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Policy interventions, skilled jobs can reduce inequality in South Africa
Better education and spatial integration crucial for reduced inequality, job creation
In an environment of accelerating but still modest growth, government policies that stimulate competition and create the fiscal space needed to build a skilled labor force from the poor population of South Africa, would create jobs and help reduce inequality, according to the latest South Africa Economic Update released by the World Bank today.
The number of South Africa’s poor could be reduced by more than half by 2030 through various combined policy interventions that reduce inequality by creating skilled jobs for the poor and ignite growth by increasing competition, policy certainty and promote skilled migration, the report says.
The World Bank expects real growth in gross domestic product (GDP) to accelerate from 1.3 percent in 2017 to 1.4 percent in 2018, supported by a rise in confidence, global growth and benign inflation. For 2019, the forecast is 1.8 percent and 1.9 percent in 2020. But despite this modest rebound, growth in South Africa remains constrained and continues to lag behind its peers. Overall, South Africa is projected to remain largely below the average growth rate of 4.5 percent in 2018 and 4.7 percent in 2019 in emerging markets and developing economies.
“This outlook calls for fundamental policy action to turn the economy around through policies that can foster inclusive growth and reduce inequality,” said Paul Noumba Um, World Bank Country Director for South Africa. “Creating labor demand and fiscal space to finance improved education as well as reinforcing spatial integration will enhance the ability of the poor people of South Africa to participate meaningfully in the economy”.
The special focus section of this 11th edition of the South Africa Economic Update reviews the evolution and nature of South Africa’s inequality – among the highest in the world – arguing that it has increasingly been driven by labor market developments that demand skills the country’s poor currently lack. It suggests that significantly raising South Africa’s economic potential will require breaking away from the equilibrium of low growth and high inequality in which the country has been trapped for decades, discouraging the investment needed to create jobs.
Simulations assessing the potential impact of a combination of various policy interventions on jobs, poverty, and inequality suggest a scenario in which the number of poor people could be brought down to 4.1 million by 2030, down from 10.5 million in 2017. This would be driven by increasing the skilled labor supply among poor households through improved education and spatial integration as well as increasing labor demand through strengthened competition.
In this scenario, the Gini index of inequality would be reduced from 63 today to 56 in 2030. An additional 800,000 jobs would be created with higher wages for workers from poor households, and cheaper goods and services contributing to these outcomes with the economy increasing at an annual rate of 2.2% as a result of these interventions, according to the report.
“We see from this report that reducing South Africa’s high inequality will require improving education and spatial integration to provide the poor with skills that are required to meaningfully participate in a capital and skills intensive economy such as South Africa,” said Paul Noumba Um. “This would need to be complemented by policy intervention that spur additional growth and provide the fiscal space to finance these reforms.”
“In the short term, these policy interventions would include, getting the implementation of the recently granted free higher education right, continuing to address corruption, improving the competitiveness of strategic state-owned enterprises, restoring policy certainty in mining, further exposing South Africa’s large conglomerates to foreign competition and facilitating skilled immigration,” said Sebastien Dessus, World Bank Program Leader.
In the longer term, the report suggests that improving the quality of basic education delivered to students from poor backgrounds and reinforcing the spatial integration between economic hubs, where jobs are located, and underserviced informal settlements, would reduce poverty and inequality and support job creation.
South Africa Economic Update: Focus on Jobs and Inequality
The economic update reviews the evolution and nature of South Africa’s inequality – among the highest in the world – arguing that it has increasingly been driven by labor market developments that demand skills the country’s poor currently lack. It draws from the forthcoming World Bank’s Systematic Country Diagnostic, and the recently-released Poverty and Inequality Assessment.
Without the policy interventions modelled in the economic update, South Africa would on current trajectory not be able to attain its development targets outlined in the country’s National Development Plan of creating sufficient jobs, eradicating poverty and reduce inequality. In the baseline scenario of an average gross domestic production (GDP) growth of 1.4% annually, the number of poor would drop to 8.3 million in 2030 from 10.5 million in 2017.
In addition, a modest 215,000 jobs would be created every year, mostly skilled and semi-skilled and the poverty rate would reduce to 12.7% in 2030 from 18.6% in 2017. The Gini coefficient would drop to 59.5 in 2030 from 62.8 in 2017 and the unemployment rate would move slightly from 27.2 in 2017 to reach 26.7% in 2030.
“Despite the slow growth environment that South Africa is currently facing, ongoing improvements in education among poor is slowly paying off as they gain skills and get an increasing share of skilled labor income,” said Sebastien Dessus, World Bank project leader. “As a consequence, we project income inequalities to be lower in 2030 than in 1996.”
The report argues that the gains in improving education would be boosted by increasing teachers’ capacity, accountability and financial support for poor university students. This would raise the number of poor students getting a tertiary degree to 4.6% in 2030, against 2.2% in the baseline scenario.
Furthermore, with respect to reinforcing spatial integration, investing an additional 1% of GDP every year into collective transportation systems and social housing would reduce their price, and accelerate GDP growth through higher labor supply. This would lift an additional 0.5 million people out of poverty. The Gini index of inequality would lower further by 0.7 point with vulnerable households and transient poor being the main beneficiaries.
The report also argues that the impact of these interventions would be diminished in a slow growth environment and put a strain to public finance. Domestic factors such as policy uncertainty, low business and consumer confidence, and supply constraints are noted as having held back growth in South Africa since 2015.
The report suggests that reducing policy uncertainty could increase investment in mining by 25% and further increase GDP level by 3% in 2030. It suggests as well that increased competition could lift up GDP levels by 5% in 2030 and alone create 400 thousand jobs.
Lastly, the report reveals that accelerated skilled migration would help relax the skills constraint in the short term and help create more semi-skilled and unskilled jobs. It suggests that each additional skilled migrant conservatively could create 0.5 semi-skilled or unskilled job and that 150 thousand additional skilled migrants would further increase GDP level by 2% in 2030.
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Kenya Economic Update: Policy options to advance the Big 4
Policy reforms to re-ignite the private sector can help accelerate Kenya’s pace of recovery, foster inclusive growth and advance the Big 4
Kenya’s GDP growth is projected to recover to 5.5% in 2018 up from an estimated 4.8% in 2017. Over the medium term, economic activity is expected to gain momentum, steadily rising to 6.1% by 2020, according to the World Bank’s 17th Kenya Economic Update (KEU) launched in Nairobi on 11 April 2018.
The positive outlook is underpinned by recovering agricultural output (thanks to favorable rains); the easing of political uncertainty which is lifting business sentiment; and a broad-based strengthening of the global economy. However, partially mitigating these favorable factors is the drag to growth coming from still weak private sector credit growth, the expected downsizing of the fiscal stimulus from previous years and higher oil prices.
“Policy initiatives to spur credit growth to the private sector and ongoing efforts to reduce the deficit are critical to safeguard macroeconomic stability and support the recovery of the Kenyan economy,” said Diarietou Gaye, World Bank Country Director for Kenya.
The Government has announced an ambitious development agenda for the next 5 years anchored on “the Big 4”: deliver affordable housing, roll-out universal health coverage, increase the share of manufacturing in the economy and improve food security. For the Big 4 to be realized, support from both the public and especially the private sector will be required.
“Policy reforms can play an important catalytic role in incentivizing private sector resources to advance the Big 4,” said Allen Dennis, World Bank Senior Economist and Lead Author of the KEU.
The second special section of the Update also reports on the macroeconomic drivers of and trends in poverty reduction in Kenya assessed against international benchmarks. “Currently one out three Kenyans live below the international poverty line of $1.90 per day (in 2011 PPP): the poverty rate declined from 43.6 percent in 2005/06 to 35.6 percent in 2015/16,” said Utz Pape, World Bank Economist and author of the KEU special section on Poverty. “Poverty in Kenya declined substantially over the past decade, especially among households engaged in agriculture, but these remain vulnerable to climate and price shocks”.
Poverty incidence in Kenya declined significantly, but unlikely to be eradicated by 2030
Current monetary and non-monetary poverty indicators in Kenya are better compared to most Sub-Saharan African (SSA) countries, but continue to lag other lower middle-income countries. Overall, given Kenya’s income levels and poverty rate, human development indicators are relatively high, illustrating that Kenya performs better on non-monetary dimensions of poverty, the latest Kenya Economic Update says.
The Update also points out that the agricultural sector was a key driver of poverty reduction in the past decade. However, this also implies progress in poverty reduction remains vulnerability to agro-climatic shocks such as droughts that can force households back into poverty. To avoid recurrent seasonal spells of poverty experienced by agricultural households, the report recommends that the country build resilience, including climate-proofing its agriculture.
Assessing poverty reduction in Kenya
Kenya has registered growth domestic product (GDP) growth rates above 5% for most of the past decade. However, the KEU notes that the transmission of that growth into increased consumption at household level remains low, or GDP growth would have translated into even higher poverty reduction.
“At the current pace of poverty reduction, about one percentage point per year, Kenya cannot eradicate poverty by 2030,” says Utz Pape. “Accelerating the pace of poverty reduction in Kenya will require higher and more inclusive growth rates coupled with a sharper focus on poverty reduction policies.”
The KEU also notes that the profile of poverty in Kenya has a significant spatial dimension that is omitted in the international comparison. For example, Most of Kenya’s poor live in rural areas predominantly in the northeastern parts of the country. This spatial dimension persists, and possibly exacerbated inequality across regions in Kenya. Scaling up and geographic targeting of anti-poverty and social protection programs are important instruments to target the neediest households and reduce regional disparities, according to the economic update.
Kenyans enjoy improved access to sanitation while access to improved water remains low, according to the update. For example, while almost 72% of Kenyan households have access to improved water sources – above the 68% average in the SSA – this is below the current access levels observed in peer countries such as Ghana, Rwanda and Uganda. However, Kenya performs better in access to improved sanitation when compared to countries with similar international poverty headcount rates.
According to the report, Kenya’s literacy rate is amongst the highest in SSA, and it has increased further by 11% since 2005, reflecting the massive progress made in Kenya’s educational system over the past decade. In 2015, 84% of the population above 14 years could read and write compared to Ghana at 71%.
The report says that today, more than half of Kenyan adults above 24 years (almost 58%) have completed primary education, a notable increase from an estimated 44% in 2005. However, the report also highlights that while just over 14% of adults aged 25 and older have completed secondary school, up from 3% in 2005, this falls below other countries with comparable poverty rates. That notwithstanding, net school enrollment ratios have improved in the last decade with a primary school enrollment ratio of about 87%, but secondary school completion presents a significant barrier.
Kenya has also made significant gains in reducing child stunting and has one of the lowest stunting rates in international comparison, according to the KEU. As of 2015, nearly one out of five (about 19%) of children under five years old were stunted in Kenya, compared to one in three in 2005. Kenya has the lowest stunting rate in Eastern Africa, but the rate is still higher compared to other SSA countries, such as Ghana.
“The forthcoming World Bank Kenya Poverty and Gender Assessment (KPGA) will provide a more detailed analysis combined with policy recommendation for poverty reduction,” said Pierella Paci, World Bank practice manager for poverty and equity covering East and Central Africa.
Using the Kenya Integrated Household Budget Survey (KIHBS 2015/16) data, the KPGA will provide a more detailed analysis of poverty characteristics and trends in Kenya, incorporating both a sectoral and a spatial lens. The KPGA will also zoom into the gender aspects of poverty, contrast poverty profiles in urban and rural areas, and examine poverty through education, health and social protection lenses. The objective of the KPGA is to foster an evidence-based debate about policy options to accelerate poverty reduction in Kenya.
The State of Kenya’s Economy
Recent Economic Developments
A broad-based global economic recovery is underway
For the first time since the global financial crisis, a broad-based pick-up in the global economy is underway. Global GDP growth is estimated to have reached 3.0 percent in 2017, up from 2.4 percent in 2016. The recovery is broad based, coming from a synchronous recovery in both high income and emerging market economies. Notwithstanding downside risks, the recovery in the global economy is being supported by still benign financing conditions, generally accommodative monetary policy stance, a rebound in trade and investments, improved confidence with the global manufacturing Purchasing Managers’ Index reaching a 7-year high in Q1 2018 and an upturn in commodity prices on the back of positive momentum in global trade.
Supported by the uptick in commodity prices, a modest recovery is also underway in sub-Saharan Africa (SSA). At (2.4) percent in 2017, growth in the region rebounded from a 22-year low of 1.3 percent in 2016. While growth in non-resource rich countries remained stable on account of infrastructure investments, growth in resource rich economies such as Angola and Nigeria, was lifted by the beginning of a steady recovery in oil, metal and mineral prices. In Nigeria, a recovery in the oil sector was a key factor for the positive growth, as reduced attacks on oil pipeline paved way for increased production. Growth in the region is projected to accelerate to (3.2) percent in 2018 supported by strengthening commodity prices, the expected increase in demand as inflation declines, robust public investment growth in some economies, and improved rainfall that will see the rainfed agriculture sector flourish in addition to improved electricity supply.
Real GDP growth in the East African Community (EAC) region decelerated, albeit still stronger than the SSA average. In 2017, the EAC economies endured the adverse effects of drought and lower credit to private sector to grow at an average of 5.3 percent. Kenya lagged her regional peers by 0.5 percentage points to grow at 4.8 percent on account of poor rains, slow growth in credit to private sector and a prolonged election cycle. Tanzania, Rwanda and Uganda are estimated to have grown by 6.4 percent, 6.1 percent and 4.0 percent respectively in 2017. In Tanzania and Uganda growth was driven by a bumper harvest in the latter half of the year following favorable weather conditions while in Rwanda, improved weather and a rebound in exports explained accelerated growth from 6.0 percent recorded in 2016. In the wider EAC regions, Ethiopia maintained a strong growth at (10.3) percent in 2017 mainly driven by the public sector’s investment in infrastructure.
Following multiple headwinds that dampened output in 2017, an incipient recovery of the Kenyan economy has started
Drought conditions dampened agriculture output in 2017, however with improved rains in Q42017, the sector is recovering. With only 2.0 percent of Kenya’s cultivable land under irrigation, agricultural output is highly rain dependent. Reflecting poor weather conditions in the first half of the year, the contribution of the agricultural sector to GDP growth in 2017 dropped from a historical average of about 1.2 percentage points to just 0.2 percentage points for the first three quarters of 2017. Growth in the sector declined to 0.8 percent (first three quarters) from 5.0 percent for the same period in 2016. This was the lowest agricultural sector growth since 2009, an indication of the severity of the drought. The weakness in the sector’s performance reflected in the contraction in output of key agricultural exports such as tea and coffee, and staple food such as maize, kale, and potatoes. However, better rains in the second half of 2017 improved the sector’s fortunes, with solid recoveries recorded in Q4 2017 for tea, cane, and coffee output.
Economic headwinds in 2017 adversely impacted manufacturing activity, however, with their easing, the green shoots of a modest recovery are underway, albeit uneven. The industrial sector which accounts for some 19 percent of GDP, contributed only 0.8 percentage points to GDP growth in 2017 compared to a historical average of 1.2 percentage points on account of the headwinds faced by the economy. Growth in the manufacturing sector, an important pillar in the government’s job creation agenda, but whose performance in recent years has been lack-lustre, decelerated to 2.4 percent in 2017 from 3.8 percent in 2016. Activity in the sub sector was impacted by a prolonged electioneering period which dampened business sentiment and trade with neighboring countries; poor agricultural harvests which weakened agribusiness activity; and challenges in credit access which limited working capital and the ability of firms to expand. The weak performance was broad-based as contractions were recorded in sugar, beverages, cement and galvanized sheet. However, reflecting an uneven recovery, as some headwinds started to ease in Q4 2017, there has been a pick-up in some sectors (e.g. cement, sugar and sheet metal), while output remained in contractionary territory for others (e.g. soft drinks). Nonetheless, a healthy rebound in the Purchasing Managers Index for Q1 2018 suggests that the incipient recovery that began in Q4 2017, is continuing into 2018.
Performance in other industrial sub sectors was mixed in 2017. While the manufacturing sector is the largest industrial sub-sector (50 percent), construction and electricity generation are also significant, accounting for some 25 percent and 13 percent of industrial activity respectively. Despite weakness elsewhere in the economy, growth in the construction sector was at a robust 6.9 percent (albeit lower than the 8.4 percent registered in 2016). Given weakness in private investment, much of the robust growth in the construction sector can be attributed to the higher execution of government development spending in 2017. In contrast to the robust performance in the construction sector, growth in electricity generation decelerated to 5.4 percent in 2017 from 7.9 percent in 2016. This was mainly on account of the lower generation of electricity from hydropower sources, given poor rains. With fiscal consolidation commencing in 2018 the construction sector is likely to moderate (unless private investment picks up strongly); however, electricity generation is picking up with improved rains.
The service sector has remained resilient, albeit with differences across sub-sectors. The services sector, which accounts for 58.5 percent of GDP was the main engine of economic growth in 2017 – single handedly accounting for some 80 percent of the 4.8 percent growth. However, the robust performance in the sector was uneven. Reflecting the ongoing rebound in tourism, the accommodation and transport sectors recorded robust growth. Solid growth was also recorded in the ICT sub sector (thanks to the exponential growth in mobile money and data services) and the real Estate sub sector (spurred by the dynamism in commercial real estate market and steady growth in residential real estate market). Reflecting the dynamism in the real estate sector, the largest mall in East and Central Africa was completed and works on the tallest building in Africa began in 2017 – all of which are situated in and around Nairobi, the Nation’s capital. However, reflecting ongoing challenges in the banking sector, including from the interest rate caps, growth in financial services, which has historically been one of the key drivers of GDP growth, decelerated to 4.0 percent – its lowest in over five years.
Rising oil prices and underperformance of exports are contributing to the widening of current account deficit
Kenya’s current account deficit widened in 2017. Following a pickup in international commodity prices and economic recovery among Kenya’s major trading partners (e.g. the EU, USA etc.), the value of Kenya’s agricultural exports improved in 2017. Tea, coffee, and horticulture grew by 11.5 percent, 11.3 percent, and 1.1 percent respectively in 2017, compared to 4.2 percent, -1.6 percent and 5.7 percent respectively in 2016. However, the expansion in agricultural exports was unable to mitigate the contraction from manufactured exports. Indeed, manufactured export volumes and re-exports from neighboring countries contracted on account of disruption to trade logistics arising from the prolonged election cycle. On the imports side, a moderate recovery of international oil prices, public infrastructural projects, and an increase in food imports to supplement for poor harvests led to a rise in the import bill. Total imports increased by 18.1 percent in 2017 (November), compared to a contraction of 12.4 percent growth in 2016. The widening of the current account deficit was curbed by the rebound in tourism receipts and increased diaspora remittances. Remittances grew by 12.9 percent in 2017, travel receipts increased by 17.1 percent in 2017 compared to 8.1 percent in 2016.
The financial account balance improved in 2017. With respect to the financing of the current account, the financial account balance improved to about 7.5 percent of GDP in November 2017 compared to about 5.9 percent of GDP in 2016. In terms of the breakdown of capital flows, the balance on the financial account has been driven almost entirely by the “other investments” category related to foreign borrowing by the government while banks have continued to see a decline in external financing – a likely compounding factor to the decline in credit to the private sector. In contrast, net foreign direct investments inflows have been subdued. At about 5.9 months of imports, international reserves provide a comfortable buffer against external shocks.
Outlook
Recovery in private demand is expected to drive the rebound in growth, even as the stimulus from fiscal policy wanes
A modest recovery in private consumption is expected to occur over the medium term. The baseline assumes normal weather conditions. With that, food price inflation is expected to remain benign, thereby lending support to the recovery in private consumption, unlike in 2017 when household consumption was hit hard by the drought. With the ongoing broad-based recovery in the global economy, remittances to the economy is projected to be robust, thereby lending support to household consumption. Further, given that unsecured lending to households has been one of the hardest hit borrower segments in the aftermath of the interest rate cap regime, the anticipated repeal or significant modification to the cap is likely to bolster private consumption as more households gain credit. However, on the downside, with global oil prices expected to continue their steady rebound (about 10 percent increase in 2018 over 2017 prices) and with the pass-through of these prices dampening household real incomes, this will serve as a drag on private consumption, thereby mitigating the lift from some of the upside factors.
With fiscal consolidation underway, the earlier stimulus from the fiscal stance is expected to wane over the medium term. Government expenditures have expanded at a compound average growth rate of 12.1 percent between FY13/14 and FY16/17, and with that the contribution of government spending (including recurrent and development) to GDP growth has averaged about 1.8 percentage points. In other words, over the past five years about a third of growth has come from the public sector. With fiscal consolidation underway, the pace of expansion of government spending is projected to slow down to 5.8 percent. On the one hand, this will reduce the stimulus to the economy coming from the public sector, nonetheless, a necessary step to safeguard macroeconomic stability. On the other hand, to the extent that the slowdown in government spending is likely to translate into lower
Private investment growth is expected to recover, but could remain sub-par without a supportive policy environment. With the easing of political uncertainties in the aftermath of the Presidential elections, pent-up investment is coming onstream as the wait-andsee attitude adopted by the private sector in 2017 gives way to a rebound in business sentiment (as reflected in the recent increase in PMIs). Further, the strengthening of the global economy is providing a further fillip to private sector activity as external demand for Kenyan goods and services (e.g. tourism) is expected to increase. However, the extent to which the private sector in Kenya will be able to take advantage of improving conditions could be curtailed by the extent to which it is starved of credit. Our baseline assumes that with a repeal or significant modification of the cap in 2018, credit conditions will improve by 2019, thereby lending support to a recovery in the private sector. Relatedly, this will help bring down yields on government securities, thereby incentivizing banks to lend to the broader private sector rather than current skewed lending to the public sector or blue-chip Kenyan companies. However, as noted in the risk section, if the favorable policy environment, factored in our baseline does not materialize, the expected recovery in private sector activity will be significantly curtailed.
The contribution of net exports will be moderate. Historically, the contribution of net exports to GDP growth has been negative, subtracting about 1.1 percentage points from GDP growth. Lower oil prices in recent years has however reduced the extent of the drag from net exports. However, since oil prices are expected to continue their steady ascent in 2018 and beyond, we expect the drag from net export over the forecast horizon to rise. This is expected to be mitigated somewhat by the lift from Kenya’s merchandise (horticulture and tea) and services (mainly tourism) exports as the projected broadbased recovery in the global economy takes root. Further, with fiscal consolidation underway and with it a projected slowdown in development spending, this should moderate the pace of import expansion and reduce the extent of the drag from the net exports contribution to growth.
The World Bank remains committed to working with key Kenyan stakeholders to identify policy and structural issues that will enhance inclusive growth, keep Kenya on the path to upper middle-income status, and attain its Big 4 policy objectives. The Kenya Economic Update (KEU) offers a forum for such policy discussions. This 17th edition of the KEU was prepared by a team led by Allen Dennis and Christine Awiti.
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2nd Session of the Specialized Technical Committee on Finance, Monetary Affairs, Economic Planning and Integration
The 2nd African Union Specialized Technical Committee (STC) on Finance, Monetary Affairs, Economic Planning and Integration will be held at the African Union Commission (AUC) Headquarters in Addis Ababa, Ethiopia, from 12-17 April 2018, with the Ministerial component taking place from 15-17 April 2018.
In recognition of the negative impact of corruption and Illicit Financial Flows on the development of African countries, the African Union has dedicated the year 2018 to the fight against corruption. Under the theme, “Winning the Fight against Corruption: A sustainable path for Africa’s Transformation”, AU Heads of State and Government are resolute in their willingness to fight corruption on the continent.
In the same spirit, this year’s STC will discuss the theme “Mobilisation of domestic resources: fighting against corruption and Illicit Financial Flows”. The meeting will be divided into three sections: (1) Independent Experts’ Meeting; (2) Meeting of Experts from the Ministries of Finance, Economic Planning and Integration; and (3) Ministerial and Central Bank Governors Meeting.
The Independent Experts’ Meeting (9-10 April) will provide a forum for independent experts from Africa and beyond to articulate challenges and propose solutions concerning three thematic areas: domestic resource mobilization, the fight against corruption and the fight against illicit financial flows (IFFs).
Theme and sub-themes
Since the transformation of the Organisation of African Unity (OAU) to the African Union (AU) in 2002, African leaders have emphasized the importance of mobilising domestic savings for financing the development of the continent. In recognition of the massive resources that would be required to fund the new agenda of the AU aimed at dealing with the socio-economic and political challenges facing the continent, the Heads of State and Government of the OAU, at their Summit in Lusaka, Zambia, in 2001, requested the Secretariat to undertake studies on Alternative Sources of Financing the AU.
Several proposals were made on options to finance the Union, including a 0.2 percent levy on imports originating from outside the continent, which was adopted by Heads of State and Government in 2015. The levy is expected to collect substantial resources for the African Union, with the aim that the AU Member States will gradually cover 100 percent of the operational budget, 75 percent of the programme budget, and 25 percent of the peace and security operations by the year 2020.
The need for domestic resources mobilisation has become even more critical due to the increasing developmental requirements of the continent, including Agenda 2063 and the United Nations Sustainable Development Goals. In 2015, the African Union Assembly of Heads of State and Government adopted Agenda 2063, which outlined the continent’s aims for its socio-economic transformation over the succeeding 50 years. This document expresses many of the same aims as the SDGs, to which African countries also agreed in 2015.
As outlined in these two frameworks, one of the main methods that Africa has decided to use to finance its development is through increased mobilization and use of domestic resources. It is widely accepted that the realisation of the goals spelt out in the two development Agendas, will depend on the ability of the continent to mobilise the substantial financial resources required for their implementation.
Over the past two decades, African countries have experienced positive growth rates due to improved macroeconomic fundamentals and increased resilience to external shocks. The growth was driven by sound macroeconomic policy and improved public resource management overall. Corruption is threatening to erode the gains made in Africa over the years. In addition to the negative effects corruption has on African economies, it undermines good governance, distorts public policy and erodes development and economic growth.
Illicit financial flows, on the other hand, continuously drain the resources that are required for Africa’s development. It is estimated that Africa loses up to US$50 billion annually through illicit financial flows mainly through tax evasion, mispricing of trade of goods and services by multi-national companies. It is important for African countries to continue fighting against illicit financial flows through strengthening legal and regulatory regimes, fighting corruption, building capacity for contract negotiation, tax administration and identifying and returning the resources lost through illicit financial flows. In this regard, the recommendations of the High Level Panel on Illicit Financial Flows should be implemented.
The STC will discuss the theme under the following sub-themes:
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Illicit financial flows, a hamper to the effectiveness of the AfCFTA;
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Corruption and illicit financial flows accentuating inequality and poverty;
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Mobilization of domestic resources in order to meet the needs of development and ensure the independence of the Continent; and
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Fight against money laundering, tax evasion, corruption and repatriation of stolen and illegally acquired assets.
This will be the 2nd STC on Finance and Monetary Affairs, Economic Planning and Integration solely organized by the African Union with the full support of its Member States. It will provide an opportunity to deliberate on items on the agenda and propose recommendations for approval by the African Union Summit in June/July 2018. The independent experts’ meeting will make proposals for consideration and deliberation by the Senior Officials’ meeting.
Background
The First STC was held in October 2017 in Addis Ababa, Ethiopia, under the theme “Growth, employment and inequality”. The STC highlighted corruption as one of the setbacks to sustainable inclusive economic growth. The meeting noted that corruption discourages investors and increases inequalities. In this regard, efforts have to be directed toward considering the correct mix of policies, auditing national laws and enacting laws in line with the changing global context.
In addition, the meeting underscored the need to address Illicit Financial Flows (IFFs). To achieve this, it was noted that there was need for improved governance and accountability for reducing the financial haemorrhage of illicit financial flows through the fight against corruption. Overall, the meeting concluded that financing Africa’s development requires a comprehensive approach that harnesses the potential of domestic resources mobilization.
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tralac’s Daily News Selection
The IMF will has posted the analytical papers for the World Economic Outlook 2018. They cover: Labour force participation in advanced economies, Shifts in global manufacturing activity, Is productivity growth shared in a globalized economy?
The Indonesia-Africa Forum starts tomorrow in Bali: download the concept paper
Nigeria: Presidential Committee on CFTA asks Buhari for two-week extension (ThisDay)
The presidential committee to widen consultation on the framework establishing the African Continental Free Trade Area has appealed to President Muhammadu Buhari to extend its mandate by two weeks. The request, ThisDay gathered exclusively, is to allow it firm up consultations with major stakeholders and determine how Nigeria will benefit sector by sector from the CFTA. The committee’s deadline to submit it report to the president expired Thursday. DG of the Nigeria Office for Trade Negotiations, Chiedu Osakwe said: ”Last week, we had a meeting with the Nigeria Poultry Association, and we are hoping to meet with Zamfara State Governor, Abdulaziz Yari, who is the Chairman of the Nigerian Governors’ Forum. NLC still requires transitional period- they still insist on protection. We have also received a list from MAN, but it does not exceed the 10% we have negotiated within the framework of protection. We also got a demand from trade group for Nigeria to be aggressive on our negotiation. Similarly, we have explained to them the contents of the 250-page document which some of them had not read, we also asking from them concerns that they want to protect.”
SACU to discuss regional integration and industrialisation (Business Day)
Cabinet ministers and officials of the five-member countries of SACU will meet in Namibia this week to discuss a funding mechanism for regional integration, development and industrialisation. This would include the financing of cross-border programmes such as infrastructure projects that support industrial development in the union. The discussions will form part of the review of the revenue-sharing formula that splits customs revenue between Botswana, Lesotho, Namibia, SA and Swaziland. The Department of Trade and Industry’s deputy director-general for international trade and economic development, Xolelwa Mlumbi-Peter, said on Sunday the first objective of the discussions was to transform SACU into a “development integration arrangement”.
Bills paving way for EA Monetary Union on agenda at regional parliament (New Times)
The EAC Monetary Institute Bill, 2017 and the EAC Statistics Bureau Bill, 2017, are two key pieces of draft legislation on the agenda as the East Africa Legislative Assembly moves its sitting to Dodoma, Tanzania starting today. The regional House’s first ever sitting in Tanzania’s designate capital – which starts today Monday and ends on 28 April – is to be presided over by Speaker, Martin Ngoga, with Tanzanian President Dr John Pombe Joseph Magufuli expected to address the Assembly at a special sitting sometime next week. The two pieces of legislation are critical in the eventual set up of the East African Monetary Union, the EAC’s third pillar of integration preceding the ultimate phase – the EAC Political Federation. Partner States negotiated a Protocol for establishment of the EAMU which was signed by regional leaders in November 2013.
73 firms join plan for fast EAC trade (Business Daily)
Some 73 companies are on track for expedited payment of refunds and reduced customs security checks after they enrolled in an EAC programme to promote regulatory compliance, enhance trade and improve border security. The firms will reap other benefits of the programme, named Authorised Economic Operators, including automatic passing of their declarations and will undergo no physical examination of goods except where risks are high, among others. The incentives apply to multinationals as well as small and medium enterprises that have joined the programme. “The EAC targets to enrol over 500 companies in the next five years,” said Duncan Karari, Communications Manager at German international development organisation GIZ which provides technical support for the initiative. [Kenya has 14 companies enrolled in the programme; Rwanda has the highest number, at 25; Tanzania has the least, 2; Burundi has 9; Uganda has 25 companies]
Foreign direct investment in Mauritius up 4.2% in 2017 (Reuters)
Foreign direct investment in Mauritius grew by 4.2% in 2017 to 14.22 billion rupees ($425.11m), driven by inflows into real estate and financial and insurance activities, official data showed on Friday. Foreign investment in real estate led with 8.79 billion rupees followed by financial and insurance activities with 3.32 billion rupees, the central bank said. “Together, France and Luxembourg accounted for over 50% of total gross direct investment inflows,” Bank of Mauritius said in a statement.
Egypt’s current account deficit down by 64% y-o-y in H1 2017/18, driven by tourism, remittances (Ahram)
Egypt’s current account deficit fell sharply to $3.4bn in H1 2017/18, which runs between July 2017 and December 2017, from $9.4bn in the same period the year before, preliminary estimates show. The CBE said the contraction is largely due to “significant improvement in main sources of gross national income,” as real GDP growth reached 5% in 2017, according to the Ministry of Planning preliminary estimates, “the highest full-year growth rate recorded since 2010.” As for net merchandise imports, they contracted by $268.5m in H1 2017/18 to $18.7bn, compared with the same period the year before. It is worth noting that non-oil merchandise exports grew by 9.7% year-on-year to $8.2bn in H1 2017/18. “The increase in non-oil merchandise exports was mainly driven by exports of finished products, including household electrical appliances, phosphate fertilisers, glass, textiles, carpets, and pharmaceutical products,” the CBE statement read.
South Africa maps the road to TIR (IRU)
South African government representatives met last week with the IRU to establish a concrete roadmap for implementing TIR to boost the efficiency of international road transport in Southern Africa, and to put in place modern frameworks for regulating access to the regional transport market. There has been steady momentum towards implementing TIR in South Africa and in the wider Southern African Customs Union, as well as along the key North South Corridor (from South Africa through Botswana, Zimbabwe and Zambia to DRC).
Niger economic operators call for a closer partnership with Ghana (GhanaWeb)
Economic operators, as well as relevant government ministries and agencies responsible for trade in Niger, have called on Ghana’s Port Authority and key trade facilitators to position the Ghanaian corridor to attract more traffic from Niger in view of unfair trade practices implemented on competing francophone corridors used by economic operators from Niger. Niger and the two other neighbours, Mali and Burkina Faso are the three main land-locked countries in the West Africa sub-region who are traditionally aligned in using the seaports of fellow Francophone countries in Dakar, Guinea, Abidjan, Lome and Cotonou to participate in international trade. However, due to inefficiencies, high cost of operations, poor transportation networks, delays and political instability in these countries, economic operators in the LLC’s have realized the need to diversify their use of seaports in the sub-region to impact positively in the lives of their citizenry.
Sustainable Mobility for All: bringing the vision to life (World Bank Blogs)
The issue of mobility and sustainability resonates well with countries’ concerns. The recent UN Resolution focusing on the role of transport and transit corridors in sustainable development demonstrates the continuing importance attached to the issue of transport and mobility by national governments around the world. A series of recent international agreements provide useful benchmarks, including the Rio Declaration and Agenda 21, the Rio+20 Outcomes, the Sustainable Development Goals, the New Urban Agenda, the Vienna Programme of Actions on Landlocked Countries, and the Paris Climate Agreement, the UN Global Conference on Sustainable Transport. To maximize the impact of these efforts, the time has come to bring all these pieces together into a coherent, detailed, and action-oriented strategy. The SuM4All partnership has set out to develop an Action Framework for Sustainable Mobility that will do just that. [The author, Dr Nancy Vandycke leads the WB’s group of transport economists and heads the SuM4All Partnership]
It’s time to tackle shipping emissions on the high seas: a call for South African leadership (Daily Maverick)
This week, from 9-13 April, the 72nd session of the International Maritime Organization’s Marine Environment Protection Committee will meet in London to discuss the problem of shipping emissions and the way forward. This meeting affords South Africa the opportunity to position itself as a leading voice in the negotiations. South Africa became a full member of the IMO in 1995 and will be participating as a member state in the April meetings. South Africa’s role in climate negotiations has been viewed by the international community as being vital and we are often seen as a deal-maker in these negotiations. In contrast, in this case South Africa is seen to be non-committal in tackling GHGs at the IMO and its position tends to be wavering and often inconsistent with its positions taken at the UNFCCC. The April meetings provide South Africa an opportunity to rectify this perception by addressing three goals: [The author, Saliem Fakir, heads the Policy & Futures Unit at the World Wild Fund for Nature South Africa; Bloomberg View: Shipping is part of the climate problem]
Global trends in renewable energy investment 2018 (UNEP)
Last year was the eighth in a row in which global investment in renewables exceeded $200bn – and since 2004, the world has invested $2.9 trillion in these green energy sources. Overall, China was by far the world’s largest investing country in renewables, at a record $126.6bn, up 31% on 2016. There were also sharp increases in investment in Australia, up 147% to $8.5bn; Mexico, up 810% to $6bn; and Sweden, up 127% to $3.7bn. [See Figure 20: Renewable energy investment in Middle East and Africa by country, 2017, $bn, and change on 2016; The biggest obstacle to deploying solar energy in Africa is scepticism in high places]
Today’s Quick Links: Pradeep Mehta: The role of competition policy for development TAZARA Board has new directors Nigeria’s ICT market loses billions as foreign firms control 80% share Why 10-year AGOA trade deal didn’t benefit Nigeria South Africa: US senators eye local investment Tanzania: New tanzanite location discovered Low global prices cut Kenya coffee earnings by Sh1.3bn FAO Food Price Index rises for the second consecutive month Nigeria to begin electricity trading with neighbouring countries |
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World Economic Outlook, April 2018: Jobs, manufacturing and globalisation
The Decline in Manufacturing Jobs: Not Necessarily a Cause for Concern
Manufacturing jobs are waning. In many emerging market and developing economies, workers are shifting from agriculture to services, bypassing the manufacturing sector. In advanced economies, the rise in service sector employment typically reflects the outright disappearance of manufacturing jobs.
The decline in manufacturing jobs is often met with anxiety. People are concerned that a smaller manufacturing sector implies slower economic growth and a scarcity of well-paying jobs for low- and middle-skilled workers – contributing to worsening inequality.
In Chapter 3 of the April 2018 World Economic Outlook, we revisit the evidence supporting those beliefs and find that the declining share of manufacturing jobs need not hurt growth or raise inequality, provided the right policies are in place.
Shifts in economic activity and productivity
Shifts in economic activity are part of a natural process of “structural transformation.” As people get richer, they consume more services – such as health and financial services. Technological advances also lead to sizable labor savings, especially in manufacturing.
Our study provides novel evidence of how a stronger expansion of service rather than manufacturing jobs in emerging market and developing economies may affect their ability to catch up with advanced economy income levels. Using data for a large number of countries over the past five decades, we document that some service sectors are very similar to manufacturing in terms of levels, growth rates, and convergence of productivity (output per worker).
Some market service sectors – such as transport, telecommunications, and financial and business services – have higher levels and growth rates of output per worker than manufacturing. Moreover – just as in manufacturing – labor productivity in several service sectors tends to converge to the global frontier: that is, it grows faster where it is relatively low, allowing countries with low initial productivity levels to catch up toward those with higher levels.
As the highly-productive service sectors – such as communications, finance, and business activities – have been attracting workers faster than other sectors, the shift of employment from agriculture to services since the 2000s has benefited aggregate labor productivity in emerging market and developing countries across all regions – and especially in sub-Saharan Africa.
Of course, these findings should not lead policymakers into complacency. Barriers to international trade in services – which are much higher than for goods – should be reduced so that the expansion of highly-productive service sectors is not constrained by the growth of domestic demand. Policies should also ensure that workers’ skills are aligned with those needed in the more tradable service subsectors – such as financial and business services. And in many emerging market and developing countries where productivity remains anemic in all sectors, a comprehensive approach is needed to unlock productivity growth across the board, including by strengthening human capital and physical infrastructure, as well as improving the business and investment climate.
Shifts in economic activity and income inequality
Another frequently voiced concern is about the disappearance of high-quality manufacturing jobs in many advanced economies that are simply not available in the service sector. As factories close, many middle-skilled workers need to accept low-paying jobs in the service sector, contributing to the “hollowing out” of the income distribution, and a rise in inequality.
Our analysis shows that the level of labor income inequality within industry (70 percent of which is accounted by manufacturing) is indeed somewhat lower than within services in a sample of 20 advanced economies. But country characteristics are more important than the size of the industrial sector for explaining aggregate inequality. For example, inequality in Denmark is about one-third of that in the United States in both industry and services. And the biggest factor driving changes in aggregate inequality in advanced economies since the 1980s has been the increase in earning differences in all sectors – rather than the decline of industry jobs.
Still, the negative consequences of disappearing manufacturing jobs can be sizable for individual workers and their communities, especially in regions that developed as manufacturing hubs. To ensure inclusive gains from structural change, policies should facilitate the reskilling of displaced workers and reduce the costs of their reallocation. But policymakers should also be mindful that sectoral reallocation may be very costly or even unfeasible for some workers (such as those close to retirement age) and strengthen safety nets and targeted redistribution policies accordingly.
In sum, the decline of manufacturing as a source of employment need not hurt growth or raise inequality. But the key is to get the policies right.
This IMFBlog was written by Bertrand Gruss and Natalija Novta.
Globalization Helps Spread Knowledge and Technology Across Borders
It took 1,000 years for the invention of paper to spread from China to Europe. Nowadays, in a world that has become more integrated, innovations spread faster and through many channels.
Our research in Chapter 4 of the April 2018 World Economic Outlook takes a closer look at how technology travels between countries. We find that the spread of knowledge and technology across borders has intensified because of globalization. In emerging markets, the transfer of technology has helped to boost innovation and productivity even in the recent period of weak global productivity growth.
Why spreading technology matters
Technological progress is a key driver of improvements in incomes and standards of living. But new knowledge and technologies do not necessarily develop everywhere and at the same time. Therefore, the way technology spreads across countries is central to how global growth is generated and shared across countries.
Indeed, during 1995-2014, the United States, Japan, Germany, France, and the United Kingdom (the G5) produced three-fourths of all patented innovations globally. Other large countries – notably China and Korea – have started to make significant contributions to the global stock of knowledge in recent years, joining the top five leaders in a number of sectors. While this suggests that in the future they too will be important sources of new technology, during the period under study, the G5 constituted the bulk of the technology frontier.
To trace knowledge flows, our study uses the extent to which countries cite patented innovations from the technology leaders as prior knowledge in their own patent applications. The chart below gives a representation of these cross-country knowledge links. Two features stand out. First, while in 1995 the United States, Europe, and Japan were dominating global patent citations, China and Korea (depicted together as “other Asia”) have made increasingly large use of the global knowledge stock as measured by their patent citations. Second, knowledge links have in general intensified over time, both within (red arrows) and across (blue arrows) regions. An alternative measure for the extent to which foreign knowledge is available for domestic use is the intensity of international trade with technology leaders – and our study looks at this as well.
Globalization boosts technological development
The increasing intensity of global knowledge flows points to important benefits of globalization. While globalization has been much criticized for its possible negative side effects, our study shows that globalization has amplified the spread of technology across borders in two ways. First, globalization allows countries to gain easier access to foreign knowledge. Second, it enhances international competition – including as a result of the rise of emerging market firms – and this strengthens firms’ incentives to innovate and adopt foreign technologies.
The positive impact has been especially large for emerging market economies, which have made increasing use of the available foreign knowledge and technology to boost their innovation capacity and labor productivity growth. For instance, over 2004-14, knowledge flows from the technology leaders may have generated, for an average country-sector, about 0.7 percentage point of labor productivity growth per year. This amounts to about 40 percent of the observed average productivity growth over 2004-14.
We find that one important factor behind the build-up of innovation capacity in emerging market economies has been their growing participation in global supply chains with multinational companies, though not all firms have benefitted as multinationals sometimes reallocate some innovation activity to other parts of the global value chain.
The increased transfer of knowledge and technology to emerging market economies has partly offset the effects of the recent slowdown in innovation at the technology frontier and helped drive income convergence for many emerging economies. In contrast, advanced economies have been more affected by the technology slowdown at the frontier.
Finally, our study finds evidence that technology leaders themselves benefit from each other’s innovation. This suggests that, going forward, with the growing contribution of China and Korea to the expansion of the technology frontier, there may be scope for positive spillovers from these new innovators to the traditional innovators. Knowledge and technology do not flow in one direction only.
Spreading the know-how
Globalization brings a key benefit – it stimulates the spread of knowledge and technology, helping spread growth potential across countries. But interconnectedness per se is not enough. The assimilation of foreign knowledge and the capacity to build on it most often requires scientific and engineering know-how. Investments in education, human capital, and domestic research and development are thus essential to build the capacity to absorb and efficiently use foreign knowledge. It also requires an appropriate degree of protection and respect of intellectual property rights – both domestically and internationally – to preserve the ability of innovators to recover costs while ensuring that the new knowledge supports growth globally.
Policymakers must also make certain that the positive growth benefits from globalization and technological innovation are shared widely across the population, including by ensuring that innovating firms do not exploit the newly acquired technology to gain excessive control of a market to the detriment of consumers.
This IMFBlog was written by Aqib Aslam, Johannes Eugster, Giang Ho, Florence Jaumotte, Carolina Osorio-Buitron, and Roberto Piazza.
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Bills paving way for EA Monetary Union on agenda at regional parliament
The EAC Monetary Institute Bill, 2017 and the EAC Statistics Bureau Bill, 2017, are two key pieces of draft legislations on agenda as the East Africa Legislative Assembly (EALA) moves its sitting to Dodoma, Tanzania starting today, Monday.
The regional House’s first ever sitting in Tanzania’s designate capital – which starts today and ends on April 28 – is to be presided over by Speaker, Martin Ngoga, with Tanzanian President Dr John Pombe Joseph Magufuli expected to address the Assembly at a special sitting sometime next week.
The two pieces of legislation are critical in the eventual set up of the East African Monetary Union (EAMU), the East African Community’s third pillar of integration preceding the ultimate phase – the EAC Political Federation.
Partner States negotiated a Protocol for establishment of the EAMU which was signed by regional leaders in November 2013.
The EAMU protocol provides for the establishment of four support institutions: the East African Monetary Institute – a precursor to the East African Central Bank – which was supposed to be set up by December 2015 but never happened, and the East African Statistics Bureau (2018), among others.
In March, when MP Dr Pierre Celestin Rwigema (Rwanda) asked the Council of Ministers to inform the House about the status of implementation of the third and fourth pillars of the integration during the last sitting in Arusha, Tanzania, Dr Ali Kirunda Kivejinja, Chairperson of the Council of Ministers, said the EAC Secretariat – the executive organ of the Community – is working with Partner States to develop legal instruments for establishment of the institutions.
Apart from Bills and resolutions set to be brought before Plenary, Committee undertakings are also expected particularly on scrutiny of Bills in preparation for the forthcoming public hearings, said Bobi Odiko, the Assembly’s senior public relations officer.
“There are two key Bills that are pertinent to the Monetary Union Protocol; the EAC Monetary Institute Bill, 2017 and the EAC Statistics Bureau Bill, 2017,” he said.
The two Bills were introduced by the Chair of the Council of Ministers, Dr Ali Kirunda Kivenjija during the EALA sitting held in Kampala, Uganda, in January.
The EAC Monetary Institute Bill, 2017, will pave way for the establishment of the East African Monetary Institute as an institution of the Community responsible for preparatory work for the EAC Monetary Union.
In accordance with Article 23 of the Protocol on the EAC Monetary Union, the Bill is expected to provide for the functions, governance and funding for the Institute as well as other related matters.
The EAC Statistics Bureau Bill, 2017, on the other hand seeks to establish the Statistics Bureau as an Institution of the Community under Article 9 of the EAC Treaty and Article 21 of the Protocol on Establishment of the EAC Monetary Union.
The Bill provides for the functions, powers, governance and its funding with a view to establishing an institution responsible for statistics in a bid to support the East African Monetary Union.
In Dodoma, the Council of Ministers is thus expected to meet with regional lawmakers – especially members of the EALA Committee on Communications, Trade and Investment and members of the General Purpose Committee – to thrash out key matters on both Bills.
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Banking on sunshine: World added far more solar than fossil fuel power generating capacity in 2017
Solar energy dominated global investment in new power generation like never before in 2017.
The world installed a record 98 gigawatts of new solar capacity, far more than the net additions of any other technology – renewable, fossil fuel or nuclear.
Solar power also attracted far more investment, at $160.8 billion, up 18 per cent, than any other technology. It made up 57 per cent of last year’s total for all renewables (excluding large hydro) of $279.8 billion, and it towered above new investment in coal and gas generation capacity, at an estimated $103 billion.
A driving power behind last year’s surge in solar was China, where an unprecedented boom saw some 53 gigawatts added – more than half the global total – and $86.5 billion invested, up 58 per cent.
The Global Trends in Renewable Energy Investment 2018 report, released on 5th April by UN Environment, Frankfurt School-UNEP Collaborating Centre for Climate & Sustainable Energy Finance, and Bloomberg New Energy Finance, finds that falling costs for solar electricity, and to some extent wind power, is continuing to drive deployment.
Last year was the eighth in a row in which global investment in renewables exceeded $200 billion – and since 2004, the world has invested $2.9 trillion in these green energy sources.
“The extraordinary surge in solar investment shows how the global energy map is changing and, more importantly, what the economic benefits are of such a shift,” said UN Environment head Erik Solheim. “Investments in renewables bring more people into the economy, they deliver more jobs, better quality jobs and better paid jobs. Clean energy also means less pollution, which means healthier, happier development.”
Overall, China was by far the world’s largest investing country in renewables, at a record $126.6 billion, up 31 per cent on 2016.
There were also sharp increases in investment in Australia (up 147 per cent to $8.5 billion), Mexico (up 810 per cent to $6 billion), and in Sweden (up 127 per cent to $3.7 billion).
A record 157 gigawatts of renewable power were commissioned last year, up from 143 gigawatts in 2016 and far out-stripping the net 70 gigawatts of fossil-fuel generating capacity added (after adjusting for the closure of some existing plants) over the same period.
“The world added more solar capacity than coal, gas, and nuclear plants combined,” said Nils Stieglitz, President of Frankfurt School of Finance & Management. “This shows where we are heading, although the fact that renewables altogether are still far from providing the majority of electricity means that we still have a long way to go.”
Some big markets, however, saw declines in investment in renewables. In the United States, investment dropped 6 per cent, coming in at $40.5 billion. In Europe there was a fall of 36 per cent, to $40.9 billion, with big drops in the United Kingdom (down 65 per cent to $7.6 billion) and Germany (down 35 per cent to $10.4 billion). Investment in Japan slipped 28 per cent to $13.4 billion.
Angus McCrone, Chief Editor of Bloomberg New Energy Finance and lead author of the report, said: “In countries that saw lower investment, it generally reflected a mixture of changes in policy support, the timing of large project financings, such as in offshore wind, and lower capital costs per megawatt.”
Global investments in renewable energy of $2.7 trillion from 2007 to 2017 (11 years inclusive) have increased the proportion of world electricity generated by wind, solar, biomass and waste-to-energy, geothermal, marine and small hydro from 5.2 per cent to 12.1 per cent.
The current level of electricity generated by renewables corresponds to about 1.8 gigatonnes of carbon dioxide emissions avoided – roughly equivalent to those produced by the entire U.S. transport system.
The Renewables Global Status Report is the sister publication to Frankfurt School-UNEP Global Trends in Renewable Energy Investment. REN21’s multi-stakeholder network collectively shares its insight and knowledge to help produce the GSR each year.
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73 firms join plan for fast EAC trade
Some 73 companies are on track for expedited payment of refunds and reduced customs security checks after they enrolled in an East African Community (EAC) programme to promote regulatory compliance, enhance trade and improve border security.
The firms will reap other benefits of the programme, named Authorised Economic Operators (AEO), including automatic passing of their declarations and will undergo no physical examination of goods except where risks are high, among others.
The incentives apply to multinationals as well as small and medium enterprises (SMEs) that have joined the programme.
73 companies
Among private sector organisations to benefit from the AEO programme are Mitchel Cotts Freight, Mzuri Sweets Ltd and Umoja Rubber.
“Seventy three companies have so far been enrolled in the programme since it was introduced over three years ago.
The EAC targets to enrol over 500 companies in the next five years,” said Dr Kirsten Focken, programme manager at German international development organisation GIZ which provides technical support for the initiative.
GIZ is also supporting the EAC integration process and its development goals.
Mr Focken said the programme is headed for roll-out.
Regional customs
The AEO initiative – launched to reform regional customs services – targets more than 500 companies, indicating that over 400 more are expected to join in due course.
Under the scheme, firms involved in international trade are scrutinised and certified as AEO. The programme is open to all players including clearing agents, revenue authorities and standards bodies.
The programme is expected to reduce the cost of doing business in EAC region, improve border security, promote regulatory compliance and hasten clearance.
“The EAC secretariat, the World Customs Organisation and the German government through GIZ commenced implementation of AEO. It will harmonise regional customs standards and also simplify regional customs procedures,” the statement said.
The concept is one of the trade facilitation and supply chain standards in the World Customs Organisation Council Framework.
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tralac’s Daily News Selection
A profile, from 2016, of Botswana’s youthful, new trade minister: Ms Bogolo Kenewendo
African trade policy event previews:
(i) Inaugural Indonesia-Africa Forum (10-11 April, Bali)
(ii) STC on Finance, Monetary Affairs, Economic Planning and Integration (12-17 April, Addis Ababa): Mobilisation of domestic resources: fighting against corruption and illicit financial flows
(iii) 4th US-Morocco Trade Forum (19 April, Washington)
Pioneering One Africa: The companies blazing a trail across the continent (Boston Consulting Group)
African business is integrating Africa - economically and otherwise. It has been a long time coming, and plenty of hurdles remain, but the economic integration of the continent, which many see as key to its continued development, is manifest. Driving it are indigenous entrepreneurs and fast-growing African companies, as well as multinational corporations. Since 2010, BCG has been tracking business and economic development in Africa, with a focus on the roles of leading African companies and MNCs. We have identified 150 companies that are blazing a trail toward a more integrated Africa (see Exhibit 5.)
They consist of 75 Africa-based companies and an equal number of MNCs that have established impressive track records in Africa and are contributing to further integration. The African pioneers come from 18 countries on the continent: 32 are based in South Africa and 10 in Morocco; Kenya and Nigeria are home to 6 each; 4 are from Egypt; and 2 each come from Côte d’Ivoire, Mauritius, Tanzania and Tunisia. The MNCs are a global group, with France, the UK, and the US most strongly represented. At the same time, a dozen MNCs from China, India, Indonesia, Qatar, and the UAE are active across Africa.
Air freight market analysis: Africa tops the international growth chart once again (IATA)
African airlines fly less than 2% of global FTKs but topped the international FTK growth chart in February for the 17th time in 18 months. As we have noted before, the strong growth seen in African airlines’ freight volumes has partly reflected higher volumes between Africa and Asia, on the back of ongoing foreign investment flows into Africa from the latter. While the surge in traffic looks to have stabilized, FTKs on the market segment were still nearly 24% higher in January 2018 than they were a year ago (see chart 5). [Related: Air passenger market analysis, pdf]
The Commonwealth Trade Review 2018: Strengthening the Commonwealth advantage – trade, technology, governance
Changing dynamics of Commonwealth trade: There have been several modest but perceptible shifts in the drivers of Commonwealth trade. Commonwealth developed economies still account for more than half of total exports, although their share is declining over time, while Commonwealth Asian members now account for 41.1% of the combined total Commonwealth exports of goods and services in 2016. Commonwealth developed countries were the largest exporters of services in 2016, valued at $498 billion, or 54.5% of total Commonwealth services exports. However, the relative share of Commonwealth Asian countries’ services exports has risen significantly in recent years: from 25% of total Commonwealth services trade in 2005 to 39.6% ($361.6bn) in 2016. The Commonwealth Caribbean members are the most dependent on services exports. In 2016, all but two countries – Belize and Guyana – depended on the services sector for over 70% of their exports.
Prospects for intra-Commonwealth trade: Using new data on bilateral services trade, and taking into consideration the prospects for world trade growth, new estimates are presented for intra-Commonwealth trade. Intra-Commonwealth trade is projected to reach $700bn by 2020. The adoption of proactive and pragmatic policy measures by member countries can further boost intra-Commonwealth trade.
Closing the gaps – implications for growth and development. Results of several multi-country studies show that increased broadband penetration and increased internet speed contribute to increased growth and employment. Consequently, narrowing these technology gaps across the Commonwealth is a priority. Applied to Commonwealth countries, if all member countries achieved a minimum broadband penetration of 50%, equivalent to the global average, Commonwealth GDP could increase by between $74bn and $263bn, with similar large increases in both direct and indirect jobs. Although no members have achieved it, reaching 100% broadband penetration could increase Commonwealth GDP by between $377bn and $1.1 trillion. However, the most pragmatic target would be for those Commonwealth member countries below the world average to commit to a doubling of their present broadband coverage, while countries above the world average would work towards full universal broadband provision. This would contribute around $600 billion to the GDP of the Commonwealth. [Note: The report (pdf) was prepared by Brendan Vickers (team leader), Jodie Keane and Kirthika Selvakumar, under the supervision of Teddy Y. Soobramanien, acting head of International Trade Policy Section]
AfCFTA pointers:
(i) tralac’s Trudi Hartzenberg, Gerhard Erasmus: Governments do not trade but they shape and control the rules of the game. A new trade agreement about how governments, and officials, exercise jurisdiction and improve trade governance is a necessary first step to a thriving rules-based trade environment for Africa. [Note: This article was originally published as a tralac Discussion note].
(ii) COMESA’s Francis Mangeni: The moment for Africa is now but nothing is pre-determined and the efficacy of the ACFTA will depend on how well the myriad constraints facing Africa are addressed. Nigeria and South Africa need to sign the agreement. A systematic ratification programme should be put in place and this should not be left to chance.
(iii) Carlos Lopes: Intra-African trade already accounts for 20% of the continent’s total trade (and not 12%, as most still believe)
(iv) Ola Bello: Thousands of small and medium-sized Nigerian enterprises should enjoy the first mover advantage in a CFTA scenario. They already have a foot on the ground, however tenuous, in key markets. Nigerian banks increasingly exert their heft across swathes of the continent too, positioned to help facilitate access for businesses seeking to expand or venture outwards.
Nigeria: VP Osinbajo launches Nigerian Economic Diplomacy Initiative (Sun News)
Osinbajo described the initiative as a game-changing synergy that ought to have happened years ago. “Economic diplomacy, as most of us know, is the use of diplomatic methods to address national economic interest and, of course, it has a key role to play in our case in achieving the objectives in our Economic Recovery and Growth Plan. So, it is imperative that given the size of the Nigerian economy, we are well positioned to actively participate in international economic affairs in a manner that is collaborative and mutually-beneficial to us and, of course, to our international partners.” [Nigeria ERGP focus labs identifies 59 projects for execution]
Egypt to set up logistics centre in West Africa to boost exports (Egypt Today)
Egypt is studying the establishment of a logistics centre in Ghana or Côte d’Ivoire to boost Egyptian exports to West Africa, Trade Minister Tarek Kabil said Wednesday. This came during Kabil’s meeting with the new Lebanese ambassador to Egypt, where he said that the “Egypt-Lebanon to Africa” initiative is a milestone for economic integration between Egypt and Lebanon. The initiative, launched in 2016, allows Egypt to benefit from the distinguished Lebanese presence in West African countries to boost Egyptian exports to these countries. Under the initiative, an Egyptian-Lebanese company for marketing Egyptian and Lebanese exports in the African continent has been established.
Zimbabwe: Govt to re-tender Harare-Beitbridge highway construction (The Herald)
Briefing the Anhui Foreign Economic Construction Corporation yesterday, the President said Government had become impatient with lack of construction activity along the country’s busiest highway that links Zimbabwe, South Africa and several other countries in the north. “In the area of infrastructure development, we need bidders for the dualisation and widening of the Beitbridge-Harare Chirundu Highway,” he said. “For two years we have had problems with Geiger, so Cabinet has taken a decision to institute a legal process to terminate the deal as a result of non-performance.” Geiger won the tender for the highway and commissioned the work in May 2016, but to date the road has remained untouched. [New diamond policy on cards]
The Gambia: 2017 Article IV Consultation report (IMF)
Following the historical transition to a democratically elected government in January 2017, the new administration has had to contend with a dire economic situation with unsustainable debt, failing SOEs, and crowding out of the private sector. Moreover, the economy was hit by economic shocks in 2016/17 (agriculture, tourism, trade). [Related: Selected Issues paper (pdf)]
Measuring the digital economy: IMF executive board discusses new policy paper (IMF)
The paper assesses the current state of play in measurement of the digital sector in macroeconomic and financial statistics, recommending steps to overcome the measurement challenges posed by digitalization. It focuses on a digital sector comprising the producers at the core of digitalization: online platforms, platform-enabled services, and suppliers of Information and Communications Technology goods and services.
Today’s Quick Links: @rodrikdani: Boy, is this an eye opener! Anyone who thinks ISDS provides an acceptable bypass for domestic jurisprudence should read this Zimbabwe’s 2017 Human Development Report is posted: Towards building a climate resilient nation ZAS director Dr Eve Gadzikwa: Zimbabwe must strive for international trade standards SADC-Parliamentary Forum gears up for governance index Competition in the telecommunications sector in Kenya: IEA-Kenya memorandum Enhance trans-boundary basin management: here are some useful tools OECD Working Party of the Trade Committee paper: Market opening, growth and employment (pdf) 2018 ECOSOC Partnership Forum: Business leaders challenged to invest in a more sustainable future for all |
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Intra-Commonwealth trade and investment to exceed US$1.5 trillion
Intra-Commonwealth trade and productive greenfield investment is expected to reach US$1.6 trillion by 2020, in spite of the global trade slowdown caused by the 2008 financial crisis.
This rising share of intra-Commonwealth trade and investment underscores the growing significance of Commonwealth markets for member countries, according to a new report by the Commonwealth Secretariat.
The Commonwealth Trade Review 2018 says proactive policy measures such as improving trade facilitation or tackling non-tariff barriers could trigger even greater gains for member countries.
In 2017, cumulative intra-Commonwealth greenfield foreign direct investment was estimated at $700 billion, creating 1.4 million jobs through 10,000 projects. The Secretariat projects intra-Commonwealth greenfield investment – when a parent company establishes its operations in a foreign country – could reach $870 billion by 2020.
Trade among Commonwealth countries grew to just under $600 billion in 2016 and is expected to increase by at least 17 per cent to around $700 billion by 2020. Together, intra-Commonwealth trade and greenfield investment is expected to surpass $1.5 trillion.
“This is a remarkable indication of the power of Commonwealth connection and of the benefits that accrue to member countries as a result of Commonwealth Advantage, particularly with world trade only now emerging from the unprecedented slowdown triggered by the financial crisis a decade ago,” said Commonwealth Secretary-General Patricia Scotland.
She added: “With rising protectionist sentiments and a backlash against globalisation in many countries, the role of the Commonwealth becomes increasingly important as a positive influence for strengthening trade links across boundaries and building prosperity in which all can share.”
The review found that Commonwealth countries, overall, are less protectionist and tend to apply fewer harmful measures against fellow member countries.
On average, Commonwealth members enforce commercial contracts much faster, taking 20 per cent less time compared to the world average. “This finding is a significant selling point for boosting investor confidence in the Commonwealth,” the report’s authors said.
Their research also explores how Commonwealth members can harness new technologies, especially digitisation, to strengthen their domestic trade governance, further reducing costs and fostering new trade and investment.
The new research reinforces earlier studies into ‘Commonwealth Advantage’ by which Commonwealth members tend to trade 20 per cent more, save around 19 per cent in costs and generate 10 per cent more foreign direct investment inflows.
Secretary-General Scotland said: “Our trade review shows that economic and governance ties in the Commonwealth provide ready and robust foundation fabric from which collectively as a family of nations we can tailor a future that is fairer, more sustainable, more prosperous and more secure”.
The new research was prepared ahead of this month’s Commonwealth Heads of Government Meeting, taking place in London. Intra-Commonwealth trade and investment will be a major issue under discussion with member countries seeking to expand markets and increase growth.
Strengthening the Commonwealth Advantage: Trade, Technology, Governance will be officially launched on 11 April in London.
Download: Commonwealth Trade Review 2018 (pdf)
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Air Freight Monthly Analysis – February 2018: Africa tops the international growth chart once again
Strong start to 2018 for FTK growth, but upward trend has eased
Demand for air freight has benefited in recent years from a stronger global trade backdrop, as well as an inventory restocking cycle. The latter factor helped air freight growth to outperform global goods trade in 2017 by the widest margin since 2010. That said, while year-on-year freight tonne kilometres (FTK) growth rates remain robust, there are increasing signs that the best of the upturn for air freight is now behind us.
But the upward trend has slowed since mid-2017
This is perhaps most apparent in the change in trend in SA FTKs since the middle of last year. Having risen at a double-digit annualized rate between late-2016 and mid-2017, industry-wide FTKs have now trended upwards at an annualized pace of just 3% since September. Unless the trend accelerates over the coming months, the year-on-year FTK growth rate is set to fall back below its five-year average (5.0%) in May.
More generally, the moderation in the SA FTK trend ties in with a softer picture from leading indicators, particularly the new export orders component of the global manufacturing Purchasing Managers’ Index (PMI). This measure remains consistent with positive year-on-year FTK growth in H1 2018, albeit at less stellar rates than we saw during the middle of 2017 (broadly in the region of 4.5-5%).
Demand drivers are shifting away from their highly supportive levels
It is worth noting that the new export orders component of the manufacturing PMI has softened in a number of key exporting countries in recent months, perhaps partly reflecting heightened concerns of a trade war. While the series generally remain above the notional 50-mark that is consistent with increasing demand for manufactured goods exports, order books in some countries – notably Germany, China, and the US – are no longer growing as quickly as they were a year ago.
Given that demand for air freight tends to be the strongest at the start of economic and trade upturns, this further illustrates the gradual shift in the demand drivers away from the highly supportive levels that were in place throughout 2017.
Solid FTK growth expected in 2018 as a whole
Despite the moderation, we continue to expect industry-wide FTKs to grow in the region of 4.5% in 2018 as a whole. Following the very strong growth performance seen in 2017 this would still be a robust outcome. (Note that carry-over effects from last year mean that even if FTKs were to just trend sideways in SA terms from their current level over the rest of 2018, this would still be consistent with 3% FTK growth over the year as a whole relative to 2017.)
Nonetheless, the recent pick-up in protectionist measures and the prospects of a global trade war arguably mean that the risks to the broader trade outlook are on the downside. This is an issue that we will continue to monitor closely in the months ahead.
Demand trend has fallen below that of capacity
Available freight tonne kilometres (AFTKs) grew by 5.6% year-on-year in February 2018, and by 4.9% in Jan-Feb combined. As a result, the industry-wide load factor rose by 0.5 and 1.1 percentage points respectively in annual terms over each period.
That said, the slowdown in the upward trend in SA FTKs means that demand is now currently trending upwards at a slower pace than capacity.
A mixed picture for international FTK growth
International FTKs grew by 7.7% year-on-year in February, down from 9.1% in January.
Africa tops the int’l growth chart once again
African airlines fly less than 2% of global FTKs but topped the international FTK growth chart in February for the 17th time in 18 months. As we have noted before, the strong growth seen in African airlines’ freight volumes has partly reflected higher volumes between Africa and Asia, on the back of ongoing foreign investment flows into Africa from the latter. While the surge in traffic looks to have stabilized, FTKs on the market segment were still nearly 24% higher in January 2018 than they were a year ago.
© International Air Transport Association, 2018. Air Freight Monthly Analysis – February 2018. Available on IATA Economics page.
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Pioneering One Africa: The companies blazing a trail across the continent
African business is integrating Africa – economically and otherwise. It has been a long time coming, and plenty of hurdles remain, but the economic integration of the continent, which many see as key to its continued development, is manifest. Driving it are indigenous entrepreneurs and fast-growing African companies, as well as multinational corporations (MNCs).
Since 2010, BCG has been tracking business and economic development in Africa, with a focus on the roles of leading African companies and MNCs. Our first report examined global competitors newly emerging from Africa.[1] Our second report looked at the changing development model of Africa and how companies needed new approaches in fast-changing business environments.[2] And our most recent previous report analyzed how nimble, agile, and fast-growing African companies were often beating MNCs at their own game.[3]
This report continues to track the progress of African companies, focusing on how they are driving the continent’s economic integration by expanding their operations and their capabilities. Their activities are starting to overcome the barriers that have long restricted African nations from greater business and economic interaction.
African companies look to Africa first for growth, and removing barriers is crucial to their strategies. Their primary goal, of course, is to build value for their owners, but they understand that their activities also further economic and social development, and that this dynamic creates environments in which their businesses can thrive. Integration is therefore both a strategy and a highly desirable outcome.
Fragmentation: A barrier to business
Businesses often mention fragmentation, in its many forms, as a problem in Africa:
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“It costs less to ship a car from Paris to Lagos than from Accra to Lagos.”
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“Getting visas in Africa, especially for my African staff, is a nightmare.”
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“Africa is an interesting market – but so fragmented. Many countries are just too small. How can I generate critical mass? Where should I start?”
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“There is no ‘One Africa,’ but a collection of many different markets.”
Start with simple geography – that’s far from simple. Africa is vast, but only a handful of its cities have populations of 4 million or more, and they are dispersed across the continent. Direct flights are few, and flight times are long – the longest in the world, on average, at 12 hours between cities, including connections.
From any city in Europe, you can reach the countries aggregating 70% of Europe’s GDP in 3 hours or less. In Southeast Asia or Latin America, a comparable trip takes 8 hours. It Africa, a similar journey requires 15 hours – one full waking day.
Then there’s the issue of geopolitical and economic fragmentation. Africa has 54 sovereign countries – more than four times the number in South America and triple the number in East Asia. Most African countries are small in population and economic activity, if not in landmass. It takes 24 African nations to aggregate $1 trillion in GDP – far more than any other region of the world.
More important, most of Europe has combined into a single trade zone, the EU. In contrast, Africa has 16 trade zones, many more than South America (which has 6) and East Asia (which has 1). Four-fifths of African nations require a visa to visit. The Abuja Treaty, signed in 1991, contemplates an African Economic Community, but progress toward continent-wide free trade has been slow and uncertain and involves multiple steps, including the creation of multiple regional economic communities in 1991, a continent-wide customs union in 2019, a common market in 2023, and projected economic and monetary union in 2028.
Logistical fragmentation is yet another concern. Despite many new infrastructure initiatives, Africa lacks major road and rail networks to connect people and businesses across the continent – and many of the roads and rail lines that do exist are in poor repair and end at nations’ frontiers. This greatly increases the cost of doing business. We calculate that the average cost of shipping and distributing goods to market in Africa is equal to 320% of their value, compared with 200% in South America and 140% in East Asia and North America.
Fragmentation in Africa is much greater than anywhere else in the world, and it adds significantly to the economic challenges facing countries that typically lack the critical mass to compete globally.
Continued growth and integration
Despite the barriers of fragmentation, economic integration in Africa is not only taking place, but also gathering speed. We see more signs of this progress with each passing month, quarter, and year. The primary drivers come from within the continent, led by African business. Africa invests more in Africa, Africa trades more with Africa, and Africans travel more to Africa.
Four statistics – covering foreign direct investment, goods trade, M&A, and people – provide insight into the key advances. Between 2006-2007 and 2015-2016, the average annual amount of African foreign direct investment – money that African companies invested in African countries – nearly tripled, from $3.7 billion to $10 billion. Over the same period, the average number of yearly intraregional M&A deals jumped from 238 to 418, with African-led transactions representing more than half of all African deals in 2015.
Meanwhile, average annual intra-African exports increased from $41 billion to $65 billion. And the average annual number of African tourists (Africans traveling in Africa) rose from 19 million to 30 million. African tourists made up more than half of all tourists on the continent in 2015-2016.
Introducing 150 Pan-African Pioneers
We have identified 150 companies that are blazing a trail toward a more integrated Africa. They consist of 75 Africa-based companies and an equal number of MNCs that have established impressive track records in Africa and are contributing to further integration. The African pioneers come from 18 countries on the continent: 32 are based in South Africa and 10 in Morocco; Kenya and Nigeria are home to 6 each; 4 are from Egypt; and 2 each come from Côte d’Ivoire, Mauritius, Tanzania, and Tunisia. The MNCs are a global group, with France, the UK, and the US most strongly represented. At the same time, a dozen MNCs from China, India, Indonesia, Qatar, and the UAE are active across Africa.
In our 2013 Winning in Africa report, we highlighted characteristics that winning companies had in common. Many of these factors define how the pioneer companies expand, grow, and create value – not only for their owners and employees, but also for the countries in which they do business. African pioneers do eight things:
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They actively expand their footprint.
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They make greenfield investments.
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They use M&A to expand.
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They build brand recognition.
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They innovate locally.
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They develop a people advantage.
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They build local ecosystems.
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They connect Africa by facilitating the movement of people, goods, data, and information.
Connecting the continent
A number of companies operating in the telecommunications, media, finance, and transportation sectors (among others) are contributing to the integration of Africa in varied ways. They facilitate communication, interaction, and the movement of people, goods, information, and money among African countries and between these countries and the rest of the world.
One of the largest companies on the continent, with a market cap approaching $70 billion, is South Africa’s Naspers, which provides television, print media, internet services, technology products, and book publishing in multiple countries. Its digital satellite TV platform serves 8 million subscribers in sub-Saharan Africa, and it launched a budget option, GoTV, to bring digital TV within the means of millions more.
Ethiopian Airlines flies to more destinations in Africa than any other carrier, and it currently serves about 100 international destinations from its hubs in Africa. The airline is also the continent’s largest cargo operator, as measured by volume. The inauguration in 2017 at Addis Ababa Airport of Ethiopian Airlines’ $150 million, state-of-the-art cargo terminal, with the capacity to handle 1 million tons of cargo per year, enhances the carrier’s ability handle fresh produce and pharmaceutical products.
The challenges ahead
African Lions and MNCs alike face plenty of challenges, starting with fragmentation in all of its manifestations and extending through the difficulties of attracting and retaining talent and managing a plethora of local stakeholders. But if the past decade has demonstrated anything, it’s that these companies can overcome adversity masterfully.
They’ve built impressive track records of creating value for themselves and advancing the development of the continent – and its many economies – against the odds. They have a strong tailwind of momentum. They understand the challenges ahead, and they know that continuing to drive the integration of the African markets where they do business is one key way to pave the road to greater success. By trailblazing the much-needed economic integration of Africa, these companies are making a difference for African business and economic development.
This article was first published by The Boston Consulting Group. Visit the BCG website to view the full publication.
[1] See The African Challengers: Global Competitors Emerging from the Overlooked Continent, BCG Focus, May 2010.
[2] See Winning in Africa: From Trading Posts to Ecosystems, BCG Focus, January 2014.
[3] See Dueling with Lions: Playing the New Game of Business Success in Africa, BCG Focus, November 2015.
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IMF Executive Board 2017 Article IV Consultation with The Gambia
On March 22, 2018, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with The Gambia.
The Gambian economy has started to recover, following the sharp growth slowdown in 2016. For 2017, economic growth is estimated at 3.5 percent with a better agricultural season and a strong rebound of tourism and trade. Headline inflation has declined from 8.8 percent in January 2017 to 6.4 percent in January 2018, reflecting the stabilization of the dalasi and a gradual decrease in food prices.
With much-improved fiscal discipline and external financial support, the Dalasi has remained stable since April and gross international reserves increased from 1.6 months of import cover at end-2016 to 2.9 months at end-2017. The Executive Board also granted a waiver.
The authorities’ commitment to the staff-monitored program (SMP) is strong. Performance under the program was broadly satisfactory, including good progress in implementing the structural agenda despite severe capacity constraints. The Managing Director approved the authorities’ request for an extension of the SMP by six months to end-September 2018. This will provide more time to establish a track record of performance for the transition to an arrangement under the Extended Credit Facility (ECF) to which the authorities aspire.
Over the medium term, The Gambia can achieve a more robust growth path. This will require continued strong policy implementation and effective fiscal reforms, including ensuring debt sustainability. The authorities are committed to further national development through the planned strong expansion of reliable and affordable electricity by 2020, and increasing the economy’s productivity by promoting irrigation and commercial agriculture, light manufacturing, tourism, and continued infrastructure investment.
Staff Report
Background
The Gambia is a small, fragile country which just transitioned to a democratically elected government after 22 years of autocratic rule. With a population of two million and GDP per capita of $469 in 2016, the country’s development has been hampered in recent years by weakening governance and institutional capacity.
Reliant on rain-fed agriculture, tourism and trade, The Gambia’s economy is vulnerable to exogenous shocks and carries the burden of economic mismanagement of the previous regime. Lack of economic diversification, combined with the absence of an efficient irrigation system, makes national production sensitive to external demand and weather-related shocks. In addition, more than two decades of poor economic management, including frequent fiscal slippages, sizable unbudgeted bailouts of SOEs, weak PFM, and massive embezzlement by the previous regime have resulted in high public debt and financial sector vulnerabilities.
The political situation is now stable and the new administration is committed to restoring economic stability and debt sustainability. The parliamentary elections in April 2017 resulted in an absolute majority in support of the new government, creating a more supportive political environment for reform, though maintaining cohesion in the seven-party ruling coalition will be key to maintaining political stability and achieving consensus around policy objectives. Local elections are scheduled for April 12, 2018.
The authorities are taking steps to strengthen governance and the rule of law, and fight corruption. The president and all cabinet members have declared their assets to the Ombudsman. Public expenditure reviews are underway with help from the World Bank, and a security forces reform has recently been kicked off. The authorities are also working on setting up a Truth, Reconciliation and Reparation Commission as well as a Human Rights Commission, and on the legal framework for an Anti-Corruption Commission, with UNDP support. A Commission of Inquiry has been set up and is unearthing previously unknown instances of embezzlement and theft by the former regime. The work of the commission will provide an important input to the special audits of SOEs. While the authorities are still investigating the financial dealings of the former president and his associates, they haven frozen their remaining assets in The Gambia and are also pursuing recovery of assets held abroad, with support from the World Bank’s StAR Initiative – meanwhile the United States has also frozen assets of the former president. The Gambia was readmitted to the Commonwealth in February 2018.
Box 1. Strategy for Addressing Fragility
The Gambia is marked by five aspects of fragility. First, the country is exiting from 22 years of Jammeh rule and embarking upon a historic transition to democracy. A newly elected government took power in January 2017, after a tumultuous election and political impasse, and early parliamentary elections were held in April 2017. Second, decades of Jammeh rule have weakened economic institutions and institutional capacity, which has hampered effective macroeconomic management. Third, The Gambia is also economically fragile, stemming from high susceptibility to weather-related shocks, past fiscal slippages and theft of funds by the previous regime. Fourth, limited recent progress on improving socio economic indicators may accentuate frailties in The Gambia’s social fabric, such as inter-tribal rivalries. Fifth, provision of vital infrastructure and services, such as reliable electricity, is weak.
Debt sustainability
An updated debt sustainability analysis (DSA) indicates that The Gambia is currently at high risk of external debt distress. While external debt stock indicators have deteriorated since the June 2017 DSA, and all five external debt burden indicators breach their indicative thresholds in the baseline scenario, external debt service indicators have improved in the near-term and the level of external concessional financing in place has increased. The outlook for total public debt and public gross financing needs has also improved, the latter significantly. However, vulnerabilities are substantial: the stress test results illustrate the country’s high vulnerability to shocks, total public debt is expected to remain elevated throughout the projection period, rollover risks associated with the short maturity of domestic debt are significant, and contingent liabilities related to SOEs debt pose additional risks. However, high and stable remittances provide a reliable source of foreign exchange, and an upcoming GDP rebasing may improve the debt stock indicators somewhat.
A higher level of external support, including grant-only financing of the NDP, could significantly reduce The Gambia’s debt vulnerabilities. An alternative scenario incorporates a restructuring of bilateral external debt, improvement of the terms of the lending pipeline, and an increase in grant-financing to fund the national development plan. This scenario assumes full financing of the NDP as outlined above, entirely through external grants, and incorporates assumed debt rescheduling by all bilateral and plurilateral creditors in line with the rescheduling provided by Saudi Arabia as well as a softening of terms on existing commitments to a grant element of 50 percent through a combination of reducing interest rates, extending maturity and grace periods, and substituting grants for loans. Under this scenario, the debt service indicators would immediately fall below their relevant thresholds, and remain at manageable levels throughout the projection period. The paydown of domestic debt in the early years would quickly reduce gross financing needs to more manageable levels. Nevertheless, the space for new external borrowing (even on highly concessional terms) is very limited and would need to be reserved for development projects with the highest priority.
Policy Discussions
The authorities remain committed to breaking with the economic mismanagement of the past regime, restoring macroeconomic stability and fiscal sustainability, and boosting growth. Their key economic objectives are to restore macroeconomic stability and attain sustained high and inclusive growth to promote socio-economic development. Starting from a very weak legacy position, this will require careful sequencing: (i) Restoring macroeconomic stability and fiscal sustainability, including through fiscal consolidation, SOE reform and external financial support; (ii) fostering debt sustainability by implementing the debt strategy and securing grants and limited highly concessional external loans; (iii) mobilizing resources for carefully prioritized social and infrastructure investment without endangering debt sustainability; and (iv) creating an environment conducive to private sector initiative, including by safeguarding financial stability, strengthening governance and fighting corruption.
Private sector development and inclusive growth
In recent years, The Gambia appears to have lost its competitive edge over neighboring and comparator countries. While the factors that have deteriorated the most include the macroeconomic environment (which is already being addressed) and sectors already identified in the NDP (education, health, infrastructure), access to financing clearly shows a massive deterioration reflecting the crowding out of the past as well as structural factors.
Structural measures could support private credit growth and access to financing. These include strengthening laws that protect property and creditor rights and their enforcement in a swift manner; promoting credit information systems and collateral registries, including strengthening the operational effectiveness of the credit reference bureau and movable collateral registry; and fostering financial literacy. Other measures to increase financial inclusion include establishing an SME financing scheme, expansion of banking access in rural areas, including through microfinance and mobile banking, and addressing gender inequality issues. Over the medium-term, these should be accompanied by appropriate regulatory and supervisory frameworks.
The Gambia currently lags its regional peers in addressing income and gender inequality gaps. Currently, The Gambia performs poorly compared with benchmark countries on income and gender inequality. While there have been positive gains, particularly in education and health outcomes, high rates of poverty and gender inequality persist, particularly in rural areas. Strengthening inclusion in The Gambia could improve real GDP per-capita growth by 0.5 percent of GDP, in addition to better social outcomes. Boosting female participation in the labor force and in decision making positions would be supported by removing legal inequalities, including in land tenure, prioritizing women’s education, and provision of infant care, among other measures.
New National Development Plan provides key strategic directions
A new National Development Plan (NDP) covering 2018-2021 has just been finalized. The NDP was formulated in a broad consultative process and aims at delivering “good governance and accountability, social cohesion, and national reconciliation and a revitalized and transformed economy”. It seeks to achieve this overarching goal through eight strategic priorities, including restoration of good governance and the rule of law; economic stabilization, accelerated growth and structural transformation; modernization of agriculture and fisheries, and promotion of tourism; improved education and health services; infrastructure development and restoration of energy services; and making the private sector the engine of growth. While the costing of the NDP is still ongoing, the authorities indicated that it will likely be around $1.8 billion. They hope to mobilize substantial grants to finance the NDP at the International Conference planned for May 2018.
Selected Issues paper
Financial benchmarking of The Gambia
Although The Gambia has significantly developed its financial sector over the past decade, there are areas of financial inclusion, depth and efficiency requiring continued improvement. In the near term, efforts should focus on sustainable private credit expansion facilitated by strengthened risk management, promotion of healthy financial competition and a conducive business environment. However, it is essential that private credit growth is gradual without weakening credit underwriting standards and commensurate with current economic activities to prevent any financial stability concerns from future NPLs. To fully reap the economic benefits of financial development, policy priorities should also be given to strengthening the supervisory and regulatory framework and financial infrastructure, supporting also financial innovations, and improve financial literacy to support financial access.
Background
The Gambia’s financial sector is dominated by banks albeit with a significant presence of non-bank financial institutions (NBFIs). The sector is generally shallow and underdeveloped with no capital market. It comprises mainly banks, insurance companies, microfinance institutions, village savings & credit associations (VISACAs), credit unions and a state pension fund. The banking industry comprises 11 commercial banks and one Islamic bank. Although all banks are domestically-incorporated, eight of them are foreign subsidiaries of mainly Nigerian origin. One of the four domestically-owned banks (Mega Bank) is under the Central Bank of the Gambia’s (CBG) recovery and resolution procedures.
The banking system accounts for more than 80 percent of total financial assets of the financial sector and is itself highly concentrated. Four of the twelve banks 3 (based on assets size) are domestically systemically important banks (D-SIBs) and jointly account for about 69 percent of industry total assets and 74 percent of all deposits. Overall, the banking industry holds around 77 percent of all outstanding sovereign assets, and at least 41 percent (GMD 14.7 billion) of the industry’s assets are short-term government securities – mainly T-bills. This exposure is in addition to GMD 297.7 million in credit to the central and local governments, and public enterprises. Government’s heavy reliance on the T-bill market stems from protracted fiscal imbalances due to ballooning public expenditures, a low revenue base, and fiscal bailouts of struggling state owned enterprises (SOEs).
Empirical Analysis of Level of Financial Development
Financial Access
Despite its low level of financial development, The Gambia performs relatively well with respect to key access indicators at the national level. For instance, the country has a good level of financial access measured by indicators such as number of bank accounts per 1000 adults or number of bank branches per 100,000 adults. This was helped by the rapid rise in branch expansion in the last decade, with the number of banks doubling from seven in 2006 to fourteen in 2010. The period also coincided with the influx of new banks – partly due to the country’s aggressive policy of attracting foreign direct investment (FDI) at the time, partly due to increased competition among banks elsewhere in West Africa. Branch density stagnated from 2011 onwards, due in part to the exit of two banks and a weaker macroeconomic performance. However, notwithstanding recent gains in financial access, there is still significant room for improvement when it comes to the geographic dispersion of the financial institutions network. For instance, while 80 of the banking industry’s 87 branches are clustered in the Kanifing, Banjul, West Coast and the North Bank regions of the country, there are only four bank branches in the Upper River Region, one in the Lower River Region and no bank presence in the Central River Region. Similarly, with the exception of the North Bank and the Upper River regions which each have two ATM machines, 96 percent of the country’s 99 ATM machines are found within the Banjul, Kanifing and West Coast regions.
A comparison with the peer SSA and LIC countries also shows that The Gambia financial services coverage has surpassed many regional peers except with respect to private credit provision. The Gambia remains in the upper half of the rankings when benchmarked against SSA and LIC countries. Similar results were observed when benchmarked against other West African Monetary Zone (WAMZ) member countries in terms of number of branches per 100,000 adults. Moreover, it only lagged behind Ghana when assessed for the number of accounts per 1000 adults. A quantile regression analysis used to control for outliers in the data and the influence of non-policy related structural differences such as economic and demographic factors also shows similar performance. Notwithstanding, the country lags behind all its regional peers when assessed for financial inclusion based on percentage of firms with credit lines largely reflecting the crowding out effects of fiscal dominance.
Financial Depth
Efforts to improve financial deepening in The Gambia have stalled primarily due to fiscal crowding out and structural issues. The growing need for fiscal financing has led to a decline in private sector credit from 17.4 percent of GDP in 2011 to 12.8 percent of GDP in 2015, including by pushing up average lending rates to a high of around 28 percent in 2016. This has pushed the country’s performance with respect to private sector credit below the average for LICs and below its expected median (using the quantile regressions, after controlling for outliers in the data and the influence of non-policy related structural differences). Similarly, the performance of NBFIs, as indicated by insurance company assets-to-GDP ratio, trails the average for SSA, and the quantile regression shows that more recently the ratio was in line with the expected median through 2013 and then declined to the 25th percentile by 2015. By contrast, the country performs much better when financial depth was assessed based on the bank deposits-to-GDP ratio. The country’s score was above the regional average, the average for peer countries and its own expected median. While this very high ratio depicts good financial depth, it may also reflect limited alternative investment opportunities.
The structure of banks’ balance sheets is also holding back financial deepening. The industry’s liabilities are almost entirely short-term, which helps to explain the lack of appetite for long-term financing to avoid large maturity mismatches. Beyond this, difficulties in contract enforcement and foreclosures, software problems affecting both the credit referencing platform and the collateral registry, are a few of the structural problems that have an adverse impact on financial deepening.
Policies to Support Financial Development
Financial development facilitates efficient resource allocation and promotes economic growth. Moreover, recent analytical work has shown that there is significant scope for financial development to contribute to the new government ‘s drive to enhance inclusive growth. However, in order to achieve this objective, concrete efforts must be taken to address structural and policy challenges affecting the financial system as a whole. In addition to the policy recommendations in the previous section, the following could be considered:
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Strengthen the legal, regulatory and institutional frameworks to promote healthy financial competition and improve financial infrastructure. Efforts are needed to strengthen property and creditor rights protection, contract enforcement; to improve bank regulation and supervision in compliance with Basel Core Principles (BCP); strengthen the bank resolution and crisis management framework to allow the orderly exit of insolvent financial institutions; and upgrade the financial safety net, including the set-up of deposit insurance scheme in the long-run, to mitigate the associated impacts.
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Maintain a flexible adoption approach to financial innovations while being vigilant to and prepared to mitigate its potential risks. For example, support mobile banking for financial inclusion by revising the legal and regulatory frameworks while setting up new oversight standards and institutional arrangement for e-payment.
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Formulate a strategy for financial inclusion. The authorities should formulate a financial development plan and strategy with a view to reaching out to the unbanked part of the population. The plan will also support its social protection and women empowerment objectives contained in the current NDP. Such a plan could also include a strategy to support VISACAs and credit unions, and by extension, SME credit through credit guarantee schemes.
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tralac’s Daily News Selection
Decisions, declarations and resolutions of the Assembly of the African Union (29-29 January): extracts
(i) Declaration on internet governance and development of Africa’s digital economy. Undertake to ensure legal and regulatory environments that will enable growth of Africa’s digital economy through innovative applications and services, making the Internet central to Africa’s development agenda; Request the Commission and NPCA, in collaboration with other key stakeholders, to assess Africa’s digital economy to determine areas that need strengthening or development of new policies in line with stimulating the growth of Africa’s digital economy; Further request the Commission to work with relevant stakeholders to develop a common African Program of Action on Internet Governance, which will ensure that the rights of Africans on the Internet are promoted and upheld, and that African concerns are recognized in the global Internet Governance regime;
(ii) Decision on the progress report on the status of implementation of the Assembly Decision on institutional reform of the African Union. On financing the Union: That the membership of the Committee of Ministers of Finance shall be expanded from 10 to 15 members, i.e., three Member States per region. In this regard, the Committee will be called the Committee of Fifteen Ministers of Finance (F15). To endorse the F15 budget oversight role and function based on the following six primary duties: (i) Comparing the expenditure and the rate of results achievement; (ii) Establishing a baseline for the following financial year’s budget; (iii) Ensuring alignment between the budget and results achieved; (iv) Ensuring the link between revenue forecasts and affordability; (v) Ensuring that the proposed budget does not pose any unsustainable risk over the long term.
(iii) Related: Executive Council decision on the Pan African Investment Code: Requests the Commission to submit the draft revised Pan African Investment Code to the STC on Trade, Industry and Minerals, as well as the relevant STCs, for consideration and refer to the STC on Legal and Justice Affairs for further consideration prior to their submission to the Executive Council.
Why the African Continental Free Trade Area should be digitized (Ventures Africa)
Ventures Africa spoke to Microsoft’s Director for Corporate Affairs in Africa, Mr Louis Otieno, last week on the sidelines of the Africa CEO Forum in Abidjan. He says Africa needs to digitize its Free Trade Area to enable it to incorporate at scale. “Digital data flows is what defines the economic area as opposed to traditional boundaries,” he said. “For Africa to complete globally with the likes of China, we have to incorporate at scale. We have a billion people, which makes us a viable market today, with the youngest billion people, which makes us a viable market tomorrow.” [Digital economy data gap risks widening inequalities, UNCTAD says]
Rwanda’s statement on suspension of AGOA eligibility: full text
The notification by the United States on suspension of duty-free status for Rwandan apparel products under the African Growth and Opportunity Act follows a decision by East African countries to raise tariffs on second-hand clothing imports, in order to promote local manufacturing capacity in garment and other industries. AGOA is a commendable unilateral gesture to African countries, including Rwanda, meant to promote trade and development through exports. The withdrawal of AGOA benefits is at the discretion of the United States.
Related: Tanzania, Uganda survive as Rwanda is removed from AGOA beneficiaries list; USTR statement: President Trump determines trade preference program eligibility for Rwanda, Tanzania, and Uganda; Secondary Materials and Recycled Textiles Association: statement in response to USTR decision;
Notice of an open meeting of the President’s Advisory Council on Doing Business in Africa (18 April, Washington)
Mauritius-China FTA talks: update (GoM)
Mauritius and China reiterated their determination towards consolidating economic and trade relations by signing the agreed minutes pertaining to the first round of negotiations on the Mauritius-China Free Trade Agreement yesterday. The signatories were the Director of Trade Policy, International Trade Division of the Ministry of Foreign Affairs, Regional Integration and International Trade, Mr Narainduth Boodhoo, and the Head of the Chinese delegation, and Deputy Director General, Ministry of Commerce, Mr Hu Yingzhi. Mr Boodhoo said a joint feasibility study was finalised in May 2017 after which negotiations discussing the framework agreement kick-started. Now, the following step, he emphasised, will be to complete detailed negotiations relating to market access of both countries after rigorous internal consultations. The next meeting will be held in Beijing during which both countries will proceed to the official exchange of requests regarding market access, Mr Boodhoo announced.
La Réunion region opens economic office in China (Future Directions)
On an official visit to China, the president of the La Réunion regional government, Didier Robert, has opened a Regional Economic Office in the northern port city of Tianjin. Alongside a push for direct air links between Tianjin and Saint-Denis de la Réunion, the office is intended to facilitate economic and tourism links between China and the French Indian Ocean département. A major shipping port, Tianjin is the fifth most-populous city in China and is also home to the fast-growing Binhai New Area.
Egypt’s export authority organizes 1st trade mission to Brazil (Egypt Today)
The first trade mission to Brazil comes in coordination and cooperation with the Egyptian Commercial Service Office, Arab Brazilian Chamber of Commerce and the Egyptian Commercial Service office in Sao Paulo. The mission coincides with the Arab-Brazilian Forum that organized by the Arab Brazilian Chamber of Commerce, along with the Union of Arab Chambers. Egypt’s exports to Brazil increased by 64.7% year-on-year in 2017, to stand at $155.4m, compared to $94.3m in 2016. The Brazilian Ambassador to Cairo, Roy Amarell, said earlier that entering the Mercosur Agreement into force will enhance trade and investment with Egypt, noting that Egypt is the main importer of Brazilian products in Africa.
Canada’s new Feminist International Assistance Policy and Africa trade and development cooperation: policy brief (UNECA)
Canada’s new Feminist International Assistance Policy represents a clear shift in emphasis for existing and future development assistance programming in Africa and in the developing world as a whole. The implications for trade and development cooperation will become more precise as Canada finalizes its implementation plan for the policy. What is nevertheless clear now is that changes in emphasis will be required. Current projects are already seeing some of their plans modified to meet the policy guidelines, and development partners should be prepared to show flexible thinking and broader scope to meet the objectives of the policy.
Without new money to fund its implementation, the Government of Canada will be looking at strategic solutions and innovative financing to test the application of the new Feminist International Assistance Policy. The advantage for Africa is the emphasis on innovation in the policy, in addition to the deliberate attempt to bring in new voices and perspectives into Canadian development assistance programming. There is therefore clear space for Africa to promote its own progressive and inclusive trade agenda through a partnership with Canada.
Three African Dialogues on fiscal policies and contract negotiation in the extractive industries (Nepad)
This paper reports and reflects the experiences and voices of a wide group of African senior government officials heard at the three NEPAD “dialogues” held between 2015 and 2017 in Senegal, South Africa and Cameroon. Over 30 African countries were represented, as well as Regional Economic Communities.
Rwanda: Only 40% of industrial food products meet all standards: NIRDA report (New Times)
The study was carried out by National Industrial Research and Development Agency between July last year and February 2018 to ensure agro-processing industries use one of the important tools known as “Hazard Analysis Critical Control point: HACCP”. The system calls for safe techniques averting any contamination of processed foods. According to the analysis, agro-processing is the largest manufacturing sub-sector constituting 80% of the total number of local industries. However, the findings show that 60% of industrial foods from those agro-processing industries on the local market are not certified for safety and quality because they are not aware of hazards control system. 57% of industries interviewed are aware of the safety system, 22% are aware of it at a low level while 21% have no knowledge of the tool while 43% think that ‘HACCP’ system is realistic, cheap and achievable.
Rwanda: No end in sight for ban on SA agriculture imports (New Times)
The Head of Regulation at the ministry, Beatrice Uwumuremyi, told The New Times that the ban will remain in place until the South African government confirms that the outbreak has been brought under control. “The outbreak is still rampant and it will be lifted when South Africa notifies us that it is over. There is a team put in place in Rwanda to continue monitoring the situation in South Africa. The team is composed of representatives from institutions, including our Ministries of Agriculture, Health, and Trade and Industry; Rwanda Standards Board; Rwanda Agriculture Board; and Rwanda Biomedical Centre,” she said. Rwanda imports up to 60 tonnes of fruits from South Africa annually; these include oranges, apples, kiwis, pears and grapes. The ban also affected beef of which reports indicate that Rwandan hotels alone import 2.4 tonnes of beef from South Africa every month. [Zambia partially lifts ban on South African listeriosis-risky food]
Today’s Quick Links: Underway in Gaborone: SADC Directorate of Infrastructure 2018/2019 planning workshop SADC-EU Ministerial Political Dialogue, 2018: joint dialogue statement Kenya: Sugar imports drop 72% amid tighter regulator control East African states remove animal feed tax Zimbabwe: Govt launches trade facilitation roadmap Customs Union between Guatemala and Honduras: from 10 hours to 15 minutes! |
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Mauritius and China reiterate determination to consolidate economic and trade relations
Mauritius and China have reiterated their determination towards consolidating economic and trade relations by signing the agreed minutes pertaining to the first round of negotiations on the Mauritius-China Free Trade Agreement (FTA) yesterday at the Maritim Resort & Spa, in Balaclava.
The signatories were Director of Trade Policy: International Trade Division – Ministry of Foreign Affairs, Regional Integration and International Trade, Mr Narainduth Boodhoo; and Head of the Chinese delegation, and Deputy Director General: Ministry of Commerce, Mr Hu Yingzhi.
A delegation of fifteen members from the People’s Republic of China was in Mauritius to initiate negotiations on the first ever FTA between both countries and to take stock of the points that were agreed upon during the discussions. Documents were also exchanged between the Mauritian and Chinese delegations so as to determine the position of both countries regarding the possibilities arising with the implementation of the FTA.
In his statement, Mr Boodhoo, underlined that the discussions have been fruitful and constructive in gauging the discrepancies and gaps existing between the two sides with regards to the FTA. The two delegations had the opportunity to exchange views on the four aspects of the Agreement, namely: trade in goods, trade in services, investment possibilities, and economic cooperation but the main focus of this first round of discussions was on ‘trade in goods’, he pointed out.
A Joint Feasibility Study was finalised in May 2017 after which negotiations discussing the framework agreement kick-started, he recalled. Now, the following step, he emphasised, will be to complete detailed negotiations relating to market access of both countries after rigorous internal consultations. The next meeting will be held in Beijing during which both countries will proceed to the official exchange of requests regarding market access, Mr Boodhoo announced.
For his part, the Head of the Chinese delegation, Mr Hu Yingzhi, highlighted that the FTA will strengthen and expand the scope of economic cooperation between Mauritius and China as well as eliminate trade barriers. The ability of both countries to share views and negotiate, clearly demonstrates the longstanding cooperation and friendly relations that they have been sharing since 1972, he stated.
The Deputy Director General also underscored that both sides were successful in developing common grounds but more efforts will be required as regards flexibility in the level of their expectations. The first round of negotiations, he pointed out, have already laid the foundation for Mauritius-China economic, trade and investment relations in the coming years.
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No end in sight for ban on SA agric imports
Lovers of fruits imported from South Africa will have to wait longer before they can find them on the stalls in supermarkets as there is no timeframe within which the current ban on agricultural produce from the Southern African nation is expected to be lifted.
The ban, which was announced by the Ministry of Agriculture and Animal Husbandry over listeriosis disease that was rampant in South Africa, aims at preventing possible spread of the disease to Rwanda.
The ban came into force on December 19 after the disease had claimed 60 people in South Africa. The death toll has since surpassed 180.
Though treatable and preventable, listeriosis is a serious disease caused by the bacterium called listeria monocytogenes, which can be found in soil, water and vegetation.
The Head of Regulation at the ministry, Beatrice Uwumuremyi, told The New Times that the ban will remain in place until the South African government confirms that the outbreak has been brought under control.
“The outbreak is still rampant and it will be lifted when South Africa notifies us that it is over. There is a team put in place in Rwanda to continue monitoring the situation in South Africa. The team is composed of representatives from institutions, including our Ministries of Agriculture, Health, and Trade and Industry; Rwanda Standards Board; Rwanda Agriculture Board; and Rwanda Biomedical Centre,” she said.
Most apples consumed in Rwanda are imported from South Africa.
A mini survey conducted around Kigali’s supermarkets and ordinary markets showed that, though most stalls were fully stocked with fruits like oranges, pineapples, bananas, watermelons and others, the absence of apples was glaring.
Marie-Claire Nkundumukiza, a fruit vendor at Kimironko market, says that since mid-January, there have been less and less apples on the market.
“I have been selling fruits for a year now and, while we do have specific times when a particular fruit is in short supply, especially during low seasons, we had never experienced such scarcity with regard to apples,” she said.
Glycerie Umubyeyi, the proprietor of Shalom-Shalom Mini Supermarket at Gishushu in Gasabo District, said she has had to give up on apples and that it seems even her clients have given up on the fruit.
“The clients come in, pick the other fruits, pay and leave. They have been asking for three months now and it seems that they have given up. There are no apples and even when you find any in the market, one goes for Rfw500. How much would I sell it for here then?” she wondered.
At Simba Supermarket outlet in downtown Kigali, bananas dominate their fruit section, then pineapples and watermelons. Venuste Mbabazi, an attendant in this section, told The New Times that they sold their last apples in January.
Mbabazi said that the ban has not only affected apples but a couple of other fruits too.
“Besides apples, we also have a shortage of pears and grapes, all of which are imported from South Africa,” he said.
Vincent Mutabazi, a regular fruits buyer, said he had to abandon his normal shopping area in Sonatube in search of apples but in vain.
“I can’t find them anywhere, I have really looked around in vain. I have settled for other fruits available on the market,” he said.
While anyone can get listeriosis, those at high risk include newborns, the elderly, pregnant women and persons with weak immunity.
Symptoms from the food-borne disease include diarrhea, fever, general body pains, vomiting and weakness.
Rwanda imports up to 60 tonnes of fruits from South Africa annually; these include oranges, apples, kiwis, pears and grapes.
The ban also affected beef of which reports indicate that Rwandan hotels alone import 2.4 tonnes of beef from South Africa every month.
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Digital economy data gap risks widening inequalities, UNCTAD says
According to UNCTAD, those least prepared for the digital economy have less data on which to base policy decisions, threatening to widen the gap between the “haves” and the “have nots”.
A lack of data on how companies operate in the digital economy prevents many developing countries from preparing for the new economic era, a senior UNCTAD official says ahead of a global gathering on e-commerce at the United Nations’ European headquarters in Geneva.
Sound policy can’t be made without relevant information, and according to UNCTAD statistics only 4% of the world’s least developed countries have provided suitable data on how businesses use information communications technologies (ICTs), compared to around 85% of developed countries.
“Such data inform governments about the extent to which businesses of different sizes and in different industries are using various technologies to boost productivity, for example, by engaging in e-commerce, interacting with governments and banking online,” says Shamika N. Sirimanne, director of UNCTAD’s division on technology and logistics.
Seizing opportunities
Electronic commerce is growing in all parts of the world. But many developing countries remain relatively unprepared for the shift from offline to online trade. Indeed, less than 5% of the population in most of these economies buy goods and services online.
The digital economy is bringing new risks along with opportunities, and emerging technologies such as advanced robotics, artificial intelligence, the Internet of Things, cloud computing and 3D printing are disrupting economies and societies.
Governments must therefore move quickly to address the internet economy’s effects on the labour market, trade rules, data privacy, and consumer protection, to name but a few.
“To design and implement evidence-based policies, governments need to know the facts and have access to relevant statistics,” Ms. Sirimanne says. “And the more frequently governments collect this data, the better they can identify trends and adjust policies accordingly.”
Unfortunately, according to UNCTAD statistics, the availability of data drops with the country’s level of development, meaning those least prepared for the digital economy have the least amount of information on which to base their policy decisions.
“The risk is a further widening of inequalities across countries,” Ms. Sirimanne says.
What needs to be done?
According to UNCTAD, several actions are urgently needed to ensure that governments have access to the relevant statistics they need to take sound decisions related to the digital economy.
Governments need to include enterprise surveys on ICT use in their national statistical plans. In addition, the international community should offer more assistance to help countries make progress on data collection. And opportunities need to be created for developing countries to engage in an international dialogue related to data collection and analysis, to support policy making related to this topic.
Governments, the international development community, civil society organizations and businesses have the opportunity to discuss related actions at UNCTAD’s Intergovernmental Group of Experts on E-commerce and the Digital Economy, which will meet from 18 to 20 April during UNCTAD’s E-Commerce Week.
At the group’s first meeting, in October 2017, experts proposed to establish a new working group dedicated to measuring e-commerce and the digital economy, in order to help address the emerging data requirements of policy-makers in this area, and to ensure that international statistical work on the digital economy is directly linked to their policy needs. This proposal will be further discussed at this month’s meeting.
The data refer to United Nations member States, for which any data has been supplied to UNCTAD, and accepted for inclusion in the database under “ICT use by businesses”, referring to the period 2003-2016.
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tralac’s Daily News Selection
Towards a Mauritius-China FTA: trade negotiations begin (GoM)
The first round of negotiations on the Mauritius-China Free Trade Agreement kicked off yesterday. The Head of the Mauritian delegation, Ambassador Mrs U. C. Dwarka Canabady, Secretary for Foreign Affairs, said the start of talks marks an important date in Mauritius-China economic ties as both countries embark on negotiations of the first ever FTA between China and an African state. According to the SFA, it is necessary for both sides to be ambitious for the FTA to be a success, and, therefore it is important to eliminate trade barriers on core products of interest to Mauritius and China as well as on key services sectors. The Head of the Chinese delegation, and Deputy Director General, Ministry of Commerce, Mr Hu Yingzhi, said an FTA will provide an institutional guarantee for future Mauritius-China economic, trade and investment relations, further consolidate friendship ties, and contribute to added cooperation between China and Africa on a larger scale.
Statistics indicate that in 2017 total imports from China amounted to $853m and total exports to China stood at $27m. Ambassador Dwarka Canabady, recalled that China is currently the third main trading partner of Mauritius and the largest source of imports. Mauritius’s exports towards China have, however, remained limited to a narrow range of products (metal scraps, clothing, and aquatic and handmade products), and, the trade gap between the two countries remains huge, she pointed out adding that the FTA should contribute to closing this gap. [Moody’s maintains Mauritius Baa1 rating with a stable outlook]
Nairobi, Maputo team to pinpoint trade barriers (Business Daily)
Kenya and Mozambique are set to jointly form a team of experts to identify immediate barriers to trade as the two states eye investments in minerals and agribusiness to kick start commercial relations. The Joint Technical Committee will identify possible areas of cooperation, including goods and services to be traded, for discussions in Nairobi in June, officials said on Friday. Trade between Nairobi and Maputo remains at negligible levels despite national carrier Kenya Airways operating up to six flights a week on the route. [Related: Uhuru urges private sector ties with Mozambique firms; Kenya, Mozambique to link major ports]
NAMA negotiations: Egypt re-elected liaison for WTO African group (Ahram)
The WTO African Group unanimously re-elected Egypt as the liaison point for the African group in agriculture and in non-agricultural market access negotiations, Egypt’s Trade and Industry Minister Tarek Kabil announced in a statement on Monday. The re-election is in line with the Egyptian government’s strategy which prioritizes African interests on political and economic issues, Minister Kabil said. “Egypt’s election to lead the African group at this time is a renewal of the trust Africa grants to Egypt, especially with the changes within the multilateral trading system and the rise of the protectionist tendencies among developed countries.”
Zambia’s February 2018 trade surplus (pdf, CSO)
Zambia recorded a trade surplus of K694.6m in February 2018 compared with a trade deficit of K 651.8m recorded in January 2018.Imports declined by 12.2%, from K8,841.2m in January to K7,765.1m in February; exports increased by 3.3%, from K8,189.3m in January to K8,459.7m in February 2018.
Tanzania: Country Partnership Framework for FY18-FY22 (World Bank)
The Systematic Country Diagnostic for Tanzania identifies three pathways to leverage the country’s advantages to achieve the national development goals: (i) structural transformation to leverage Tanzania’s natural assets and capture latent comparative advantage to create more jobs; (ii) spatial transformation to build on Tanzania’s geographic advantages and maximize benefits from spatial integration and agglomeration; and (iii) upgrading public institutions and organizations, under-pinned by expanding human capital, gender equity, and macroeconomic stability. [BMI sees current account deficit widening in 2018 and beyond]
Tanzania: Plans underway to put cashew transporters under tight checks (Daily News)
The government is considering fixing GPS tracking systems on all vehicles carrying cashew nuts from producers to the point of export to check sabotage by dishonest transporters and traders. The minister’s remark follows a recent report indicating that Tanzania cashew nuts which were exported to Vietnam had stones. The report was handed to the minister last month. Tanzania is the largest East African country in export of raw cashew nuts to India and Vietnam. Official figures show that until February this year, the country had exported 190 tonnes out of the target of 230 tonnes during the current season.
Mauritius: Addressing inequality through more equitable labour markets (World Bank)
The report estimates that the incidence of absolute poverty between 2007 and 2012 would have declined twice as quickly had growth been shared more widely and inequality not worsened. Building on these earlier findings, this study investigates the driving forces behind the growing income inequality and identifies policy levers that could mitigate and, in the long run, possibly reverse the upward trend. This study takes a comprehensive approach to the determinants of inequality by including the role of the choices of households and individuals, markets, and institutions.
Overcoming poverty and inequality in South Africa: an assessment of drivers, constraints and opportunities (World Bank)
This report documents the progress South Africa has made in reducing poverty and inequality since the end of apartheid in 1994, with a focus on the period between 2006 and 2015. The main conclusions are as follows: First, by any measure, South Africa is one of the most unequal countries in the world. Inequality is high, persistent, and has increased since 1994. Second, although South Africa has made progress in reducing poverty since 1994, the trajectory of poverty reduction was reversed between 2011 and 2015, threatening to erode some of the gains made since 1994. [UNU-WIDER: Innovation activity in South Africa – measuring the returns to R&D]
Assessing fiscal space in Sub-Saharan Africa (World Bank)
This paper presents new empirical evidence on how fiscal space in Sub-Saharan Africa has evolved over the past 15 years. Fiscal space is a multi-dimensional concept that is proxied by indicators capturing aspects of fiscal sustainability, balance sheet vulnerabilities, external debt positions, and market perception. The analysis relies on a new comprehensive database developed on a wide array of indicators (28) for a large set of countries in the world – of which 48 are in Sub-Saharan Africa. The analysis finds that, breaking with history, Sub-Saharan African countries were able to conduct countercyclical policies amid the 2008-09 global financial crisis, thanks to built-up liquidity and policy buffers. The evidence shows that fiscal adjustment efforts in the region were reversed amid the 2014-16 plunge in commodity prices, and oil and minerals and metals exporters saw a sharp deterioration in their primary balance sustainability gap.
Parliamentary group calls on Commonwealth leaders to put trade for development at the heart of CHOGM 2018 summit
An inquiry committee of distinguished experts has today published its final report (pdf) examining the potential of the Commonwealth family of 53 nations to help its poorest countries and citizens to trade out of poverty, in line with the values of the Commonwealth Charter and the SDGs. The committee – co-chaired by Lord Jeremy Purvis of the UK and Hon. Okechukwu Enelamah, Minister for Industry, Trade and Investment of Nigeria – was established by the All-Party Parliamentary Group for Trade Out of Poverty and the UK Overseas Development Institute in September last year. The central message of the report is to call on Commonwealth leaders to establish a road-map for a major new Commonwealth work programme on trade and investment for inclusive development at the CHOGM 2018 summit in London later this month.
Global Value Chain Development Report 2017 (World Bank)
This first GVC development report draws on the expanding research that uses data on the value added in trade. Its main objective is to reveal the changing nature of international trade that can be seen only by analyzing it in terms of value added and value chains. This report highlights how shifting the analysis to value added radically changes the picture.
Paris climate agreement and the global economy: winners and losers (World Bank)
This paper estimates the economic impacts of implementation of the Paris Climate Agreement in terms of its implications for welfare, gross domestic product, investments, and trade for major countries and regions. It uses a computable general equilibrium framework to model global, regional, and country impacts. The analysis suggests that the economic impacts will be mostly felt in the European Union if the Paris Agreement is fully implemented. The European Union is likely to suffer a welfare loss of 1.0 to 1.5% by 2030.
Women, Business and the Law 2018 (World Bank)
It tracks progress that has been made over the past two years while identifying opportunities for reform to ensure economic empowerment for all. The report updates all indicators as of June 1, 2017 and explores new areas of research, including financial inclusion.
Today’s Quick Links: Botswana: President Masisi’s inauguration speech Ten years of Khamanomics: a review Namibia: A year of trade South African fruit exports to the UK: update The handshake that rebooted Kenya’s economy Guinea: Systematic Country Diagnostic Tanzania: Development of Stigler’s Gorge power generation project to start in July India imposes 10% tax on import of key smartphone components |
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Parliamentary group calls on Commonwealth leaders to put trade for development at the heart of CHOGM 2018 summit
Expert committee highlights the untapped potential of trade and investment in the bloc for lifting millions of Commonwealth citizens out of poverty
An Inquiry Committee of distinguished experts has today published its Final Report examining the potential of the Commonwealth family of 53 nations to help its poorest countries and citizens to trade out of poverty, in line with the values of the Commonwealth Charter and the Sustainable Development Goals.
The Inquiry Committee – co-chaired by Lord Jeremy Purvis of the UK and Hon. Okechukwu Enelamah, Minister for Industry, Trade and Investment of Nigeria – was established by the All-Party Parliamentary Group for Trade Out of Poverty and the UK Overseas Development Institute in September last year.
The central message of the Report is to call on Commonwealth leaders to establish a road-map for a major new Commonwealth work programme on trade and investment for inclusive development at the CHOGM 2018 summit in London later this month. The Report highlights some of the big opportunities for learning and economic co-operation between Commonwealth members, who include some of the world’s largest and richest nations as well as some of the smallest and poorest.
The Inquiry Report, Our Shared Prosperous Future: an agenda for values-led trade, inclusive growth and sustainable jobs for the Commonwealth, states that:
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With 445 million of its citizens living in extreme poverty, there is a compelling case for the Commonwealth to do much more to promote shared prosperity and inclusive economic development.
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1 in 5 Commonwealth citizens live on less than $2 per day, twice the global average
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31 of the 53 Commonwealth members are Developing Countries
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Extreme poverty is most widespread in Commonwealth Africa and South Asia
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60% of the Commonwealth population is under 30 years old
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The surest, most sustainable way to lift millions of people out of poverty across the Commonwealth is through boosting trade and investment, leveraging the group’s natural strengths and assets.
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Combined Commonwealth GDP will double by 2030 reaching $20tn
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Intra-Commonwealth trade could grow from $525bn in 2015 to $3.86tn in 2030
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Developing countries’ exports in the Commonwealth have trebled since 2005
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Trade costs between Commonwealth countries are on average 19% lower
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At the CHOGM 2018 Summit, Commonwealth leaders should grasp the opportunity and agree a major new focus on trade and investment for inclusive development, delivering in five priority areas:
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Slashing the costs and risks of trade and investment
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Boosting trade in services through regulatory co-operation
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Making trade more inclusive for women, young people and SMEs
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Addressing the special needs of small and vulnerable states
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Strengthening partnerships: Government, Business, Diaspora and Civil Society
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Minister Enelamah of Nigeria, Co-Chair of the Inquiry Committee, says:
“Developing countries and small states look to the Commonwealth as a voice of good conscience in the global trading system. They are struggling to develop, and create the jobs needed for the millions of young people joining the labour market each year. Leveraging the Commonwealth advantage can help them attract more investment and realise their untapped trading potential.”
Lord Jeremy Purvis, Co-Chair of the Inquiry Committee, says:
“Economic development is a core principle in the Commonwealth Charter, but in the developing regions of the Commonwealth this remains a major challenge. Across governments, business and civil society, there is now a real appetite to see prosperity shared more equitably, and the Commonwealth can take the lead in establishing a new trade and investment agenda, based around its shared values.”
James Cleverly MP, Co-Chair of the All-Party Parliamentary Group for Trade Out of Poverty, which established the Inquiry Committee, says:
“This Report is incredibly timely. In two weeks time, the UK will play host to the biggest ever gathering of Commonwealth leaders in London, and boosting shared prosperity is one of the priority themes of the summit. As it assumes the Chair-in-Office for the next two years, the UK has a key role to play in helping the Commonwealth family and its partners realise the potential of trade and investment to lift millions of people out of poverty.”
Dr Dirk Willem te Velde, Head of International Economic Development at ODI, says:
“Trade is a crucial component in development strategies, from building resilience to natural disasters in the Caribbean to creating new jobs in larger Commonwealth states like India, Kenya and Nigeria. An increasingly young and entrepreneurial Commonwealth population needs a dynamic trade and investment agenda that they can plug-into.”
Download the report here.
Background to the Inquiry
The All-Party Parliamentary Group for Trade Out of Poverty and ODI established the Inquiry to seek to answer the following questions:
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What challenges do developing countries (particularly least developed countries and small vulnerable island states) in the Commonwealth face in terms of harnessing trade and investment as tools to meet their development objectives? Please provide examples (personal experience and/or research findings)?
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What opportunities can be identified within the Commonwealth to foster faster, more transformative economic growth, employment and poverty reduction for developing countries through expanding trade and investment?
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What programmes and initiatives do Commonwealth institutions and member states currently offer to promote trade and investment for sustainable development? How are these regarded and is there scope to scale-up and achieve more impact? Is the Commonwealth reaching its full potential for co-operation in this area?
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How can trade and development policies and programmes be best designed to maximise the shared gains from trade and investment and reduce poverty in the Commonwealth? Are there examples of best-practice trade and development policies/initiatives that have either been or could be deployed in developing countries within the Commonwealth?
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What is the Commonwealth best-placed to do to promote prosperity amongst its developing country members compared to other development partners such as the World Bank or United Nations (UN) agencies? What should the priorities be for a new work programme for the Commonwealth on trade and development over the next 20-years?
The Inquiry Committee consists of:
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Lord Jeremy Purvis of Tweed (Co-Chair)
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Hon. Okechukwu Enelamah, Minister for Trade, Industry and Investment, Government of Nigeria (Co-Chair)
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Mr Chi Atanga, Entrepreneur and CEO, Walls of Benin U.K
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Ms Catherine Clark, Head, International Relations, Prudential plc
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Ms Patricia Francis, former Executive Director, WTO-UNCTAD International Trade Centre
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Ms Trudi Hartzenberg, Executive Director, Trade Law Centre, Southern Africa (tralac)
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Ms Lisa McAuley, former CEO, Export Council of Australia, and Executive Director, Global Trade Professionals Alliance
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Mr Steven Pope, Vice President, DHL Express Europe plc
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Mr Phil Rourke, Executive Director, Centre for Trade Policy & Law, Carleton University, Ottawa
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Mr Harsha Vardhana Singh, Former Executive Director, Brookings India and former Deputy Director General, WTO
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Ms Angela Strachan, Independent Consultant, Business Environment Reform, Trade Facilitation and Investment Climate
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Dr Dirk Willem te Velde, Head, International Economic Development, ODI
The Inquiry Committee received over 50 submissions of written evidence and held public hearings and other consultative events in the UK and in the sidelines of the WTO 11th Ministerial Conference in Buenos Aires in December, engaging over 40 ministers, diplomats, business people and representatives from international organisations, civil society and diaspora groups from across the Commonwealth.
The next Commonwealth Heads of Government Meeting (CHOGM) will be held in London during the week commencing 16th April 2018. It is expected to be the largest ever gathering of Commonwealth leaders and one of the largest global summits ever held in the UK.
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Mauritius-China FTA to strengthen economic cooperation in various sectors
The first round of negotiations on the Mauritius-China Free Trade Agreement (FTA), kicked off yesterday at Maritim Resort & Spa, in Balaclava.
The FTA aims at creating the necessary conditions to further expand bilateral trade and investment exchanges between Mauritius and the People’s Republic of China as well as strengthen economic cooperation in a number of areas of interest to Mauritius.
The two-day event is organised by the Ministry of Foreign Affairs, Regional Integration and International Trade so as to initiate discussions and agree on the modalities of work on four pillars of the Agreement, namely: trade in goods, trade in services, investment, and economic cooperation.
In her opening remarks the Head of the Mauritian delegation, Ambassador Mrs U. C. Dwarka Canabady, Secretary for Foreign Affairs (SFA), at the Ministry of Foreign Affairs, Regional Integration and International Trade, said that the start of talks marks an important date in Mauritius-China economic ties as both countries embark on negotiations of the first ever FTA between China and an African State. She was upbeat that, once implemented, the FTA will contribute meaningfully to further strengthen the economic and trade relations by taking it to new heights.
According to the SFA, it is necessary for both sides to be ambitious for the FTA to be a success, and, therefore it is important to eliminate trade barriers on core products of interest to Mauritius and China as well as on key services sectors. These sectors comprise the financial services, distribution, retailing, insurance, education, legal and accounting, ICT/BPO, agribusiness, medical, and logistics.
Statistics indicate that in 2017 total imports from China amounted to USD 853 million and total exports to China stood at USD 27 million. Ambassador Dwarka Canabady, recalled that China is currently the third main trading partner of Mauritius and the largest source of imports.
Mauritius’s exports towards China have, however, remained limited on a narrow range of products (metal scraps, clothing, and aquatic and handmade products), and, the trade gap between the two countries remains huge, she pointed out adding that the FTA should contribute to closing this gap.
For his part the Head of the Chinese delegation, and Deputy Director General, Ministry of Commerce, Mr Hu Yingzhi, observed that although China and Mauritius are far geographically, the distance has in no way affected the shared long and enduring friendship.
A Free Trade Agreement, he stated, will no doubt provide an institutional guarantee for future Mauritius-China economic, trade and investment relations, further consolidate friendship ties, and contribute to added cooperation between China and Africa on a larger scale.
Moreover, Mr Hu Yingzhi pointed out that China will continue to adhere to the fundamental policy of opening up and actively promote international cooperation through the Belt and Road initiative for policy, infrastructure, trade, financial and people-to-people connectivity. It is in this spirit, he assured, that the Chinese delegation is starting FTA talks with Mauritius, a country which he termed as the most competitive and promising economy in Africa.
The Negotiations
A fifteen-member strong delegation from the People’s Republic of China is currently in Mauritius for the first round of negotiations. Officials from the Ministry of Commerce, National Development and Reform Commission; Ministry of Finance; and, Ministry of Agriculture and General Administration of Customs, are also participating.
The thirty-member delegation led by the SFA comprises the Director of the International Trade Division, Ministry of Foreign Affairs, Regional Integration and International Trade, as well as representatives from the public and private sectors.
The two delegations are taking stock of the documents exchanged by both Mauritius and China on various aspects of the negotiations. The work agenda comprises parallel meetings focused on trade in goods, trade in services, investment, general economic cooperation, and dispute settlement and legal provisions.