as bilateral and multilateral development partners active in Southern Africa.
The Forum will be facilitated by the presentation of a background research paper on the theme of the meeting with several panels and breakout sessions along sectoral lines-manufacturing, agriculture, financial sector, infrastructure etc.
An outcome statement outlining clear agenda and roadmap for better private sector involvement in regional integration processes as well as a comprehensive report will be published and well circulated, following the deliberations.
The Private Sector and Regional Integration in Southern Africa: Accelerating Opportunities for Investment and Growth
Background paper
There is a wide consensus among policy-makers and development practitioners on the continent and abroad that a deeply integrated Africa would unleash the region’s enormous and untapped economic potential and could significantly contribute to the structural transformation of its economies as well as social development outcomes.
The African Economic Community Treaty (AEC, also known as the Abuja Treaty), which was adopted by the African Union in 1991 and came into force in 1994, is the blueprint for the continent-wide integration agenda. The African Economic and Monetary Union Community, in addition to a Pan-African Parliament by 2028 would be established gradually in six main stages, commencing with the creation and strengthening of Regional Economic Communities (RECs).
With ten years remaining until the 2028 deadline, it is evident that the pace of integration has been quite slow across the continent. The signing of the African Continental Free Trade Area (AfCFTA) Agreement by 44 African countries at an Extraordinary Summit of the Assembly of the African Union on 21 March 2018 in Kigali, may have come at an opportune time to reinforce the commitment made by African leaders in 1991. It set the tone for accelerating the process of implementing the Treaty establishing the AEC as envisaged by the Constitutive Act of the African Union.
While the establishment of the AfCFTA does not feature explicitly in the AEC Treaty and Roadmap, the extent of the AfCFTA agreement is clearly consistent with the grand scheme of integration and should act as a facilitator for the remainder of the process. Importantly, the continent-wide market integration is envisioned to be built around the consolidation of integration processes at sub regional levels within the eight (8) African Union (AU) recognized RECs. Thus, it is of critical importance to ensure that the integration agendas within these communities are carefully and effectively implemented at reasonable speeds.
In Southern Africa, regional integration has mainly taken the institutional form of the Southern African Development Community (SADC), which was established in 1992 superseding the 1980 founded Southern African Development Cooperation Conference (SADCC). A number of SADC member States are also part of the Common Market for Eastern and Southern Africa (COMESA), a sister REC which was formed in 1994. Despite arguably being one of the most developed RECs on the continent, a closer examination of the integration dynamics within the SADC, shows that the pace of the process has been relatively slow, at least over the past decade.
At a very early stage, the organization elected to pursue a trade integration approach for regional integration, as evidenced by the SADC Treaty and Trade Protocol (signed in 1996). Notable progress has been made since then with the establishment of the SADC Free Trade Area (FTA) in August 2008. However, the integration agenda of the region has stalled thereafter and a lot remains to be done to ensure the smooth functioning of the free trade area. In particular, more than two decades after the launch of the SADC Trade Protocol, the level of fragmentation of the regional market is still very high with trade to the rest of the world growing disproportionately faster than intra-regional trade.
It is generally recognized that, not only the volume of trade matters, but also and more importantly, its quality or level of sophistication. The latter comes as a result of enhancing levels of production, productivity and a well-thought-out and focused approach to industrialization. Over the last two decades, industrial growth, particularly in the manufacturing sector has been lower in Southern Africa than in other regions of the continent. Consequently, it is not surprising that most of the regional economies are insufficiently diversified, relying predominantly on a few and unsophisticated commodity exports thus making them extremely vulnerable to price shocks.
In addition, the region features one of the lowest intra-industry trade scores in the world, which suggests little participation in Regional Value Chains (RVCs). Accelerating integration processes should clearly provide many opportunities within the region to promote specialization among countries and develop RVCs to boost diversification and competitiveness.
Recognizing that a traditional trade integration agenda that focuses predominantly on border issues to enhance market access is not equipped to tackle the region’s fundamental challenges of lack of diversification and value addition, the SADC Heads of State and Government adopted the pdf SADC Industrialization Strategy and Roadmap, 2015-2063 (2.34 MB) , at an Extraordinary Summit, held on 29 April 2015. The Strategy emphasizes the concept of an investment-led trade and the development and strengthening of RVCs. It essentially aims at promoting the development of an integrated industrial base within the region through the exploitation of synergies in value-added production and enhancement of export competitiveness.
Considering that trade and investment are largely driven by individual firms and that the overall objective of trade and industrial policies is to shape firms’ incentives with the ultimate goal of fostering growth and development, it is important that the role, priorities and perspectives of the private sector in the regional integration agenda should be carefully discussed. Private sector actors are generally considered to be the main beneficiaries of all integration efforts. Yet, their capacity to be the implementers and drivers of the process cannot be overstated. In fact, these two facets of private sector involvement in the integration agenda are closely linked.
The economic potential of Southern Africa is enormous with immense opportunities for private sector growth and development at the regional level. Substantial returns can be anticipated in key areas/sectors such as services, agro-processing, manufacturing, mining and infrastructure development. However, for the private sector to effectively participate in the regional integration agenda through its investment and expertise, there is need to create and maintain a consistent and effective enabling environment across the region.
Building on existing reports and studies related to the topic as well as data and official documents from regional and international sources, this paper provides a background review and discussion on the state and dynamics of regional integration in Southern Africa, with a special emphasis on the role, priorities and investment potential of the private sector in the integration agenda. Evidently, there are numerous and very relevant issues and challenges surrounding the implication of the private sector in Southern Africa integration efforts.
The paper does not intend to offer an exhaustive review, nor does it attempt to address all aspects of the topic. It should be regarded as a means to provide a basis for deeper reflections and actions on the subject. It may also assist some readers to (re)familiarize themselves with the concepts, issues and challenges around the theme.
This paper was prepared by Koffi Elitcha, an Associate Economic Affairs Officer with the Southern Africa Office of the United Nations Economic Commission for Africa (ECA-SA), based in Lusaka, Zambia.
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UNCTAD: World Investment Report 2018
Developed economies saw the biggest drop in FDI flows in 2017 – at 37%, to $712bn – but this was to some extent expected, after a spike in 2016. More concerning is the “lack of (FDI) recovery” among developing economies last year, since FDI is the “largest external source” of finance for developing countries, at around 40%, UNCTAD says. In developing African states, external investment levels “continued to slide” to $42bn; marking a 21% fall since 2016. By way of contrast, investor interest in Asia’s developing economies “remained stable” – at $476bn – maintaining the region’s position as the largest FDI recipient in the world.
Investment treaty making has reached a turning point. The number of new international investment agreements concluded in 2017 (18) was the lowest since 1983. Moreover, for the first time, the number of effective treaty terminations outpaced the number of new IIAs. In contrast, negotiations for megaregional agreements maintained momentum, especially in Africa and Asia. The number of new investor-State dispute settlement claims remains high. In 2017, at least 65 new treaty-based ISDS cases were initiated, bringing the total number of known cases to 855. By the end of 2017, investors had won about 60 per cent of all cases that were decided on the merits. [Africa fact sheet (pdf); Regional FDI at a glance 2018: Africa (pdf)]
Achieving the SDGs in the least developed countries: UN deputy launches powerful tool for LDCs (UNCTAD)
Amina J. Mohammed, Deputy Secretary-General of the United Nations, launched a unique policy compendium in Geneva on 6 June 2018 that aims to assist governments of the world’s most disadvantaged countries in boosting prosperity and meeting the Sustainable Development Goals. While LDCs have many challenges in common, UNCTAD underlines that there is no single recipe for success, with government needing to take a pragmatic approach that involves a combination of policy measures tailored to national conditions.
The compendium offers a wide range of ways for policymakers and international development partners to fashion targeted solutions for the social, economic and environmental challenges facing LDCs. It identifies possible types of instruments in various policy areas that may foster development progress, enhance growth, and support poverty eradication and economic structural transformation. It also suggests several elements to strengthen international support measures for LDCs within the global economic system.
Beneficiation is not the easy solution for Africa, says UCT economist David Kaplan (Business Day)
Much has been said about beneficiation in SA, but apparently being a producer of raw materials does not necessarily equate to having an advantage in moving up the value chain, according to University of Cape Town economics professor David Kaplan. “In Africa it’s always said that we produce the iron and steel — why don’t we produce the pots and pans? We produce the gold, why do we not produce the jewellery?” Kaplan said on Thursday.” The fact that you produce raw materials very often doesn’t give you any real advantage to any further activity downstream. “I think this area has been exaggerated as an area for Africa’s production.” The possibilities for forward integration were hardly low-hanging fruit, he said. However, where a country produces scarce resources with high levels of demand, there is room for bargaining — as Botswana did with De Beers in the sale, sorting, and cutting and polishing of diamonds.
South Africa: Diversification and protection would help pull sugar industry out of crisis (Business Day)
Updates from Nigeria
AfCFTA: Riposte to Osinbajo on Africa free trade agreement (BusinessDay)
There are several benefits that Nigeria can look to under AfCFTA. Given our market size, which confers unrivalled advantages of scale, heft and influence, we can work to expand opportunities for Nigerian sectors such as services. The latter has grown stronger and more sophisticated as our recently rebased GDP figures reveal. Nigeria needs to raise its trade facilitation game to support emergent sectorial champions, from banking through cement manufacturers to e-commerce platforms like Jumia and Yudala. With Nollywood and ‘Yaba Valley’ and others, ‘Nigeria Incorporated’ is going out and becoming more adroit at competing in regional markets from Ghana to Zimbabwe.
Freer movement of capital, goods and personnel under AfCFTA will be a boon to Nigeria, helping to assuage a lot of the difficulties that Nigerians face when doing business continentally. Aliko Dangote recently alluded to this mobility challenge when lamenting the multiplicity of visas he has to secure to traverse his Africa-wide operations. The key lesson for Nigeria here is to recognise and weigh correctly broader benefits offered by undertakings like AfCFTA. We must also keep consolidating existing pockets of competitive advantage.
Few African observers understand how Nigeria went from its erstwhile position of leading AfCFTA from the front to being a conscientious abstainer. As chairman of the AU ministers of trade, Nigeria’s Enelama was instrumental in helping to shepherd the intra-state negotiation process, a process also led on a technical level by a seasoned Nigerian trade expert, Dr Chiedu Osakwe. Many African peers continue to commend this Nigerian contribution to date although they are peeved at how Nigeria abdicated leadership literally to rain on the AfCFTA signing ceremony in Kigali. [The author,Dr Ola Bello, is executive director, Good Governance Africa]
Nigeria’s seaports still struggle with clearing bottlenecks amid Executive Order (BusinessDay)
One year into the implementation of the Presidential Order on Ease of Doing Business, the nation’s seaports still struggle with cargo clearing bottlenecks, which hinder timely delivery of consignments to importers’ warehouses. The development has been attributed to the failure of some government agencies involved in cargo clearance at the ports, to realign their operations into complying with the stipulations and tenets of the Presidential Order on Ease of Doing Business, issued by the office of the vice President Yemi Osinbajo in 2017. On its part, the Nigerian Ports Authority has threatened to seek the intervention of the Vice President Yemi Osinbajo to handle the high level of non-compliance to the Presidential Order on the Ease of Doing Business at the nation’s seaports by some government agencies.
Nigeria needs $12bn to avoid missing LNG boat (Bloomberg)
Operator Nigeria LNG Ltd. says it will decide later this year whether to invest more than $10bn to boost capacity by 40%. That would allow the Bonny Island terminal -- an hour’s ferry ride from the oil hub of Port Harcourt -- to export as much as 66 million cubic meters (30 million tons) a year to markets in Europe and Asia. NLNG’s shareholders - Royal Dutch Shell Plc, Total SA, Eni SpA and state-controlled Nigerian National Petroleum Corp. - must weigh the benefits of expanding their profitable LNG venture against the threat of higher taxes, pipeline vandalism in the Niger River delta and volatile gas prices. Those concerns have already delayed the project first mooted in 2012. Any further interruptions will increase the risk that Africa’s biggest oil producer misses the global transition to cleaner fuels and a chance to reduce its stuttering economy’s reliance on crude.
Nigeria: Power sector loses N201.3bn in six months (Punch)
Revenue of world’s top mining firms rose by 23% in 2017 – PwC (Ghanaweb)
The world’s 40 largest mining companies have delivered an impressive financial performance in 2017, increasing revenue by 23% to $600bn. This is according to PwC’s Mine 2018 (pdf) report, which was released on the sidelines of the Junior Mining Indaba conference in Johannesburg. The report analysis confirms an upswing in the mining cycle, which comes on the back of rising global economic growth and a recovery in commodity prices. Helped by astute cost-saving strategies over the past few years, margins and cash-generating ability has improved significantly, leading to a 126 per cent jump in net profits.
Kenya: 20 companies registered to import consolidated cargo (Business Daily)
The Kenya Bureau of Standards has cleared 20 firms to bring in goods as consolidated cargo in a move expected to streamline importation of goods by small traders. Clearing agents pool goods for small importers into one container but while some agents have in the past taken advantage and resorted to tax evasion by mis-declaring the value of goods, others have used the channel to import substandard goods. The Kebs head of inspection Eric Ochieng said of the 53 firms that had applied to be considered as consolidated cargo importers, less than half of them were cleared.
Kenya: Kephis needs Sh1.4bn to ensure food safety (The Star)
Kenya Plant Health Inspectorate Services needs Sh1.4 billion to ensure safety of food, managing director Esther Kimani said yesterday. The money will be used to enhance production and grow the export market, she said. Kimani spoke during the opening of the second phytosanitary conference (pdf) at Kephis in Nairobi. The MD said EU requirements for the export market keep changing and farmers have to be dynamic to maintain the high standards. Local farmers, Kimani said, are losing lucrative opportunities in the local and global market as their export commodities fail to meet standards.
Today’s Quick Links: Africa Innovation Summit: AfDB, partners launch Coding for Employment Programme, Rwanda to launch Innovation Fund Museveni: Uganda to revive national airline “to invigorate our services sector” Barclays Kenya tipped to reap more income after parent firm exit OECD: Blockchain technology and corporate governance (pdf) IBSA Declaration on South-South Cooperation |
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Foreign direct investment to Africa fell by 21% in 2017, says United Nations report
Foreign direct investment (FDI) flows to Africa slumped to $42 billion in 2017, a 21% decline from 2016, according to UNCTAD’s World Investment Report 2018. Weak oil prices and harmful ongoing macroeconomic effects from the commodity bust saw flows contract in major host African economies.
“The beginnings of a commodity price recovery, as well as advances in interregional cooperation through the signing of the African Continental Free Trade Area agreement, could encourage stronger FDI flows to Africa in 2018, provided the global policy environment remains supportive,” UNCTAD Director, Division on Investment and Enterprise, James Zhan said.
FDI flows to North Africa were down 4% to $13 billion. Investment in Egypt was down, but the country continued to be the largest recipient in Africa. FDI in Morocco was up 23% to $2.7 billion, including as a result of sizeable investments in the automotive sector.
Lingering effects from the commodity bust weighed on FDI to sub-Saharan Africa, with inflows declining by 28%, to $28.5 billion. FDI flows to Central Africa decreased by 22% to $5.7 billion. FDI to West Africa fell by 11% to $11.3 billion, due to Nigeria’s economy remaining depressed. FDI to Nigeria fell 21% to $3.5 billion.
East Africa, the fastest-growing region in Africa, received $7.6 billion in FDI in 2017, a 3% decline on 2016. Ethiopia absorbed nearly half of this amount, with $3.6 billion (down 10%) and is now the second largest recipient of FDI in Africa. Kenya saw FDI increase to $672 million, up 71%, due to strong domestic demand and inflows in information and communication technology sectors.
In Southern Africa, FDI declined by 66% to $3.8 billion. FDI to South Africa fell 41% to $1.3 billion, due to an underperforming commodity sector and political uncertainty. FDI into Angola turned negative once again (down to -$2.3 billion from $4.1 billion in 2016) as foreign affiliates in the country transferred funds abroad through intra-company loans. In contrast, FDI into Zambia increased, supported by more investment in copper.
Multinational enterprises (MNEs) from developed economies (such as the United States, United Kingdom and France) still hold the largest FDI stock in Africa. At the same time, developing-economy investors from China and South Africa, followed by Singapore, India and Hong Kong (China), are among the top 10 investors in Africa.
FDI outflows from Africa increased by 8% to $12.1 billion, reflecting a significant increase in outward FDI by South African firms (up 64% to $7.4 billion) and Moroccan firms (up 66% to $960 million). Outward FDI by Nigerian firms, in contrast, remained flat at $1.3 billion, focused almost exclusively on Africa.
FDI inflows to Africa are forecast to increase by about 20% in 2018 to $50 billion. The projection is underpinned by the expectations of a continued modest recovery in commodity prices and strengthened interregional economic cooperation. Yet Africa’s commodity dependence will cause FDI to remain cyclical.
Figure 1: African FDI inflows, by subregion, 2010-2017
(Billions of dollars)
Source: UNCTAD, World Investment Report 2018.
Figure 2: The top investor economies in Africa, 2011 and 2016
(Billions of dollars)
Source: UNCTAD, World Investment Report 2018.
Note: Numbers presented in this figure are based on the FDI stock data of partner countries.
Global foreign direct investment flows fell sharply in 2017
Global foreign direct investment (FDI) flows fell by 23% in 2017, to $1.43 trillion from $1.87 trillion in 2016, according to UNCTAD’s World Investment Report 2018. The decline is in stark contrast to other macroeconomic variables, which saw substantial improvement in 2017.
“Downward pressure on FDI and the slowdown in global value chains are a major concern for policymakers worldwide, and especially in developing countries,” UNCTAD Secretary-General Mukhisa Kituyi said.
“Investment in productive assets will be needed to achieve sustainable development in the poorest countries.”
The global fall was caused in part by a 22% decrease in the value of cross-border mergers and acquisitions (M&As). But even discounting the large one-off deals and corporate reconfigurations that inflated FDI in 2016, the 2017 decline remained significant. The value of announced greenfield investment – an indicator of future trends – also fell by 14%, to $720 billion.
Investment downturn
Prospects for 2018 are therefore muted. Global flows are forecast to increase marginally but remain well below the average over the past 10 years. An escalation and broadening of trade tensions could negatively affect investment in global value chains (GVCs). Tax reforms in the United States are likely to significantly affect global investment patterns.
UNCTAD observed that the negative FDI trend is caused in large part by a decrease in rates of return. The global average return on foreign investment is now at 6.7%, down from 8.1% in 2012. Return on investment is in decline across all regions, with the sharpest drops in Africa and in Latin America and the Caribbean. The lower returns on foreign assets also affect longer-term FDI prospects.
As a result of the investment downturn, the rate of expansion of international production is slowing down. The modalities of international production and of cross-border exchanges of factors of production are shifting from tangible to intangible forms. Sales of foreign affiliates continue to grow (up 6 per cent in 2017) but productive assets and employees are increasing at a slower rate. This could negatively affect the prospects for developing countries to attract investment in productive capacity.
Chain reaction
Growth of GVCs has also stagnated. GVC trade peaked in 2010-2012 after two decades of continuous increases. UNCTAD’s data shows foreign value added in trade (the key GVC indicator) down 1 percentage point to 30% of trade in 2017. The GVC slowdown shows a clear correlation with the FDI trend and confirms the impact of the FDI trend on global trade patterns.
FDI remains the largest external source of finance for developing economies. It makes up 39% of total incoming finance in developing economies as a group. It now accounts for less than a quarter in the least developed countries (LDCs), with a declining trend since 2012.
Meanwhile, the report shows, industrial policies have become ubiquitous. Over the past 10 years, at least 101 economies across the developed and developing world (accounting for more than 90% of global GDP) have adopted formal industrial development strategies. The last five years have seen an acceleration in the formulation of new strategies.
New industrial revolution
UNCTAD’s survey shows that modern industrial policies are increasingly diverse and complex, addressing new imperatives, such as GVC integration and upgrading, the knowledge economy, build-up of sectors linked to the Sustainable Development Goals and competitive positioning for the new industrial revolution.
“The new industrial revolution is already affecting cross-border investment patterns. Investment policies must adapt as part of new industrial development strategies,” Dr. Kituyi said.
Some 40% of industrial development strategies contain vertical policies for the build-up of specific industries. Just over a third focus on horizontal competitiveness-enhancing policies designed to catch up to the productivity frontier. And a quarter focus on positioning for the new industrial revolution.
About 90% of modern industrial policies stipulate detailed investment policy tools, mainly incentives and performance requirements, special economic zones (SEZs), investment promotion and facilitation and, increasingly, investment screening mechanisms.
Modern industrial policies are a key driver of investment policy trends. More than 80% of investment policy measures recorded by UNCTAD since 2010 are directed at the industrial system (manufacturing, complementary services and industrial infrastructure), and about half of these clearly serve an industrial policy purpose.
The report suggests that the new industrial revolution requires a strategic review of investment policies for industrial development. It advises policymakers to keep investment policy instruments up-to-date by re-orienting investment incentives, modernizing SEZs, retooling investment promotion and facilitation, and developing smart mechanisms for screening foreign investment.
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UN deputy launches powerful tool for least developed countries
Amina J. Mohammed, Deputy Secretary-General of the United Nations, launched a unique policy compendium in Geneva on 6 June 2018 that aims to assist governments of the world’s most disadvantaged countries in boosting prosperity and meeting the Sustainable Development Goals.
The compendium – Achieving the Sustainable Development Goals in the Least Developed Countries (LDCs) – synthesizes nearly 15 years of UNCTAD research and policy options in a single resource that links potential development objectives with concrete steps and practical actions to achieve specific targets of the global goals.
“UNCTAD is, as it always has been, in the forefront of crafting vital policy options needed for the structural transformation of the world’s poorest and most fragile economies,” said Ms. Mohammed, who was instrumental in bringing about the 2030 Agenda for Sustainable Development, of which the 17 Sustainable Development Goals are at the core.
“Without concrete proposals to bring about this transformation, the development prospects of millions of people remain in jeopardy.”
“I welcome this UNCTAD compendium as a powerful resource for countries working to achieve the targets of the Sustainable Development Goals, and for their development partners worldwide.”
Pragmatic approach
There are currently 47 LDCs, which are home to just over 1 billion people, or about 13% of the world’s population – but they account for only 1.2% of global GDP.
While LDCs have many challenges in common, UNCTAD underlines that there is no single recipe for success, with government needing to take a pragmatic approach that involves a combination of policy measures tailored to national conditions.
The compendium offers a wide range of ways for policymakers and international development partners to fashion targeted solutions for the social, economic and environmental challenges facing LDCs.
“UNCTAD has always been ahead of the curve, producing cutting-edge policy options with a special focus on the LDCs, based on sound analytical research. This compendium, rich in options for action and trendsetting in its approach to LDC challenges, is such an example of frontier research,” UNCTAD Secretary-General Mukhisa Kituyi said.
The compendium identifies possible types of instruments in various policy areas that may foster development progress, enhance growth, and support poverty eradication and economic structural transformation. It also suggests several elements to strengthen international support measures for LDCs within the global economic system.
Additional financing
Almost half of the population of LDCs still lives in extreme poverty. At the same time, LDCs have the world’s fastest population growth rate. The basic causes of persistent and widespread poverty in LDCs are low productivity, and high levels of unemployment and underemployment.
After 2014, GDP growth in LDCs fell to an average of less than 5%. That was below the average annual growth target of at least 7% set by intergovernmental processes such as the Istanbul Programme of Action for the Least Developed Countries for the Decade 2011-2020 and the 2030 Agenda for Sustainable Development.
The implementation of most policy options recommended in the compendium points toward the need for additional financial efforts on the part of LDCs, as well as additional support from LDC development partners and the international community (as specified in Sustainable Development Goal 17 on “partnerships for the goals”).
Because efforts to achieve the goals will eventually lead a growing number of countries to improve beyond the thresholds established for remaining in the LDC category, these countries should develop productive capacities in such a way that enables them to achieve “graduation with momentum”.
This means prioritizing measures that transform the structure of the economy by shifting production to higher-value-added products and sectors, upgrading technology, implementing diversification and raising productivity.
Growth and jobs
Trade and FDI as instruments for structural transformation
Instrumentalizing trade to advance structural transformation
Integration into the international economy through both trade and financial relations can be a powerful instrument to advance structural transformation. The issue for policymakers is not whether, but how to pursue such integration. In many LDCs, exports have increasingly contributed to GDP growth in recent decades. In certain periods they have even driven GDP growth. However, imports have risen in tandem and in many instances, even faster than exports. Thus, it is important to prevent a widening of trade deficits and the increased dependence on capital inflows that accompanies it. If export earnings do not grow fast enough and in a sufficiently stable way to match the growing import requirements at the early stages of structural transformation, economic growth will be threatened by the accumulation of external debt that may eventually become unsustainable.
Export growth plays a central role in the structural transformation process for two reasons. First, export earnings are essential to finance the import of machinery, equipment, technology and the intermediate inputs needed for the expansion of productive capacities. Second, external demand helps to fully utilize productive capacities, achieve economies of scale and stimulate investment in productive capacities.
However, export expansion will not be possible without the expansion and diversification of productive capacities. The successful integration of a LDC into the international economy therefore requires a trade strategy that evolves with the level of productive capacities achieved and the capacity of existing institutions and industries, rather than through precipitated trade liberalization. Gradual trade integration presupposes the emergence of a virtuous circle during which profits generated by exports stimulate new investments, which in turn expand export capacities. The impact of trade on structural change also depends on whether exporting firms are integrated domestically through a network of forward and backward linkages.
It is also important to recognize that export growth does not always imply faster overall growth, let alone poverty reduction, because the incomes and livelihoods of most people in LDCs are largely disconnected from the export sector and the international economy. Thus, if trade is to contribute effectively to income growth and poverty alleviation, it is important that LDC trade policies are based on the understanding that trade integration and export growth are means in a broader and long-term strategy for structural transformation, rather than objectives in of themselves.
Export opportunities for LDCs do not only lie in the world market and in the more advanced countries. They also exist in neighbouring and other developing countries. In many cases, these opportunities are likely to be easier to grasp, especially for smaller and domestically-owned firms in LDCs. This is an important reason for governments to engage in regional cooperation. Regional integration among developing countries also widens the scope of private sector activities and their diversification in terms of investment, production and factor mobility and can prepare the ground for their integration into the wider global economy.
The importance of the trade structure In LDCs, it is typically commodity export earnings that provide the bulk of foreign currency to finance the import of the machinery, equipment and technology needed for productivity growth in the primary sector, particularly in agriculture, and for the expansion of productive capacities in manufacturing industries.
Exports contribute primarily to structural transformation and employment generation when their product composition becomes more diversified, with an increasing share of manufactures and in some cases, services. The LDCs with the highest long-run GDP growth have been those that managed to export manufactured goods at an early stage. The LDC performers that have lagged furthest behind are exporters of food and agricultural products, as well as mineral exporters. An increasing share of manufactures in total exports also reduces the vulnerability of LDCs to the volatility of international primary commodity markets.
A development strategy incorporating the management of international trade as an instrument for enhancing structural transformation must also consider that the structure of imports matters as much as the structure of exports. The balance-of-payments constraint on building productive capacities can also be reduced by favouring the allocation of scarce foreign currency earnings to the import of capital goods. The balance-of-payments constraint can further be addressed by preventing imports that are not essential for poverty reduction and structural transformation, and substituting imports, when economically viable, with domestic production.
The role of FDI and global value chains for trade integration
LDC policies for building productive capacities must consider the opportunities offered by FDI and integration into global value chains (GVCs). However, the benefits of these cannot be taken for granted, since they depend on how well the profit interests of foreign partners can be reconciled with the societal interest in structural transformation.
FDI may help mitigate the constraints arising from shortages of domestic capital, modern production and management techniques and international marketing know-how and networks. In LDCs, FDI inflows were often responsible for the increase in capital formation. However, there are several reasons for LDC policymakers not to overestimate the potential of FDI for accelerating the process of structural transformation.
First, FDI flows have been concentrated in only a few LDCs and did not always lead to faster output growth. Second, a large part of FDI in LDCs is usually undertaken in capital-intensive extractive industries, which typically have very few linkages with the rest of the economy. In this case it is often difficult for the State to appropriate a fair share of the considerable rents that have been generated. Similarly, FDI attracted by low labour costs in LDCs’ manufacturing industries is often confined to externally-oriented enclaves, such as export processing zones, where imported inputs are assembled for re-export. The same applies to tourism enclaves, which are often supplied through imports.
Third, experience has shown that FDI is often difficult to integrate into domestic strategies aimed at structural transformation. What matters for the contribution of FDI flows to structural transformation is not the quantity, but rather the type of FDI and its insertion into the domestic economy. It is therefore imperative that the costs of attracting FDI are carefully assessed against the benefits that can be expected from a specific foreign investment project. Such costs can occur not only in the form of fiscal incentives and other concessions in favour of foreign investors, but also as lower domestic investment or a perpetuation of existing production structures.
Fourth, LDC governments must be aware of the increasing competition among developing countries to attract FDI in labour-intensive sectors, which weakens their position vis-à-vis potential foreign investors. Similarly, policies to help domestic manufacturing firms integrate into GVCs must form part of the overall strategy to build productive capacities and reduce poverty. GVCs are international production networks dominated by large lead companies, mostly from developed countries, that subcontract different stages of value addition to producers in different countries, depending on the different cost advantages from each segment. This is an increasingly frequent entry point into export-oriented manufacturing activities for LDCs, whose firms operate as low-cost suppliers in the least sophisticated, but most labour-intensive stages of a value chain. However, participation in GVCs may place LDC firms at risk of becoming trapped in that position when they are not given the opportunity to build up the appropriate skills and technological capacity that will enable them to move up the value chain or to achieve functional upgrading.
Against this background, policies to optimize the effects of FDI and GVCs on structural transformation, such as trade policies, must be closely integrated into strategies for building productive capacities. They must be designed in such a way that economic activities within these frameworks have a strong direct employment effect and allow for an upgrading of these activities into higher-value-added segments over time. In addition, they should foster continuous skills development and the building of technological capacities in the respective firms and support integration with other sectors of the economy.
Manufacturing FDI and GVCs tend to be oriented towards countries with an already established track record of long-term positive trends in productivity growth, supply reliability and the development of managerial, technological and labour skills. Therefore, the extent to which FDI and GVCs can help advance structural transformation depends on incentives for potential partners to engage in these forms of cooperation with LDCs. It is also partly endogenous in the process of structural transformation and thus a by-product of improved domestic productive capacities.
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Kenya: 20 companies registered to import consolidated cargo
The Kenya Bureau of Standards (Kebs) has cleared 20 firms to bring in goods as consolidated cargo in a move expected to streamline importation of goods by small traders.
Clearing agents pool goods for small importers into one container but while some agents have in the past taken advantage and resorted to tax evasion by mis-declaring the value of goods, others have used the channel to import substandard goods.
The standards agency issued a notice to all importers of consolidated cargo, through both air and sea, to register with goods being inspected under a new rule.
The Kebs head of inspection Eric Ochieng said of the 53 firms that had applied to be considered as consolidated cargo importers, less than half of them were cleared.
“Only 20 firms have been approved to import as consolidators and we have written to the other 33 which had not met all the procedures and have not been approved,” Mr Ochieng said.
The new rule which took effect on March 30 targets cargo containing a wide range of products or merchandise in small quantities or parcels belonging to several consignees who assemble them together.
According to the new rule, all consolidated cargo must be inspected in the country of supply by agents appointed by kebs and issued with a Certificate of Inspection (CoI) before being imported into the country.
The agency has contracted agencies to carry out inspection on its behalf from across the globe under the Pre-Export Verification of Conformity (PVoC) programme. They include Socie’te’ Ge’ne’rale de Surveillance SA (SGS), Intertek International Ltd, China Certification and Inspection Co. Ltd (CCIC) and Bureau Veritas.
According to Kebs, consolidators were registered to ensure traceability and accountability of quality for the consolidated goods.
“Currently, the actual owners of goods are having challenges obtaining Import Standardization Marks to sell in the market outlets since it is not possible to know who they are in the documentation provided at the moment. The aspects of traceability as well as quality inspection has been addressed in the new procedure,” Kebs said in a statement.
Currently, the agency has made it difficult for goods imported without the certificate of inspection by introducing rigorous procedures for such goods.
For goods imported without the certificate, the importer or clearing agent pays inspection fee equivalent to 15 per cent of the declared customs value and execute a bond of the same amount after which the goods will be subjected to 100 per cent verification at the port and issue an inspection report.
While the bond for goods that comply with the rules will be cancelled, those that fail the test will have to be shipped back to the country of origin at their own cost with importers forfeiting the bonds.
If the goods are not re-shipped within 30 days after rejection, they will be destroyed at the importer’s cost.
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IBSA Declaration on South-South Cooperation
The External Affairs Minister of the Republic of India, Smt. Sushma Swaraj, The Minister of International Relations and Cooperation of the Republic of South Africa, Ms. Lindiwe Sisulu and the Deputy Minister of Foreign Affairs of the Federative Republic of Brazil, Mr. Marcos Bezerra Abbott Galvão, met in Pretoria on 4th June, 2018. The Ministers agreed as under:
Preamble
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IBSA brings together India, Brazil and South Africa, three large democracies and major developing economies from three continents.
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IBSA is bound together by a shared conviction in the universal values of democracy, plurality, diversity, human rights, rule of law and commitment to sustainable development, inclusivity of all communities and gender, and respect for international law.
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IBSA recalls all efforts over the decades to bring about greater solidarity among South-South countries, including the Bandung Conference 1955, NAM 1961, UNCTAD, G-77 grouping, BAPA 1978, Nairobi Declaration 2009.
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IBSA has, over the years, emerged as a grouping supporting welfare and developmental concerns for the Global South, which have been pursued in the spirit of access, equity and inclusion.
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The IBSA’s 2007 Tshwane Declaration; 2008 Delhi Declaration and 2010 Brasilia Declaration underscored SSC as a common endeavour of the Global South guided by equality, non-conditionality, non-interference in domestic affairs, and mutual benefit. They also provided the blueprint for IBSA partnership with countries of the South.
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Recalling the commitments and the means of implementation for the development agenda, IBSA stresses the centrality of the SDGs and the Rio principle of Common But Differentiated Responsibilities (CBDR) and respective capabilities.
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IBSA recalls the development commitment enshrined in the 2008 Doha Declaration and of the Monterrey Consensus of 2002 of providing 0.7 percent GNI as ODA by developed countries and the measures contained in the Addis Ababa Action Agenda for making finance available for achieving 2030 Agenda and the Sustainable Development Goals (SDGs).
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IBSA calls upon the global North to honour its ODA commitments fully, scale up existing resources and commit additional resources to provide the necessary means to implement SDGs.
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IBSA reiterates the balanced emphasis on the social, economic, and environmental pillars of sustainable development.
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IBSA recognizes, inter-alia, capacity building, skills and technology transfer, food security and industrialisation as key to sustainable development.
IBSA Mechanism for Development Cooperation
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The IBSA Fund for the Alleviation of Poverty and Hunger was set up with the objective of facilitating the execution of human development projects to advance the fight against poverty and hunger in developing countries and to pioneer and lead by example the SSC agenda by building new partnerships.
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The IBSA Fund is managed by the United Nations Office for South-South Cooperation (UNOSSC), which lends its professional expertise to multiple stakeholders in promoting the development of the Global South.
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With a cumulative contribution of $35mn, IBSA Fund has thus far partnered 19 countries from the Global South for implementing 26 projects over the last decade. 62.4 percent of the IBSA Fund has been devoted to Least Developed Countries (LDCs).
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The IBSA Fund has been recognised for its good work, including through the United Nations South-South Partnership Award 2006; the UN MDG Award 2010 and the South-South and Triangular Cooperation Champions Award 2012.
Principles and basis for South-South Cooperation
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The basic principles of SSC were particularly emphasised in the IBSA Summit Declaration of 2010 in Brasilia. It underscored SSC as a common endeavour of peoples and countries of the South. It outlined IBSA partnership based amongst equals which is guided by principles of respect for national sovereignty; national ownership and independence; equality; non-conditionality; non-interference in domestic affairs; and mutual benefit.
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The Brasilia Declaration of 2010 states that SSC is not aid and developing countries engaged in SSC are not donors and recipients but developing partners.
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IBSA notes the shared histories, understanding and beliefs and developmental experiences, and consequently adheres to the principles of SSC which have been incorporated in IBSA funded projects.
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Solidarity and the spirit of sharing are the primary motivations for SSC.
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IBSA recognises that SSC is voluntary in nature and not obligatory like ODA is.
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SSC is a demand driven process whereby it is the partner countries that determine the priorities in IBSA projects.
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Respect for national sovereignty is at the core of SSC. SSC is about interdependences and not ‘new dependencies’. The partner countries themselves initiate, organise and manage SSC activities. IBSA believes that the primary responsibility towards development rests with the States themselves under their ownership and leadership.
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The aim of SSC is to create higher levels of capability and economic opportunity for both the partners. Capacity building and technology transfer continues to drive SSC in the spirit of solidarity among partner countries.
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South-South Cooperation serves as a complement to and not as a substitute for North-South cooperation, in supporting the acceleration of the development agenda.
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IBSA is convinced that SSC is completely different from the North-South/donor-donee cooperation, and that ODA templates are not a good basis for SSC.
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Further, South-South Cooperation does not imply reducing the responsibilities of developed countries with respect to their ODA commitments, new and additional financing, provision of means of implementation to achieve the goals of the Paris Agreement on Climate Change as well as implementation of the SDGs.
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Economic and political non-conditionality is essential and is reflected in the IBSA projects, as clearly demonstrated from the fact that the fiscal independence is maintained by partner countries.
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Sustainable projects under IBSA Fund provide partners with ownership of projects through various capacity building measures. Involvement of relevant stakeholders of partner countries in projects’ initiation, implementation and delivery phases is ensured.
Emerging Focus Areas
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IBSA will step up advocacy for reforms of global governance institutions in multilateral fora.
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The 2011 Tshwane Declaration brought people to the centre of the discourse on global governance. The Declaration considered people-centric social policies as the driving mechanism for restructuring the international financial architecture and reforming international organisations, thereby strengthening SSC.
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IBSA is committed to the realisation of the SDGs. In this regard, IBSA considers responsible financing an essential component of development cooperation and would like to underline that such efforts should not potentially hamper the long term interest of partner countries.
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tralac’s Daily News Selection
Concluding today, in Addis: Expert group meeting on the theme Poverty, inequality and jobs in Africa
Diarise: 25th SWIFT African Regional Conference (20-22 June, Kigali) on the theme Transforming the future – driving a new digital economy
Nigeria’s total trade rises to N7.2tn in Q1 (ThisDay)
The total value of Nigeria’s merchandise trade rose to N7.21 trillion in the first quarter (Q1) of 2018, signifying a 19.74% rise over the N6.02 trillion recorded in Q4, 2017 and a 35.07% growth from Q1, 2017 (N5.33 trillion). The trade balance in Q1, 2018 was a surplus of N2.175 trillion, which is a 20.95% increase from the figure in Q4, 2017 (N1.798 trillion) and a 221.08% from the figure in Q1, 2017 (N677.42 billion). The strong growth of total trade in the quarter was mainly driven by the strong increase in exports, the National Bureau of Statistics revealed in its latest trade figures. Total value of imports in the review period was N2.518 trillion, 19.22% higher than Q4, 2017 (N2.112 trillion) and 8.04% higher than Q1, 2017 (N2.330 trillion). Total export value amounted to N4.693.34 trillion in Q1, 2018, representing a significant growth of 20.02% over Q4, 2017 (N3.9 trillion) and 56.01% over Q1, 2017 (N3.008 trillion).
Indonesia, Mozambique begin talks on preferential trade deal (Antara)
Indonesia and Mozambique have started their first-ever negotiations for a Preferential Trade Agreement following a joint commitment reached during the Indonesia-Africa Forum in April this year. Indonesia`s bilateral trade negotiation director in the Trade Ministry, Ni Made Ayu Marhini, said the first round took place in Maputo on 31 May and 1 June. Most articles had been agreed on by the two countries. Total trade of Indonesia and Mozambique, in the 2013-2017 period, declined by 23.75%. Indonesia`s trade balance with Mozambique remains positive. The total trade between the two countries increased by 82.2%, from $44.5m in 2016 to $54.1m in 2017.
Nairobi gives Dar ultimatum in ice cream, sweets row (Business Daily)
Nairobi has given Tanzania and Uganda one more month to lift a ban on duty-free entry of Kenya-made sweets or face retaliatory action from 1 July. Dar and Kampala slapped a 25% import duty on Kenyan confectionery, juice, ice cream and chewing gum earlier in the year, claiming use of zero-rated industrial sugar imports. Trade Principal Secretary Chris Kiptoo said revenue and standards bodies from both countries will separately visit Kenyan factories from 11 June in a bid to resolve the trade spat. “We will make the decision after the verification. We will retaliate (because) that’s always there for us any time, but first let’s allow this process to go on,” he said following the five-day EAC Sectoral Council on Trade, Industry, Finance and Investment meeting in Arusha that ended last Wednesday. The verification process, to be supervised by the EAC secretariat, will extend to factories making other products such as cement, lubricants, cosmetics and wooden pallets which have also had difficulties gaining free access into Tanzania.
Kenya trade pointers, from Trade Kenya: Horticulture accounted for 19.4% of Kenya’s total exports during 2017; Kenya’s National Exports Development and Promotion Strategy will be released in July
Does SADC have an identity crisis? (FinMark Trust)
A deeper look at the SADC region indicates that not only are there a significant number of people without a legal identity, but there exists a great degree of variance across the region in terms of the quality of national identification systems. In other words, for individuals that do hold a legal identity document, this may not be recognised in other member countries. This identity crisis within the SADC region is highly problematic given the prevalence of migration within the region and the resultant reliance on financial services. In line with this, we strongly believe that the development of a digital financial identity, in other words a digital identity specifically for use within the financial sector, can address the identity crisis within the financial sector across SADC. Follow our updates as we embark on the colossal journey of developing a digital financial identity for domestic, and ultimately cross-border use across the SADC region. First stop – a feasibility assessment for digital financial identity for defined use cases to promote domestic financial inclusion in Malawi and Lesotho, with the DRC to follow shortly. [SADC states urged to have unity of purpose to achieve financial inclusion]
Kenya Airways launches non-stop flights to Cape Town (CapitalFM)
Kenya Airways has introduced three non-stop flights from its hub at the Jomo Kenyatta International Airport to Cape Town. The launch of the non-stop flights to the second-most populous urban city in South Africa is in line with the airline’s broader strategy to assert its presence and expand connectivity across Africa and open up opportunities for tourism, trade and investment. The non-stop flights to Cape Town will depart Nairobi every Wednesday, Friday and Sunday at 3:30pm. Currently, the airline operates seven weekly flights to Cape Town. Four flights via Livingstone, Zambia, departing Nairobi every Tuesday, Wednesday, Friday and Sunday and three weekly flights via Victoria Falls on Monday, Thursday and Saturday.
China steel exporters chase new buyers in Africa, South America (Reuters)
Chinese steelmakers are seeking new export destinations in Africa and South America as shipments to their biggest overseas buyers in Southeast Asia fall by double digits, with new US trade actions threatening to kill off some markets entirely. South America and Africa accounted for a combined 8 percent of China’s steel exports last year, and shipments to some nations there have surged this year. Exports to Nigeria, Africa’s biggest economy and the continent’s top buyer of Chinese steel, rose 15% in the first quarter, and shipments to Algeria, the fourth-largest economy, nearly tripled.
Grant T. Harris: The US is punishing Rwanda for rejecting our old jeans and T-shirts – it’s a short-sighted move (Washington Post)
Banning used clothes is not enough to build Rwanda’s domestic textile and apparel industry, especially given competition from cheap Chinese imports of ready-made clothing. But there is a certain irony in Trump punishing Rwanda for protecting domestic manufacturing in what really is a Rwandan version of “America First.” More to the point, the United States ought to be supporting countries that pursue economic growth and development plans – not just because it is the right thing to do but because the vitality of the U.S. economy depends on whether we have markets for our goods and services.
Until recently, supporting African economic growth was a key piece of US-Africa policy. For instance, building on the African Growth and Opportunity Act’s strong legacy of bipartisan support, Barack Obama launched the Trade Africa initiative to support regional economic integration and work toward a more reciprocal trade relationship. But the suspension of access for Rwandan apparel reinforces the sad truth that the Trump administration has no vision for trade with Africa. And there is no question that US businesses will suffer as a result. Africa represents the last frontier for America’s export-driven economy, with consumer and business spending predicted to reach $6.7 trillion by 2030.
Christopher Wood: A South African strategy for trade in environmental goods (TIPS)
The rapid growth of trade in environmental goods creates opportunities for South Africa, but is complicated by rising global protectionism, which demands a pro-active strategy to support South African exporters. Profiled key recommendations: (i) South Africa should remain out of the WTO’s Environmental Goods Agreement. The EGA offers minimal benefits for the country, as it does not address the core barriers to trade in environmental goods, and violates established South African principles on non-participation in plurilateral agreements. (ii) As a long-term goal, South Africa should consider exploring cumulation of local content rules for regional agreements. This would involve counting components sourced from the region as local, and thus allowing imports from the region to feed into the procurement of designated products.
EAC greener pasture countries for highly skilled Kenyans (Business Daily)
Rwanda, Tanzania and Uganda are the key destinations for high-skilled Kenyan migrants, attracted by opportunities in financial, IT, engineering and hospitality sectors, a new UN report showed. UNCTAD said labour shortages in information technology, engineering, finance, hospitality and management in some regional markets in Eastern Africa have fuelled migration of professionals from the region, some of them young. The report showed that Eastern Africa is the most diversified region with regard to the origin of international migrants from Africa, as it receives significant share of migrants from all other regions, except Western Africa.
UNCTAD’s Trade and Development Board session: Plug tax loopholes before fighting illegal financial flows
Daniel Titelman, director of the development division of the UN Economic Commission for Latin America and the Caribbean, said that although governments and international organizations should fight illicit and licit leakages, they may have more statistical and policy tools to stem the legal flows, particularly tax avoidance. To illustrate the effect this could have, he cited the experience Latin America had two years ago when it offered amnesty to those who voluntarily declared financial assets they had kept under the radar. In Argentina, he said, the undeclared assets put on the table amounted to around 21% of GDP. And the fines paid by those who came forward was worth about 2% of GDP – an amount that would have been very difficult to raise through tax reform. “It can take you two years of debate to pass a tax reform to try to raise the same amount,” he told governments in attendance. [UNCTAD session backgrounder (pdf); UNCTAD Annual Report 2017]
AU Peace and Security Council: communique on illicit flows and financing of arms
Underlines the link between illicit financial flows, transnational crime, terrorism, poaching, proliferation of rebel movements and the illegal exploitation of natural resources, notably by armed groups, and illicit proliferation of weapons. In this regard, Council urges Member States to redouble their national efforts and further enhance the capacity of their law enforcement agencies, in order to enable them to effectively discharge their mandates and curb the illicit flow of weapons into and within Africa, as well as to enhance their capacity to identify, seize and destroy illicit weapons. In the same context, Council further urges Member States to redouble their efforts in the fight against corruption and promotion of good governance and high standards of professionalism, particularly, within the defence and security sectors;
Expresses deep concern over the potential negative effects of the presence of foreign military bases in some volatile parts of the continent to the future security and stability of Africa and underlines the need for external actors to continue to contribute to the promotion of peace and security in the continent;
Also underscores the importance of strengthening import and export control measures, enhancing the criminal justice response to arms trafficking, and enhancing regional cooperation in the management of borders, including through intelligence and experience sharing among Member States. In this regard, Council encourages closer collaboration between and among regional police authorities and the Committee of Intelligence and Security Services of Africa (CISSA). Furthermore, Council requests the Commission, through the AU Border Programme, to provide necessary technical assistance to Member States; [Issued after 776th meeting, 24 May 2018]
India: Rural roads and local economic development (World Bank)
Nearly one billion people worldwide live in rural areas without access to the paved road network. This paper measures the impacts of India’s $40bn national rural road construction program using regression discontinuity and data covering every individual and firm in rural India. The main effect of new feeder roads is to allow workers to obtain nonfarm work. However, there are no major changes in consumption, assets or agricultural outcomes. Nonfarm employment in the village expands only slightly, suggesting the new work is found outside of the village. Even with better market connections, remote areas may continue to lack economic opportunities. [World Bank blog: Uncovering policy guidance from international agreements on transport]
Today’s Quick Links: Beijing FOCAC summit: Nigeria may take over from South Africa as co-chair Nigeria oil reserves remain stagnant for 12 years Moody’s: Nigeria’s perennial budget delay reflects weakness of institutions Nigeria: Resolutions reached at the National Assembly joint closed session Nigeria National Stakeholder Dialogue on Land Reform: speech by VP Osinbajo Mauritius: Forecast of tourism earnings for year 2018 maintained at Rs 62.5bn UNWTO Regional Commission for Africa (4-6 June, Abuja): session documentation IATA’s Sydney AGM: Airlines urge caution on airport privatization WEF’s 2018 Industry Strategy meeting (6-7 June, San Francisco): Future scenarios and implications for the industry Implications of e-commerce for competition policy: summaries of contributions submitted to the OECD (pdf) The big (data) bang: what will it mean for compiling SDG indicators? UN ‘Tech Bank’ opens in Turkey, to help poor nations ‘leapfrog development challenges’ |
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Plug tax loopholes before fighting illegal financial flows
Efforts to raise revenue for investment in development projects should focus first on capturing the billions of dollars hidden from tax authorities through legal maneuvers, experts say.
Stemming the legal transfer of wealth out of the world’s poorer countries is one of the most effective ways to help their governments raise the additional revenue needed to improve services such as education, health, energy and transport, a panel of experts said on 5 June during a high-level discussion in Geneva.
The comments came during the annual meeting of UNCTAD’s governing body, the Trade and Development Board, and the experts were addressing the issue of plugging financial leakages to help fill the trillion-dollar investment gap that developing countries face to fund the projects associated with the UN-endorsed 17 Sustainable Development Goals (SDGs).
“We know that the ambitious Sustainable Development Goals can only be achieved if we manage to mobilize national and international resources, which is far from the case currently,” UNCTAD Deputy Secretary-General Isabelle Durant said in her opening statement.
“One of the best ways of raising these resources is to plug the many financial leakages that have allowed inequalities to persist and indeed grow deeper between and within countries,” she added.
But as the speakers noted, the financial flows stripping government coffers are both illegal, such as criminal funds related to drugs, racketeering and terrorism, and legal, such as tax avoidance and the wealth stashed in offshore tax havens.
And the legal part of the pie may be the bigger and easier to combat.
According to the background note that UNCTAD prepared for the discussion, of the hundreds of billions of dollars thought to be hidden from governments, an estimated two thirds relate to cross-border tax-related transactions.
Coming forward
Daniel Titelman, director of the development division of the UN Economic Commission for Latin America and the Caribbean, said that although governments and international organizations should fight illicit and licit leakages, they may have more statistical and policy tools to stem the legal flows, particularly tax avoidance.
“That’s very important because when you have to finance long-term expenditures like the SDGs you need permanent income,” Mr. Titelman said. “And permanent incomes are related to the tax base.”
To illustrate the effect this could have, he cited the experience Latin America had two years ago when it offered amnesty to those who voluntarily declared financial assets they had kept under the radar.
In Argentina, he said, the undeclared assets put on the table amounted to around 21% of GDP. And the fines paid by those who came forward was worth about 2% of GDP – an amount that would have been very difficult to raise through tax reform.
“It can take you two years of debate to pass a tax reform to try to raise the same amount,” he told governments in attendance.
Good but not enough
But for Ambassador Courtenay Rattray, Jamaica’s permanent representative to the United Nations in New York, long-term results will depend more on international action.
“Domestic actions are not sufficient because of the cross-border nature [of the financial flows],” Mr. Rattray said.
And statistics back him up.
In the case of Argentina, 80% of the undeclared financial assets had been hidden abroad. According to United Nations estimates, around 22% of Latin America’s financial wealth – about $21 billion – is kept in tax havens. For Africa, it’s around 30%, or $14 billion.
“I think we can agree that wealthy individuals should pay their fair share and not be allowed to hide wealth behind veils of financial secrecy,” Mr. Rattray said.
“And as agreed in the Addis Ababa Action Agenda, profit should be taxed where economic activity occurs and where value is created,” he said, referring to the global agenda to raise financial resources to fund development.
He added: “There is no longer any excuse for jurisdictions to turn a blind eye to the enablers of international financial flows – the so-called professionals that ignore the illicit nature of the wealth that they are managing and profiting from. We need to end the operation of jurisdiction secrecy, and the authorities in these safe havens should step up prosecution of the enablers to provide a real deterrent to this type of activity.”
Just playing by the rules
The discussion’s moderator, Jayati Ghosh, a professor at New Delhi’s Jawaharlal Nehru University, agreed that the real problem is that the rules allow wealthy companies and individuals to play the system.
“All of these [maneuvers] are actually legal in various jurisdictions,” she said.
The speakers agreed that what is needed, therefore, is international tax cooperation.
Ms. Ghosh said an interesting proposal to combat tax avoidance by global companies is being developed by the Independent Commission for the Reform of International Corporate Taxation.
The idea, she said, would be to treat multinational corporations and their subsidiaries as a single entity for tax purposes and allocate their worldwide profits according to an agreed-upon formula.
“Now, obviously this requires some consensus on a minimum tax rate, but it would in one stroke eliminate basically erosion and profit shifting,” she said, claiming that these two strategies used by companies were “possibly the largest single means of licit tax avoidance”.
“This proposal is essentially something that seems ambitious but possibly may not be all that difficult if there is sufficient political will among the developing countries,” she added, saying that the European Union’s proposal for a common corporate tax rate was already a step in the right direction.
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Communiqué of the 776th PSC meeting on Illicit Flows and Financing of Arms in Africa
Sources of Conflicts and Impediments to Silencing the Guns in Africa
The Peace and Security Council (PSC) of the African Union (AU), at its 776th meeting held on 24 May 2018 received a briefing on Illicit Flows and Financing of Arms in Africa: Sources of Conflicts and Impediments to Silencing the Guns in Africa and adopted the following decision:
Council:
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Takes note of the introductory remarks made by the Permanent Representative of the Republic of Rwanda to the African Union, H.E. Ambassador Hope Tumukunde Gasatura, in her capacity as the PSC Chairperson for the month of May 2018 and by the Acting Director for Peace and Security Department, Dr. Admore Mupoki Kambudzi, on behalf of the AU Commissioner for Peace and Security, H.E. Ambassador Smaïl Churgui. Council also takes note of the briefing by the Acting Head of the Defence and Security Division of the AU Peace and Security Department, Ms. Einas Mohammed, and the presentation done by the Executive Secretary of the Regional Centre on Small Arms in the Great Lakes Region, the Horn of Africa and Bordering States (RECSA), Mr. Theonesté Mutsindashyaka. Council further takes note of the statements made by representatives of some of the Member States of the United Nations Security Council;
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Recalls the AU Vision of an integrated, stable, peaceful and prosperous continent; Agenda 2063, particularly Strategic Pillar Four, on the building of a peaceful and secure Africa; and the AU Master Roadmap of Practical Steps to Silence the Guns in Africa by the year 2020. Council also recalls Assembly Decision [Assembly/AU/Dec. 645(XXIX) on its inaugural Report on the Implementation of the AU Master Roadmap on Practical Steps for Silencing the Guns in Africa by 2020 in which the Assembly declared the month of September each year, until 2020, as “Africa Amnesty Month” for the surrender and collection of illegally acquired and owned weapons/arms, in line with Africa and international best practices. Council further recalls all its previous decisions and pronouncements on illicit arms flows, including Press Statements [PSC/PR/BR. (DCCXVI)]; [PSC/PR/BR. (DCXCIII)] and Communique [PSC/PR/COMM. (DLXXXIV)], adopted at its 716th meeting held on 4 September 2017; 693rd meeting held on 14 June 2017; and 584th meeting held on 29 March 2016, respectively;
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Recalls the principles of good neighbourhood and peaceful coexistence governing the relations between African States, as enshrined in the AU Constitutive Act, the Protocol relating to the establishment of the Peace and Security Council and the African Union Non-Aggression and Common Defence Pact;
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Underscores, once again, that the illicit flow of arms, particularly small arms and light weapons (SALW) to non-state actors, including rebel armed groups, terrorists and criminals, contributes significantly to insecurity and violence in various parts of Africa, thereby undermining social cohesion, public security, socio-economic development and the normal functioning of state institutions;
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Underlines the urgent need for Member States to take effective measures to holistically address all root causes of violent conflicts, including the drivers of the demand for, and sources of illicit supply of arms and ammunition;
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Underlines the link between illicit financial flows, transnational crime, terrorism, poaching, proliferation of rebel movements and the illegal exploitation of natural resources, notably by armed groups, and illicit proliferation of weapons. In this regard, Council urges Member States to redouble their national efforts and further enhance the capacity of their law enforcement agencies, in order to enable them to effectively discharge their mandates and curb the illicit flow of weapons into and within Africa, as well as to enhance their capacity to identify, seize and destroy illicit weapons. In the same context, Council further urges Member States to redouble their efforts in the fight against corruption and promotion of good governance and high standards of professionalism, particularly, within the defence and security sectors;
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Expresses deep concern over the potential negative effects of the presence of foreign military bases in some volatile parts of the continent to the future security and stability of Africa and underlines the need for external actors to continue to contribute to the promotion of peace and security in the continent;
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Underlines the need for full and effective implementation of existing regional and international instruments and regimes, including arms embargoes imposed by the United Nations Security Council, and encourages Member States to re-affirm their commitment by acceding to, ratifying and implementing all existing regional and international instruments to address illicit arms flows. In this respect, Council commends all those Member States that are exerting efforts towards the implementation of the international and respective regional instruments, including the United Nations Programme of Action to Prevent, Combat and Eradicate the Illicit Trade in Small Arms and Light Weapons in All Its Aspects, the Southern African Development Community Protocol on SALW, the Nairobi Protocol for the Prevention, Control and Reduction of SALW in the great lakes Region and the Horn of Africa, the Economic Community of West African States Convention on SALW, and the Kinshasa Convention for the Control of SALW, their Ammunition and all Parts and Components that can be used for their Manufacture, Repair and Assembly, and the Arms Trade Treaty. Council urges those Member States, which have not yet done so, to expeditiously follow suit;
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Also underscores the importance of strengthening import and export control measures, enhancing the criminal justice response to arms trafficking, and enhancing regional cooperation in the management of borders, including through intelligence and experience sharing among Member States. In this regard, Council encourages closer collaboration between and among regional police authorities and the Committee of Intelligence and Security Services of Africa (CISSA). Furthermore, Council requests the Commission, through the AU Border Programme, to provide necessary technical assistance to Member States;
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Underlines the need to implement context-specific measures to address illicit arms flows in line with target 16.4 of the Sustainable Development Goals. In this regard, Council encourages Member States to put in place information and data gathering procedures and protocols to inform evidence-based interventions and response measures;
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Also underlines the importance for Member States to implement effective arms procurement and management practices, including the destruction of excess, obsolete and illicit arms and ammunition, effective physical security and stockpile management, as well as marking record keeping and tracing. Council further underlines the importance of Member States to improve governance and effective oversight of the defence and security sector and implement effective and sustainable disarmament, demobilization and reintegration programs to prevent relapse into violence.
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Underscores the importance of mainstreaming women and children in all efforts aimed at combating illicit proliferation of weapons, bearing in mind that they are adversely affected by violent conflicts in the continent;
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Council commends the Commission for providing capacity building and technical support to Member States and Peace Support Operations so that they can more effectively combat illicit proliferation and circulation of small arms and light weapons, and requests the Commission to redouble its efforts in this regard;
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Also commends members of the international community for their continued support to the efforts of Member States to implement their commitments, particularly within the framework of the United Nations Programme of Action and the Arms Trade Treaty;
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Requests the Commission to further enhance the capacity of the Defence and Security Division within the Peace and Security Department, in order for it to enhance its effectiveness in discharging its mandate throughout the continent;
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Decides to remain actively seized of the matter.
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EAC greener pasture countries for highly skilled Kenyans
Rwanda, Tanzania and Uganda are the key destinations for high-skilled Kenyan migrants, attracted by opportunities in financial, IT, engineering and hospitality sectors, a new UN report showed.
The United Nations Conference on Trade and Development (UNCTAD) said labour shortages in information technology, engineering, finance, hospitality and management in some regional markets in Eastern Africa have fuelled migration of professionals from the region, some of them young.
“Rwanda is a major destination for migrants from Kenya and Uganda and has attracted highly skilled professionals. Its burgeoning information technology sector has driven labour mobility among young highly skilled migrants from Kenya, who have taken advantage of economic opportunities in the sector, and demand in financial services and other skill-intensive sectors in Uganda and the United Republic of Tanzania has also fuelled mobility among professionals from Kenya,” the agency said.
Mutual recognition agreements between various professional bodies within the East African Community (EAC) allow for cross-border practices among professionals and accord experts from partner States in accounting, architecture, dentistry, medicine and engineering to the same treatment as nationals.
“Such agreements, along with the abolition of work permits by some EAC partner States, have been vital in facilitating labour mobility among highly skilled professionals within the region. Regional investment in economic sectors, besides creating labour demand in specific sectors, has also become an important driver of intraregional economic migration,” UNCTAD noted.
Highly skilled migrants tend to earn relatively high incomes in destinations.
“For example, skilled Nigerian migrants in Ghana and South Africa have household incomes that exceed the average professional household income in the two countries. Similarly, young professionals from Kenya in Rwanda, South Africa and the United Republic ofTanzania earn incomes that are relatively high by African standards,” UNCTAD said in its report released end of May.
Demand for services and trade has also fuelled migration from Uganda to EAC partner States, in particular, Kenya, Rwanda and Tanzania, and from Kenya to Burundi, Rwanda, Uganda and Tanzania.
The EAC protocol on the common market, with regard to the free movement of persons, along with the abolition of work permits by some EAC partner States, has facilitated mobility within the bloc.
In Eastern Africa, services have become an important driver, particularly of semi-skilled migration. Semi-skilled migrants from Uganda, for example, have accessed labour markets in Rwanda and Tanzania and fuelled migration to South Africa and the Sudan.
“Demand in trades has been a significant driver of intraregional semi-skilled migration. For example, the temporary resident permit of Rwanda for semiskilled workers enables such workers from countries in Eastern Africa to take advantage of opportunities in labour markets, including in small and medium-sized enterprises in Rwanda, and to find employment as motor vehicle mechanics, restaurant workers and beauty salon attendants,” UNCTAD noted.
The low-skilled workers haven’t been left out of the migration.
The UN observed that in Eastern Africa, demand for domestic services and retail in the Middle East has become a significant driver of women’s migration from Kenya and Uganda
“Unlike other low-skilled migrants who tend to have low levels of education, women migrants from Ethiopia, Kenya and Uganda to the Middle East are often better educated. This trend is reflected in informal trade in EAC, which is increasingly absorbing young, relatively well-educated persons, including some with professional qualifications, reflecting a lack of economic opportunities in origin countries,” it said.
The UN report showed that Eastern Africa is the most diversified region with regard to the origin of international migrants from Africa, as it receives significant share of migrants from all other regions, except Western Africa.
“In addition to economic factors driving migration to diversified economies such as Kenya and Rwanda, the latter’s visa for foreign workers may attract migrants to the region. In 2000-2017, conflict and political instability were a driver of forced migration from Middle Africa to the United Republic of Tanzania and from Northern Africa, mainly the Sudan, to Uganda.”
Besides providing jobs and other economic opportunities, intraregional migration has contributed to economic growth in countries, while boosting regional development.
The policy of Rwanda to attract investment from EAC partner States, which led to significant investments by Kenya in its financial services sector, has served as a catalyst for labour mobility from Eastern Africa, increasing increased its labour supply in sectors with shortage while contributing to the development of education, engineering, finance, hospitality and financial services through skills exchange.
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tralac’s Daily News Selection
Featured tweet, @AntheVrijlandt: Frank Matsaert at Africa Summit – partnership between Europe and Africa should be about mutual trade flows. Now, for every four containers imported, three leave the continent empty.
South Africa to begin AfCFTA ratification processes after AMOT Dakar meeting (dti)
SA’s deputy minister of trade and industry Mr Bulelani Magwanishe said the conclusion of the annexes to the Protocol on Trade in Goods and the annexes to the Protocol on Dispute Settlement is a significant achievement. “The conclusion of this work enables South Africa to rapidly commence domestic processes for signature of the AfCFTA. We must ensure that the disciplines on modalities for tariff liberation support the creation of commercially meaningful value-chains in Africa, such that we attract investment in job creating productive sectors”.
The key AMOT outcomes: At the end of the two day Ministerial Meeting, the Ministers adopted the recommendations of the STO on the legally-scrubbed annexes to (i) the AfCFTA Protocol on Trade in Goods (ii) the Protocol on Rules and Procedures on the Settlement of Disputes (iii) agreed on the five priority sectors (transport, communication, financial, tourism and business services) and the approach to be adopted in developing Schedules of Specific Commitments on Trade in Services. The Ministers called on AUC, ECA and UNCTAD to undertake further analytical work to inform the preparation of Schedules of Tariff Concessions for Trade in Goods and to make them available to member states no later than end June 2018. This is to be followed by the preparation of templates for Schedules of Tariff Concessions for Trade in Goods and Schedules of Specific Commitments on Trade in Services by the end of July 2018. The meeting of the 12th AfCFTA-NF tentatively scheduled to be held in September is expected to approve the templates for the operationalization of the AfCFTA. The Schedules of Tariff Concessions for Trade in Goods and Schedules of Specific Commitments on Trade in Services will be submitted to the January 2019 Session of the AU Assembly of Heads of State and Government for adoption.
Note the new AMOT Bureau: Uganda, DRC, Mauritania, South Africa, Cote D’Ivoire
Latest Bridges Africa edition: Supporting small-scale cross-border traders across Africa
REC updates
ECOWAS Trade Ministers move to improve regional economic integration
ECOWAS Ministers of Trade have moved to strengthen economic integration among Member States by urging them to adopt and present a common position based on regional instruments at the AfCFTA negotiations. This was one of the key recommendations of the Ministers during the regional meeting which held on 24th May 2018 in Abuja, Nigeria in order deliberate on trade policies which included the West Africa - EU EPA and the ECOWAS Common Trade Policy. Regarding the EPA, the Ministers called for more flexibility on the part of the EU with regard to the perverse effects of the implementation of the interim-EPA on regional integration by pushing back some aspects of the liberalization schedules and examining the possibility of making adjustments in the regional EPA to encourage accession of the sixteen West African States to the agreement. [ECOWAS reform: Extraordinary Administration and Finance Committee]
EAC tables $100m budget at EALA sitting
The 2018/2019 budget is a step-down from $110,130,184 presented to the House in the previous financial year. According to the Chair of Council of Ministers, the priority interventions for FY 2018/2019 will focus on enhanced free movement of goods in the region and further liberalization of free movement of labour and services; improved cross-border infrastructure to ease cost of doing business in the region; and enhanced regional agricultural productivity. The budget is to be financed by Partner State contributions ($50,227,920); Ministries responsible for Education ($4,466,210) and Ministries responsible for Fisheries ($ 1,551,032). Development partners will support the Community to the tune of ($42,925,613) while Member Universities will inject in to the kitty $ 333,970. The 2018/2019 Budget is allocated to the Organs and Institutions of the EAC as follows:
SADC energy (electricity and petroleum gas): SADC Secretariat, SAPP meeting
Country updates
DRC-Zambia: Construction of $300m dry port commissioned at Kasumbalesa (COMESA)
Initial steps towards the construction of a $300m dry port at Kasumbalesa border post has begun following the commissioning of the project (1 June). President Joseph Kabila commissioned the Multi Modal Logistic Trade facilitation dry port project by the DRC government and the African Roads Rail Ltd (a South African company), in association with China Railway Construction. It will be funded through Private Public Partnership. Construction is expected to take 36 months generating over 2,000 direct jobs and over 5,000 indirect jobs from the numerous services needed to operationalize the facility. The port will be connected to five major maritime ports namely, Beira, Mombasa, Dar es Salaam, Walvis Bay and Durban ports, integrated into the international logistic chain for eastern and southern Africa. [Mozambique-China: Joint Commission for Economic, Technical and Trade Cooperation update]
South Africa: Economy disappoints in Q1 2018, contracting by 2,2% (Stats SA)
After growing by 3,1% in the fourth quarter of 2017, the South Africa economy wobbled in the first quarter of 2018, shrinking by 2,2% quarter-on-quarter (seasonally adjusted and annualised). Agriculture, mining and manufacturing were the main contributors to the slowdown, with the electricity, construction and trade industries also recording negative growth. The 2,2% fall is the largest quarter-on-quarter decline since the first quarter of 2009. In that quarter, the economy contracted by 6,1%. After recording four consecutive quarters of robust growth in 2017, the agriculture industry lost ground in the first quarter of 2018, contracting by 24,2%, the largest quarter-on-quarter fall since the second quarter of 2006. [Tanzania sees GDP growth at 7.2% this year says finance minister; Mozambique growth will hit the bottom this year, rebound to 3.7% in 2019 says Standard Bank]
Rwanda: Mineral export revenue grew by over 120% in 2017 (New Times)
Mining exports raked $373m (Rwf325bn) in 2017 up from $166m in the previous year, a growth rate that represents 124%, according to statistics from the Rwanda Mines, Petroleum and Gas Board. The country exported about 7000 tonnes of assorted minerals. This exceeded the sector’s initial target of $240m. The organisation attributed the performance to improved mineral prices at the global market, increased mining practices by practitioners as well as diversification of products. The sector has goals of increasing minerals export revenues to $800m by 2020 and $1.5bn annually by 2024.
Kenya: Cut flower exports defy poll jitters to hit Sh82bn in 2017 (Business Daily)
Cut flower business last year shrugged off prolonged electioneering to post a record Sh82.2 billion export earnings representing a 20 per cent rise from Sh70.8 billion in 2016. The all-time high earnings were attributed to the sale of 159,961 metric tonnes compared to 133,668 tonnes shipped to European markets in 2016. Kenya Flower Council said the labour-intensive subsector witnessed heavy investments in new farms and expansion driven by tax incentives for key imported inputs.
Ghana: Textile retailers threaten to beat up anti-piracy taskforce (GhanaWeb)
UNCTAD’s Trade and Development Board: updates
(i) EU’s Malmström: bad domestic policies also make trade unfair. While Ms. Malmström did address the current trade frictions with the US – taking the opportunity to defend the EU’s stance and caution against talking about a “trade war” – she spoke more about the bigger picture of growing public backlash against multilateralism and trade. She said that while international institutions should take to heart people’s concerns that trade is doing more harm than good, and ensure the rules are fair and respected by all – including the most powerful nations organizations like the WTO can only do so much. “It’s up to the individual countries to make sure the benefits of trade trickle down.” UNCTAD Secretary-General Mukhisa Kituyi echoed Ms. Malmström’s view that trade rules are only part of the story. “The crisis of poverty is not exclusively a crisis of trade rules,” Dr. Kituyi said.
(ii) Tomorrow’s world is already here but the spread of benefits remains unclear. Speaking on behalf of the West African Economic and Monetary Union, Ambassador Iba Mar Oulare said that e-commerce was just starting up in his region, so West African countries were at the stage of grappling with the policy implications. “Africa currently trades mostly raw materials with little value added and it is now urgent that its leaders fully comprehend how technology will change this trade and all trade on the continent,” Mr Mar Oulare said. With little data on which to base policymaking, Mr. Mar Oulare said, his group welcomed the actions undertaken by the African Union and UNCTAD to deepen knowledge of implications of the digital economy in his region. “E-trade is no doubt occurring in Africa, but national and regional legislation is out of date,” Mr. Mar Oulare said. “My group welcomes the initiative taken by UNCTAD to organize an e-commerce event for Africa.”
Today’s Quick Links: In Dar es Salaam: East African Trade and Transport Facilitation Project meeting In Nairobi: EAC–IGAD strengthened collaboration, partnership meeting Kenya, Botswana to revisit 2016 deal to raise trade volumes Ghana gold production hits 2.81 million ounces Restrictions on Kenya EPZ exports to remain Nigeria to double new tax rate on tobacco products in 2019 Zimbabwe: Mnangagwa to host investor round table Philip Muema: The complexity of collecting taxes from digital firms Equatorial Guinea: IMF MD approves a staff-monitored programme Sustainable development goal diagnostics: the case of Egypt |
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Small-scale cross-border trade in Africa: Why it matters and how it should be supported
Small-scale cross-border trade can play a fundamental role in contributing to poverty reduction and food security across Africa. How can it be supported to ensure that it delivers its full development potential?
Sub-Saharan African economies have been inextricably linked for centuries. Traders, often belonging to the same ethnic group or family, have been regularly crossing what are now borders to exchange goods and services, giving rise to intense flows that account for a significant part of the continent’s total trade. Today, cross-border trade is a major feature of African economic and social landscapes: according to some estimates, it contributes to the income of about 43 percent of Africa’s entire population. Such trade supports livelihoods and creates employment, including for disadvantaged and marginalised groups.
Cross-border trade is also dominated by agricultural and livestock products, and so is an essential part of food security in many places. Hence, overall such trade is essential for welfare and poverty reduction. Cross-border trade is especially important in fragile and conflict-affected states (FCS), as it allows vulnerable populations to reconnect with the world and access goods and services that are key for their economic and social recovery. In such environments, trade also helps generate solidarity between border communities, and thus critically contributes to promoting peace and stability.
Cross-border trade typically happens at small scale, and is often dominated by women. Traders generally exchange small quantities of modest value, due to a variety of constraints including limited financing, poor-quality inputs, low capacity, lack of machinery, and inefficient marketing and distribution channels, among others. They may not necessarily be registered as formal business owners, yet generally do not operate with the specific goal of circumventing existing laws, applicable taxes, and relevant procedures. In fact, cross-border traders typically pass through official crossing points and even undergo formal clearance procedures, yet their consignments are often so small that they escape official records.[1]
Infrastructural, policy, procedural, and behavioural constraints at the border hinder traders’ ability to grow and formalise.Border infrastructure rarely caters for the needs of small-scale traders, often forcing them to share the clearance area with trucks and other vehicles, which increases insecurity and slows down procedures. Existing structures such as border offices and market stalls are often dilapidated, whilst toilets, lighting, and fencing are typically absent.
In addition, high customs duties, complex clearance procedures, cumbersome documentary requirements (often featuring centralised permit and licensing systems), along with unpredictable trade policies all contribute to raising trade costs. These tend to be highly regressive, affecting small operators disproportionately: for instance, a 2013 World Bank case study at the border between Zambia and the Democratic Republic of Congo (DRC) found that small-scale traders can pay up to 193 percent more than larger traders to clear a ton of maize through the formal channel. Only large, established operators who can leverage economies of scale are typically able to comply with existing requirements. Weak governance, low capacity, and poor behavior by border officials also contribute to increasing trade costs, and to making African borders unfriendly and unsafe for small-scale traders, especially women. Studies conducted at various border locations across Sub-Saharan Africa indicate that corruption and harassment (including gender-based violence against women) are regular features of cross-border trade.[2]
Small-scale cross-border trade can help drive poverty reduction in border areas
Income derived from small-scale trading activities is key to reduce poverty, yet its impact on long-term developmental outcomes needs to be investigated further. Traders make little profit from small-scale trade, with most of the revenue covering basic household needs such as food and schooling; as a result, re-investment in their businesses is difficult. Nevertheless, revenues from cross-border trade are often the main source of income for the households of cross-border traders. For example, a survey of more than 600 traders in the DRC and Rwanda found that cross-border trading activities provide the main source of family income for three out of four traders. The survey found that for measures such as quality of dwelling, access to electricity, type of cooking fuel used, and ownership of durable goods, the households of cross-border traders are as well off as the average urban household that is used as a comparator. Hence, trading activities are critical in allowing households in border areas to attain the level of welfare that is achieved by the typical household elsewhere in the country.
However, further analysis is required on how trading activities contribute to long-term developmental outcomes. Anecdotal evidence suggests that by contributing to household income, trading activities can help to empower women within households. This in turn can enhance their role in household decision making, resulting in increased expenditures on (higher quality and more varied) food, and hence lower child malnutrition rates, and increased attendance at school. These in turn contribute to higher productivity of future generations.
Small-scale traders want to expand their business, but face enormous challenges in doing so. In addition to the problems and costs they incur in crossing borders that were mentioned above, small-scale cross-border traders are constrained by lack of access to capital, limited knowledge of business procedures, and limitations on the distance they can travel from the border, both regulatory and logistical, for example in terms of access to appropriate transport. Few traders have bank accounts and collateral to secure even small loans is very difficult to leverage. The majority of traders want to enhance their limited business skills.
These challenges are particularly acute for women traders. They face greater barriers in obtaining finance, and programs to support capacity building often fail to take women into account. Where training is available, it is typically scheduled in a way that precludes participation by women traders, who already face the challenge of juggling family commitments and time for trading. All this, in turn, prevents them from taking full advantage of the gains from trade and undermines governments’ ability to use trade as a driver of growth and poverty reduction.
The state of play: ongoing initiatives to facilitate small-scale cross-border trade
A number of governments are also implementing projects that specifically focus on small-scale trade. With support from the World Bank, the governments of the DRC, Rwanda, and Uganda, in cooperation with COMESA, are implementing the Great Lakes Trade Facilitation Project. This project seeks to facilitate cross-border trade by increasing the capacity for commerce and reducing the costs faced by traders, especially small-scale and women traders, at key borders in the Great Lakes region. The intervention funds targeted improvements in border infrastructure to cater for the needs of small-scale traders (such as pedestrian lanes, lighting, and fencing), along with the construction of border markets, and supports the simplification of policies and procedures for small-scale traders, training and capacity building of traders and officials, and the introduction of better monitoring and performance management for agencies operating at the border.
It also introduces a workers’ code of conduct to prevent and mitigate risks of gender-based violence (GBV) in trade-related infrastructure development works. One of the quick wins under the project has been the introduction of solar-powered lighting at borders between the DRC and Rwanda, which has not only improved the safety and security of traders and officials but has also led to an extension of border opening hours. This is of particular importance to small-scale women traders, as it allows them to better organise their trading activities around family commitments.
The way forward: what governments, donors, and practitioners can do
Ongoing trade facilitation interventions need to cater for the needs of small-scale traders, especially women. Governments and development partners are currently making concerted efforts to facilitate trade, increase productivity in export-oriented sectors, and improve competitiveness. However, these need to be better targeted to ensure that small-scale cross-border traders are reached by these interventions and that it is not just large traders who benefit. It is important that such interventions reflect the realities of small-scale cross-border trade, and especially the heavy involvement of women and the gender-specific constraints they typically face.
For Africa to achieve its regional trade potential, governments need to do more to support small-scale trade, specifically: (i) recognise the importance of small-scale trade both to the overall trade of the country and to the communities who undertake it; (ii) work to ensure that the rules and regulations governing trade are clear, transparent, and widely available at the border; (iii) simplify trade documents and regulatory requirements for small-scale traders; (iv) design interventions to facilitate trade in ways that benefit small-scale traders; (v) help address the risks that small-scale traders face in their trade-related activities, which are typically much greater than those faced by larger and well-connected traders; and (vi) recognise the important role of women in cross-border trade, target the removal of gender-related constraints, and tackle the particular challenges that women face in participating in trade and growing their business.
Removing obstacles to regional trade integration in Africa would be particularly beneficial to the poor, as they carry most of the small-scale, cross-border commerce that happens within the continent. The potential benefits include better food security, faster job creation, more poverty reduction, increased tax revenues for authorities, and better long-term developmental outcomes.
Paul Brenton is Lead Economist at the World Bank Group. Carmine Soprano is a Trade & Gender Specialist, World Bank Group.
This article is published under Bridges Africa, Volume 7 - Number 4, by the ICTSD.
[1] The distinction between ‘small-scale’ and ‘informal’ trade is important. In the existing literature, many sources refer to the phenomenon described in this article as “informal cross-border trade (ICBT)” – however, this often carries a negative connotation as ‘informal’ can be easily confused with ‘illegal’. It also inaccurately reflects the reality of trade flows on the ground, as traders may indistinctly use both formal and informal crossing channels depending on a variety of factors, such as the value of their consignment, the length of the queue at the border, or the mood of the individual official on duty. The preferred terminology for this article is ‘small-scale cross-border trade’.
[2] World Bank. “Integrating Sierra Leone’s Small-scale Traders into the Formal Economy.” May 2016; World Bank. “Great Lakes Trade Facilitation Project”. Project Appraisal Document, September 2015; Brenton, Paul, et al. “Improving Behaviour at Borders to Promote Trade Formalization: the Charter for Cross-Border Traders.” World Bank, Policy Note No. 41, 2014; EASSI. “Women Informal Cross-Border Traders: Opportunities and Challenges in the East African Community.” EASSI, 2012; Brenton, Paul, et al. “Risky Business: Poor Women Cross-Border Traders in the Great Lakes Region of Africa.” World Bank, Africa Trade Policy Note 11, 2011.