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Namibia’s Mrs Sabine Böhlke-Möller has been elected, by consensus, as WTO Working Group on Trade and Transfer of Technology 2018 chairperson
tralac’s Ashly Hope: A gender responsive AfCFTA
As the finishing touches are being put on the first parts of AfCFTA Agreement, it is worth considering how this agreement can contribute to the African Union’s Agenda 2063 aspirations and targets for gender parity as well as the UN’s sustainable development goal of achieving gender equality and women empowerment.
It has become increasingly clear that it is not sufficient for policy making to be blind to gender. Rather, to ensure that women are included, and for economies to make the most of the contribution of women, it is necessary to make policy that takes into account gender difference and the structural and institutional barriers to female participation. Trade policy is no different.
We present some practical suggestions for negotiators and members states to consider for purposes of making the AfCFTA Agreement a gender responsive trade agreement.
Time is Now to scale up women’s rights and nutrition activism in Africa (NEPAD)
Today, as we mark International Women’s Day, we celebrate not only all women, but especially the activists – rural and urban, men and women – who are transforming women’s lives. Right now, women and men across Africa are part of a movement sweeping across the world for women’s rights, equality and justice.
However, with the increase in hunger and food insecurity seen last year across parts of sub-Saharan Africa – for the first time in decades – there are few rights as important to our future survival as the right to adequate food and good nutrition. This will not happen unless each woman and man, girl and boy is equally valued and has the same access to food. This means that, when we move from thinking to acting on nutrition and food security, we must also think and act on gender equality and women’s empowerment. [Op-ed by Dr Ibrahim Mayaki, CEO of NEPAD Agency, Martin Chungong, Secretary-General of IPU, and Nahas Angula, former Prime Minister of Namibia and Convener of the Namibia Alliance for Improved Nutrition]
Aubrey Hruby, quoted in: Why Tillerson pitch of US as soft-power partner will be a hard sell in Africa
“I get that [Tillerson] is positioning security as the precondition for prosperity, and many African leaders – clearly those he’ll be meeting with – will agree with that,” says Aubrey Hruby, a senior fellow at the Atlantic Council’s Africa Center. “But for broader stakeholders in the economy, the emphasis leaves the US out of the picture,” she says. “Security partnerships are important, but they are invisible to a lot of people, and so leave US engagement invisible as well.”
Masako Hiraga: How many companies are run by women, and why does it matter? (World Bank)
One area we have data on comes from companies: what share of firms have a female CEO or top manager? Only 1 in 5 firms worldwide have a female CEO or top manager, and it is more common among the smaller firms. While this does vary by around the world – Thailand and Cambodia are the only two countries where the data show more women running companies than men. Better representation of women in business is important. It ensures a variety of views and ideas are represented, and when the top manager of a firm is woman, that firm is likely to have a larger share of permanent female workers. [The author is a senior statistician / economist with the Development Data Group]
The experiences and challenges of women in trade and agriculture (Southern Africa Trust)
The study was conducted through primary and secondary data collection as well as key informants and focused group discussions, with a specific focus on Malawi, Zambia and Zimbabwe. The study also makes an analysis of the status of women involved in agriculture and trade and their level of knowledge of existing sector policies. Some of the findings are that more than 60% of households in the trade sector are headed by single, widowed and divorced women. The education levels of women surveyed differed among the three countries. In all three countries covered, almost all the women and key stakeholders reported that the majority of women in agriculture were involved in small scale farming due to limited financial resources, knowledge and use of farming technologies as well as complex trade procedures and requirements.
The level of knowledge of both agricultural and trade policies among women was very low and a cause for concern. ”The Trust recommends coherence between agriculture and trade on the one hand and with other relevant policies supporting agriculture and trade. Wider use of Information communication technologies by women traders and farmers should be encouraged to close the information gap,” said Phiri. The report (pdf) also points to the need to create new and alternative avenues for borrowing in order to support women in the trade and agricultural sectors as well as simplified customs procedures and documentation and a reduced burden of domestic taxes and other fees and charges at borders of SADC Member States.
Women’s prospects at work still ‘a long way’ from being equal to men’s (ILO)
The women’s labour force participation rate worldwide stands at 48.5% in 2018, 26.5 percentage points below that of their male counterparts, according to the World Employment and Social Outlook: Trends for Women 2018 – Global snapshot, released Wednesday on the eve of International Women’s Day. The report, authored by the ILO, also shows that the global unemployment rate for women is 6% for 2018, about 0.8 percentage points higher than that for men. Extract (pdf):
Women are over-represented in informal employment in developing countries, in part because there is a higher proportion of women who work as contributing family workers – a category which accounts for around one-third of the overall informal employment in developing countries. According to the ILO, the share of women in informal employment in developing countries was 4.6 percentage points higher than that of men, when including agricultural workers, and 7.8 percentage points higher when excluding them, in the latest year with available data (ILO, 2018b). This gender gap is much higher in some sub-Saharan African countries, where the gap stands at over 20 percentage points (ibid.). In close to one-third of sub-Saharan countries with available data, the share of women in non-agricultural employment who are in informal employment is over 90%, while for men the share hovers at around 82% (figure 1). [Related ILO International Women’s Day 2018 resources]
Central Bank gender balance declined this year, OMFIF says (Bloomberg)
A gender balance index fell to 19% in 2018 from 31%, reflecting a decline in women in senior roles, the Official Monetary and Financial Institutions Forum said in a report. The slide in the overall score compared to last year can be explained largely by the stepping down of women in large-economy central banks that carry a greater weight: Janet Yellen’s departure as Chair of the Federal Reserve in February was the single largest factor. The score for North America fell to 24% from 68%, leaving Europe as the highest-scoring region. The top 20 league in terms of gender balance is dominated by small countries, which together make up only 6.6% of the world economy. They include four island states in the Caribbean, two in the Asia-Pacific region, one in Africa, and others in the Balkans and former Soviet Union. Only two G-20 economies - France and Russia - make the top 20.
Powering potential: increasing women’s access to financial products and services (BNY Mellon, UN Foundation)
Closing the gender gap in women’s access to financial products and services could unlock $330bn in global annual revenue, according to a new report released today from BNY Mellon and the United Nations Foundation. Increased market opportunities for financial services firms, along with greater financial inclusion and empowerment for women, are additional key outputs from narrowing this gap. The report, Powering Potential: increasing women’s access to financial products and services, proposes actions to achieve major gains for both gender equality and market returns. By focusing on the financial sector, this report builds upon the approach used in the publication released last year, “Return on Equality,” to scale up the private, public and social sectors’ involvement in advancing the United Nations’ Sustainable Development Goal 5: “Achieve gender equality and empower all women and girls.”
IWD2018 Quick Links:
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New trade, logistics reports from Nigeria’s National Bureau of Statistics:
(i) Foreign trade in goods (Q4 & Full Year 2017) (pdf). Total trade recorded for Q4 2017 was N6.022.93bn which represented a decline of 0.7% over the Q3 2017, and an increase of 13.9% over the same period last year Q4 2016). For full year 2017, total trade was N23,160.9 billion which is 33.5% higher when compared to the value in 2016 of N17,344.9bn. Trade balance, accordingly, stood at a surplus of N1,798.31bn in Q4 2017 compared to the surplus of N1,088.33bn recorded in the preceding quarter and the surplus of N671.30bn in the corresponding quarter last year. For full year 2017, trade balance stood at N4,035.5 billion compared to a negative trade balance of -N290.1 billion in 2016.
(ii) Ports Statistics 2012-2017 (pdf). The Nigerian Ports Statistics 2012 - 2017 reflected that ship traffic at the Nigerian ports recorded a total of 4,175 ocean going vessels with 131,569,821 gross registered tonnage in 2017 as against 4,622 ocean going vessels with 134,2,13,076 gross registered tonnage in 2016. [Air Transportation Data: Q4 and Full Year 2017, pdf]
Kenya: IMF statement as staff conclude visit (IMF)
The authorities requested a six-month extension of the SBA that expires on March 13, 2018 to allow more time to complete the outstanding reviews of the IMF-supported program. In support of this request, the authorities have committed to policies to achieve the program objectives, including reducing the fiscal deficit and substantially modifying interest controls. Annual growth could rise further to 6½ percent within a couple of years, provided that the authorities continue economic reforms, including reducing the fiscal deficit and amending interest rate controls.
Multinational production and trade in services (pdf, OECD)
Overall, the results in this paper demonstrate the intertwined nature of manufacturing and services activities, with implications for trade and investment policies aimed at promoting the manufacturing sector. Policy makers may actually need to focus more on services industries in order to support their manufacturing industries, suggesting the need for an integrated approach to manufacturing, services and investment in policy discussions. [Working Party on International Trade in Goods and Trade in Services Statistics: Measuring merchandise and international freight transportation costs in the Balance of Payments]
Simon Lester, Inu Manak: Fixing NAFTA’s institutional deficit (ICTSD)
The renegotiation of the North American Free Trade Agreement provides a path for institutional innovation. This post argues that the institutions that were created by NAFTA have either not functioned well, or been insufficiently used, and that the opportunity to improve the institutions that exist and to create new avenues for continental cooperation should not be missed.
UK dept earmarks £21.4bn for African infrastructure development (Engineering News)
The UK’s Department of International Trade is pledging funding for infrastructure development in Africa, including £4bn in South Africa, £1bn in Kenya and £750m in Nigeria, through export credit agency, UK Export Finance.
Today’s Quick Links: The Presidents of Botswana, Zambia and Zimbabwe are scheduled to meet in Botswana (10 March) to assess progress on the construction of the Kazungula Bridge Witness statements are posted from the hearing: China in Africa – The New Colonialism? IMF on Malaysia’s economy: getting closer to high-income status Accounting for firm heterogeneity in global value chains: the role of small and medium sized enterprises (pdf) United Nations Statistical Commission: download documents from the 49th Session (6-9 March) |
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ILO: Women still less likely to be active in the labour market than men in most of the world
Despite notable progress over the past 20 years, updated ILO figures show persistent inequalities between women and men on access to the labour market, unemployment and conditions at work.
Women are less likely to participate in the labour market than men and are more likely to be unemployed in most parts of the world, says a new study by the International Labour Organization (ILO) released on the eve of International Women’s Day (marked on 8 March).
According to the World Employment and Social Outlook: Trends for Women 2018 – Global snapshot, the global women’s labour force participation rate – at 48.5 per cent in 2018 – is still 26.5 percentage points below the rate of their male counterparts. In addition, the global unemployment rate of women for 2018 – at 6 per cent – is approximately 0.8 percentage points higher than the rate for men. Altogether, this means that for every ten men in a job, only 6 women are in employment.
“Despite the progress achieved and the commitments made to further improvement, women’s prospects in the world of work are still a long way from being equal to men’s,” said Deborah Greenfield, ILO Deputy Director-General for Policy.
“Whether it is about access to employment, wage inequality or other forms of discrimination, we need to do more to reverse this persistent, unacceptable trend by putting in place policies tailored to women, also taking into account the unequal demands that they face in household and care responsibilities,” she added.
However, the snapshot signals significant disparities, depending on the wealth of countries.
For instance, differences in unemployment rates between women and men in developed countries are relatively small. Women even register lower unemployment rates than men in Eastern Europe and North America.
Conversely, in regions such as the Arab States and Northern Africa, female unemployment rates are still twice as large as men’s, with prevailing social norms continuing to obstruct women’s participation in paid employment.
Another example of these differences is that the gap in employment participation rates between men and women is narrowing in developing and developed countries while it continues to widen in emerging countries. However, this may be a reflection of the fact that a growing number of young women in these countries have joined formal education, which delays their entry to the labour market.
Too often in informal work and not enough in management
The snapshot also shows that women face significant gaps in the quality of the employment they are in. For instance, compared to men, women are still more than twice as likely to be contributing family workers. This means that they contribute to a market-oriented family business, but are often subject to vulnerable conditions of employment without written contracts, respect for labour legislation and collective agreements.
And while in emerging countries the female share of contributing family workers has declined over the past decade, in developing countries it remains high, at 42 per cent of female employment in 2018, compared to 20 per cent of male employment, with no signs of an improvement by 2021. As a result, women are still over-represented in informal employment in developing countries.
These findings also confirm previous ILO research that warned against significant gender gaps in wages and social protection.
Looking at women running businesses, the authors note that globally, four times as many men are working as employers than women in 2018. Such gender gaps are also reflected in management positions, where women continue to face labour market barriers when it comes to accessing management positions.
“Persistent challenges and obstacles for women will reduce the possibility for societies to develop pathways for economic growth with social development. Closing gender gaps in the world of work thus should remain a top priority if we want to achieve gender equality and empower all women and girls by 2030,” concluded Damian Grimshaw, Director of the ILO Research Department.
World Employment and Social Outlook: Trends for Women 2018 – Global snapshot
Informality remains pervasive among women in emerging and developing countries
There is a very strong likelihood, especially in emerging and developing economies, that own-account and contributing family workers are defined as members of the informal economy. This connection arises because own-account workers are typically not registered as legal entities, while contributing family workers do not have written employment contracts and therefore typically fall outside the scope of labour legislation, social security regulations and relevant collective agreements. However, these workers are not the only category of employment to be exposed to systematic labour market risks. The broad category of informal employment includes other groups, such as workers in the informal sector and workers in formal sector enterprises who hold informal jobs.
Women are over-represented in informal employment in developing countries, in part because there is a higher proportion of women who work as contributing family workers – a category which accounts for around one-third of the overall informal employment in developing countries. According to the ILO, the share of women in informal employment in developing countries was 4.6 percentage points higher than that of men, when including agricultural workers, and 7.8 percentage points higher when excluding them, in the latest year with available data (ILO, 2018b).
This gender gap is much higher in some sub-Saharan African countries, where the gap stands at over 20 percentage points (ibid.). In close to one-third of sub-Saharan countries with available data, the share of women in non-agricultural employment who are in informal employment is over 90 per cent, while for men the share hovers at around 82 per cent.
In contrast, men in emerging countries face a higher incidence of informal employment (at 70 per cent) than women (at 65 per cent), with a slightly larger gap when considering non-agricultural sectors only. This mainly reflects the trends observed in emerging countries in Asia and the Pacific, where the share of women in non-agricultural informal employment is typically lower than that of men, with some notable exceptions in countries such as Bangladesh, Cambodia and Viet Nam. However, informality rates for women employed in non-agricultural sectors in the emerging countries of Asia and the Pacific remain high, standing on average at 58 per cent compared to 65 per cent among men (ibid.).
Significant additional efforts are required to close gender gaps in the labour market
In the past decade, governments, together with employers and workers as well as their representative collective organizations, have implemented a number of measures to address the challenges that women face in the world of work. Especially notable is progress on family support provision, formalization of key areas of female-dominated informal work (such as domestic work) and efforts to address vertical sex segregation, especially in areas where reform has the potential to reduce sex discrimination. However, as this global snapshot highlights, current efforts by the major labour market actors to reduce the gender gap in labour market participation, while meaningful, are not sufficient.
The difference in access to decent work opportunities between men and women is a major obstacle in global efforts to achieve a more equitable and inclusive labour market, and is expected to remain so in the coming years, unless additional efforts are made to address the persistent gender gaps outlined above. As shown in previous reports (see, for example, ILO, 2017a), the overwhelmingly unequal demands that women face with regard to household and care responsibilities continue to manifest themselves as labour market inequalities in terms of the types of jobs which women can both access and in which they can enjoy sustained employment.
Indeed, the global challenges of informality and working poverty are also rooted (often organizationally and culturally) in patterns of sectoral and occupational sex segregation, which systemically constrain the opportunities open to women to gain access to better jobs. This suggests that tackling the labour market challenges confronting women will require not only efforts by governments, employers and trade unions to bridge the gap in the labour market, but also initiatives to dismantle the unequal demands that women face.
Reducing gender gaps in the labour market therefore requires comprehensive measures, tailored specifically to women (in recognition of their widely varying circumstances), which will ultimately contribute to the welfare of society. In developing and emerging countries, there remains the unresolved challenge of fostering the transition from informal to formal jobs, particularly among rural women in the agricultural sector. Promoting economic diversification, within both agricultural and non-agricultural activities, will contribute to achieving a higher degree of formalization, while reducing the incidence of working poverty through income diversification. Continuing to foster female enrolment in formal education, vocational training and entrepreneurship programmes is crucial in supporting the transition of women into decent jobs.
At the same time, there is considerable scope to improve the reach and effectiveness of public policies for family support by expanding the coverage of child-related services and promoting a more even redistribution of family responsibilities across members of the household (and possibly local communities). More generally, it is imperative for all countries and all constituent interest groups (especially governments, employers and trade unions) to work towards achieving the Agenda for Sustainable Development through measures that ensure quality jobs for women, reduce gender stereotypes and discrimination in both education and the workplace, and recognize, reduce and redistribute the disproportionate burden of care and household responsibilities that women currently bear.
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Southern Africa Trust launches report on women traders and farmers in SADC
The experiences and challenges of women in the SADC region: The case of trade and agriculture sectors
Women play a key role in the trade and agriculture in the Southern African Development Community (SADC) yet they face enormous challenges which hinder their full potential as farmers and traders, says the Southern Africa Trust.
The Trust commissioned a study aimed at assessing the extent of gender mainstreaming in the implementation of SADC trade and agricultural policies. It found limited gender integration and mainstreaming in policies.
“Women contribute significantly through their involvement in the production and sale of tradeable goods and as managers and owners of firms involved in trade. It is therefore important for women to be included in the development and implementation of SADC policies,” said The Trust’s Mobilization and Engagement Manager Christabel Phiri.
In relation to the agricultural sector, challenges facing women farmers include women having limited access to credit or finance; agricultural inputs such as seeds; and to transport to and from markets as well as a lack of agricultural skills and infrastructure, in particular, storage facilities.
Similarly, in the trade sector, women have been facing challenges with regards to security in the border posts, limited sanitation and limited hygiene facilities.
The study was conducted through primary and secondary data collection as well as key informants and focused group discussions, with a specific focus on Malawi, Zambia and Zimbabwe. The study also makes an analysis of the status of women involved in agriculture and trade and their level of knowledge of existing sector policies.
“We are excited to be launching the research report on International Women’s Day. It takes us one step further towards better understanding the experiences of women who make a significant contribution to trade and agricultural sectors in the region,” said Phiri.
Some of the findings are that more than 60% of households in the trade sector are headed by single, widowed and divorced women. The education levels of women surveyed differed among the three countries. In all three countries covered, almost all the women and key stakeholders reported that the majority of women in agriculture were involved in small scale farming due to limited financial resources, knowledge and use of farming technologies as well as complex trade procedures and requirements. The level of knowledge of both agricultural and trade policies among women was very low and a cause for concern.
“The Trust recommends coherence between agriculture and trade on the one hand and with other relevant policies supporting agriculture and trade. Wider use of Information communication technologies by women traders and farmers should be encouraged to close the information gap,” said Phiri.
The report also points to the need to create new and alternative avenues for borrowing in order to support women in the trade and agricultural sectors as well as simplified customs procedures and documentation and a reduced burden of domestic taxes and other fees and charges at borders of SADC Member States.
Executive summary
Background
The trade and agricultural sectors play a key role in socio-economic development of the SADC region. Across the world, evidence suggests that trade is an engine of growth. Agriculture on the other hand remains central to poverty reduction in the region. It provides a livelihood, including subsistence, employment and income particularly for the majority of the people living in rural areas. According to the pdf SADC Statistical Year Book 2015 (2.87 MB) , both trade and agriculture contributed approximately 20 percent of the regions’ Gross Domestic Product in that same year.
Women play a key role in trade and agriculture in SADC, yet they face enormous challenges that hinder their full potential as farmers and traders. In trade, women make a major contribution through their involvement in the production and sale of tradeable goods and as managers and owners of firms involved in trade. They feature significantly in informal trade, selling both agricultural commodities that they produce, as well as other merchandise which they buy from other countries to trade mainly in their home countries.
It is estimated that the value of trade conducted by women in the SADC region is approximately US$20 billion annually. It is also estimated that 70 percent of Informal Cross Border Traders (ICBTs) in the region are women, and that 30-40 percent of intra-SADC trade comes from informal cross border trade. According to the pdf SADC Food Nutrition Security Strategy (1.22 MB) , women also play a critical role in ensuring food and nutrition security. The Strategy indicates that in SADC, women contribute more than 60 percent to total food production, provide the largest labour force in the agricultural sector and in some Member States, perform more than 70 percent of agriculture work.
This study focuses on Malawi, Zambia and Zimbabwe and makes an analysis of the status of women involved in agriculture and trade and their level of knowledge of esixting sector policies. The main conclusion of the study is that women’s economic empowerment can have an enormous contribution to the development process and poverty eradication efforts of the region.
» Download the report on the Southern Africa Trust website.
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Time is Now to scale up women’s rights and nutrition activism in Africa
On the occasion of International Women’s Day, three African leaders and activists, Martin Chungong, Cameroonian Secretary General of the Inter-Parliamentary Union, Dr Ibrahim Mayaki, former Prime Minister of Niger and CEO of NEPAD Agency, and Nahas Angula, former Prime Minister of Namibia and Convener of the Namibia Alliance for Improved Nutrition (NAFIN), come together to celebrate rural and urban crusaders who have transformed women’s lives and call for more activists to speak up for gender equality to fight malnutrition across Africa.
Today, as we mark International Women’s Day, we celebrate not only all women, but especially the activists – rural and urban, men and women – who are transforming women’s lives. Right now, women and men across Africa are part of a movement sweeping across the world for women’s rights, equality and justice.
You do not have to look far to see – or hear – women on the continent slowly breaking the silence, joining the #MeToo campaign on social media, raising their voices in unison alongside many men and against the status quo, organising for better representation in decision-making and demanding land rights and equal pay for work of equal value.
However, with the increase in hunger and food insecurity seen last year across parts of sub-Saharan Africa – for the first time in decades – there are few rights as important to our future survival as the right to adequate food and good nutrition. This will not happen unless each woman and man, girl and boy is equally valued and has the same access to food. This means that, when we move from thinking to acting on nutrition and food security, we must also think and act on gender equality and women’s empowerment.
Throughout history, activism in Africa has yielded enormous results. Many women have fought for justice for women before us. Today this is not only a moral duty, it is the smart thing to do. Recently, countries such as Senegal and Tunisia have made strides in ensuring equal rights for both women and men. Rwanda has secured the highest percentage of women in parliament in the world, whilst women in Liberia and South Sudan have been at the forefront of peace and reconciliation efforts.
In the words of Nelson Mandela – our ‘own’ Madiba – whose 100th birthday we will celebrate later this year, “freedom cannot be achieved unless women have been emancipated from all forms of oppression”. Sadly, no country has achieved this freedom yet.
Where there is food insecurity, rural women and girls are disproportionally affected and more likely to experience the multiple burdens of malnutrition. They are often tasked with making sure every family and community member reaps the benefits of the best possible food and nutrients available and are involved at each stage of the food value chain – from farm to fork.
Although there are no large differences in the number of malnourished girls versus boys under five years old, the difference in power between males and females really becomes visible as girls reach adolescence. Malnourished mothers, especially those who have not attended secondary school, are more likely to give birth to malnourished girls and boys, perpetuating a vicious intergenerational cycle – with devastating effects for the brain power of the continent.
It is widely accepted that good nutrition is a maker and marker of sustainable development. What we now know is that gender equality is a maker and marker of good nutrition. With this knowledge, the main message we have for policy-makers, leaders and activists all over Africa is to scale up investments in women for better nutrition and food security everywhere. Yet, without empowering lawmakers to unblock resources from national budgets and putting in place the necessary means and policies in support of women and girls, no initiative will succeed.
Yesterday, we gathered together to address a high-level event of the Pan-African Parliament (PAP) Alliance for Food Security and Nutrition in Johannesburg. This Alliance has been tasked with ensuring that food security and nutrition remain at the highest level of both political and legislative agendas. We brought together a regional platform for African Members of Parliament to make sure that women’s and girls’ rights, needs and agency are at the front and centre of all actions.
The 2030 Agenda for Sustainable Development promises to leave no one behind. Recently, the publication Nature estimated that no single African country is set to end childhood malnutrition by 2030, due to large disparities within countries themselves. This is in spite of the fact that most African countries, especially much of sub-Saharan Africa and eastern and southern regions, have shown improvements.
As members of the Lead Group of the Scaling Up Nutrition (SUN) Movement – a voluntary push for better nutrition which today counts 60 countries, many of whom are African – we know that successful nutrition approaches are those that have sought to address and eliminate gender inequalities. Much of the reduction in hunger worldwide between 1970 and 1995 is a result of improvements in women’s status and access to decision-making, including in parliaments. We know that if we give a girl access to secondary schooling, more than 25 per cent fewer girls and boys will be stunted, and will be able to develop normally. The evidence is clear. Now is the time to act.
International Women’s Day is not just a celebration but a reminder to us to remain activists in our own right, not only as heads of agencies which promote equality, but also as individuals. Together, let us empower women in all settings, rural and urban, and make improved nutrition a reality.
We commit to scaling up women’s rights and nutrition activism in Africa, and beyond. And hope you will do the same. The #TimeisNow for the #TheAfricaWeWant.
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tralac’s Daily News Selection
The AfDB has appointed Moono Mupotola as Director, Regional Integration. Full details of this, and other senior management appointments, can be accessed here.
SADC Ministers for Employment and Labour and Social Partners: 2018 meeting outcomes
(i) Extract from Report of the Outgoing Chair (South Africa): Operational challenges. The biggest challenge we faced was the lack of capacity, support and visibility of the SADC Secretariat. It is noteworthy that it is the first time in this session that the sector is graced by the presence of a senior representative of the Executive Secretariat. The support of the Executive Secretariat is a matter that will require special attention from the Ministers in this sector. Without the consistent support of the SADC Secretariat in so far as providing effective support to member-states, our efforts may not yield the desired outcomes. The incoming Chairperson will have to pay urgent attention to this aspect, otherwise all the efforts will be in vain. The Executive Secretariat will have to play its role if the sector is to succeed in its efforts. Perhaps the first step for the incoming chair will be to organize a bilateral meeting with the SADC Executive Secretariat to thrash out better ways of working together going forward.
(ii) Extract from the Ministerial Declaration: Promoting decent work for sustainable global supply chains (pdf). In support of the 37th SADC summit’s theme: Partnering with the private sector in developing industry and value chains, which also covered labour migration issues, and a presentation of a compendium of SADC labour laws by the private sector; Recognize that value chains involve national and regional processes that facilitate investments with potential to increase manufacturing, diffusion of knowledge and technology, and local supplier linkages between Member States; Acknowledge that SADC’s international trade and investment flows have grown considerably over the last two decades, but integration into value chains remains low compared with other regions in the world;
Further acknowledge the need to address the different decent work deficits associated with Global Supply Chain through collaborative global and regional actions; Work in conjunction with the ILO in increasing policy coherence amongst our Member States as well as in maximizing opportunities and addressing challenges in the promotion of decent work in global supply chains; and Undertake to explore the ratification of international labour standards and their full implementation to complement national legislations and other international commitments such as the ILO Declaration on Fundamental Principles and Rights at Work, the UN Guiding Principles on Business and Human Rights, and ILO Tripartite Declaration of Principles concerning Multi-National Enterprises (MNEs) and Social Policy of 2017 in order to address decent work issues in all work circumstances, including cross-border supply chains;
Mozambique-IMF updates:
(i) 2018 Article IV Consultation report. Mozambique’s total public debt is on an unsustainable path. The updated debt sustainability analysis (see attached DSA) shows that Mozambique’s external debt rating is “in distress”, and total public debt is on an unsustainable path. All debt burden indicators, except the ratio of external debt service to exports, surpass prudent thresholds for several years. Under the baseline scenario, which does not assume any debt restructuring, the PV of external public and publicly guaranteed debt to GDP ratio largely exceeds the 40% prudent threshold for about eight years, while external debt service to government revenues remains on average at about 30% over the medium-term. Moreover, significant vulnerabilities related to domestic debt, which reached about 25% of GDP in 2017, are rapidly escalating. The PV of total public debt to GDP ratio is expected to peak at 126% by 2022, well above the 56% benchmark. [See Figure 3: Selected external sector developments]
(ii) Selected Issues report: Towards a new monetary policy regime in Mozambique. The central government wage bill in Mozambique is very high compared to peers. At 11.3% of GDP in 2016, the wage bill exceeds the median for a group of 42 low-income and Developing countries (6.6%; Figure 3). It is the fourth highest after Zimbabwe, Lesotho, and Liberia. Moreover, it is very high as a share of primary expenditures (40.3%) and as a share of domestic revenues (47.11%). The former indicator suggests that the control of government spending dynamics can be a very challenging task, while the latter indicator points to sustainability issues of wage outlays in Mozambique.
Nigeria-IMF updates:
(i) 2018 Article IV Consultation. A historic terms of trade shock - exacerbated by falling oil production and inadequate policy implementation - has taken a major toll on Nigeria’s economy. Output contracted for the first time in more than two decades in 2016, while external and fiscal buffers dwindled considerably. The initial policy response - including increases in electricity and fuel prices and a more depreciated exchange rate - did not yield the expected benefits, as sabotage of oil infrastructure, foreign exchange restrictions, and delayed implementation of structural reforms worsened investor confidence, increased borrowing costs, and crowded out private sector credit.
New policies and recovering oil prices are supporting Nigeria’s slow exit from recession. The doubling of oil prices from their early 2016 levels, new foreign exchange measures - including the introduction of a new investor and exporter FX window - and a tighter monetary policy have contributed to better FX availability, a significant narrowing of the parallel market exchange rate premium, contained inflationary pressures, a soaring financial market, and reserve buffers that reached a four-year high. This performance was accompanied by positive economic growth for two consecutive quarters in 2017, propped up by recovering oil production. Reforms under the government’s Economic Recovery and Growth Plan have resulted in significant strides in Nigeria’s latest Doing Business Ranking and steps to improve governance. However, important vulnerabilities persist.
(ii) Selected Issues report: Mobilising tax revenues in Nigeria. Relative to peers, Nigeria has one of the lowest revenue-to-GDP ratios. Between 2011 and 2017, a sharp decline in oil revenues led to consolidated government revenues falling from 17.7% to 5.1% of GDP (Figure 1). During this period, non-oil revenue stayed relatively stable at about 3 and 4% of GDP, although with an accelerating decline in 2016-17. In particular, the corporate income tax (CIT) decelerated by 0.1% of GDP and value added tax by 0.2% of GDP relative to 2011. Comparing Nigeria’s tax structure with those of a selected sample of advanced, emerging, and developing economies, none of its domestic tax collection showed a promising performance. Nigeria raised the least revenue of all comparators and at 5.3% of GDP in revenue in 2016 was significantly below the sample’s 22% of GDP average (Figure 2). In most countries, excises alone raise 3.6% of GDP.
US-Africa Relations: a new framework (State Department)
Africa still has vast, undeveloped natural resources. Private sector expertise in the United States can facilitate the responsible development of those resources, helping bring more Africans out of poverty to share in the economic values of those resources. But significant transcontinental infrastructure is necessary to support the development, spur economic growth, and boost intraregional trade on the continent. Today only about 12% of total African exports are delivered to their neighbouring countries on the continent. Compare that to 25% among ASEAN countries and more than 60% in Europe, and the potential for more economic prosperity through trade on the continent itself is quite evident. As African nations achieve greater regional integration through lowering tariff barriers and improving transport, energy, and infrastructure links, that will create more opportunities for U.S. businesses, investment, and transatlantic trade.
And importing American business practices and expertise provides the best combination for Africa’s future by contributing to economic prosperity, equipping African nations with new capabilities, and doing so in an open, transparent framework. That is why we want to create the new development finance institution. DFIs are specialized government banks designed to support private sector development to improve development effectiveness. We’re working with Congress to give the United States the ability to compete with countries that already utilize finance to achieve their goals in the developing world. [Remarks by Rex W. Tillerson, Secretary of State, George Mason University]
Bloomberg View: Tillerson faces a tall order in Africa
Post-MC11: Charting a way forward for LDCs, SVEs and SSA countries (The Commonwealth)
This issue of the Commonwealth Trade Hot Topics examines the outcome of MC11 and assesses the technical and strategic way forward for least developed countries, small, vulnerable economies and sub-Saharan African countries, especially from the perspective of a changing global, political, economic and trading landscape and the evolution of interests and negotiating terrain at the WTO.
China Systematic Country Diagnostic: towards a more inclusive and sustainable development (World Bank)
The 19th National Congress of the Communist Party of China reaffirmed the country’s commitment to eliminating poverty and promoting shared prosperity and inclusive growth. In this regard, the China systematic country diagnostic is supportive of the priorities of the Party Congress. China’s historic rapid growth resulted in a poverty decline unprecedented in its speed and scale. Rapid growth was made possible by a wide range of reforms, which transformed a state-dominated, planned, rural, and closed economy to a more market-based, urbanized, and open economy. China is on its way to eliminating extreme poverty, but the population vulnerable to poverty will remain relatively large. China is expected to continue to make strong progress toward eliminating extreme poverty despite the slowdown of economic growth. The World Bank projects extreme poverty, based on the international public private partnership United States $1.90 per day poverty line, to decline to 0.5% by 2018. According to this higher poverty line, China is projected to have a poverty rate of 3.9% or 54.6 million people below this higher poverty line by 2018.
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2018 Meeting of SADC Ministers for Employment and Labour and Social Partners
Report of the Outgoing Chair (South Africa)
The past year has been challenging for the SADC-ELS and equally the Troika. Our starting point was to examine and introduce new ways of working starting by enhancing the architecture of our agenda in the manner that was not only solid in terms of SADC priorities and international commitments, but also designed in such a way that it began to revive our sector and its role.
In this regard, the Republic of South Africa introduced the theme for its presidency as; “Horizon Decent Work: Advancing Coherence, Connectivity and Inclusivity”. The notion of Decent Work Ladies and Gentlemen, underpins all what we wanted to achieve during our tenure as Chair of the sector. In order to make it as practical as possible, supporting priorities were formulated to enhance what was intended with the selected theme.
To deliver on our mandate, we developed a set of activities and action plans on which we gave reports of how we were doing within extremely tight timeframes. It is no secret that we had to overcome certain structural hurdles along the way, including performing additional tasks. We are extremely indebted to those Member-States who walked with us every step of the way.
I would not attempt to cover all the details of the work that we have done during this period, instead I will give a broad brush account of key activities covering key achievements and one or two challenges that confronted us.
I would also touch on a couple of initiatives that we believe could enhance the functioning of the institution and move towards strengthening our structures for the purposes of making it more inclusive and better able to serve its members. Also worthy of mentioning, are the efforts to enhance cooperation with other work streams within SADC and other multi-state bodies in the implementation of our programme, with a view to enhance harmonious labour regulation framework in the region.
Key achievements
The 37th Ordinary SADC Summit in August 2017 began to chart the way forward for the regional body under the Chairship of South Africa. Our Principals met in Johannesburg, South Africa under the theme: “Partnering with the private sector in developing industry and value chains”, with a lot of emphasis on industrialisation as a catalyst to grow our respective economies, and creating sustainable jobs. You will note that this work took its cue from key tenets of the SADC Charter.
It is safe, therefore, to point out that our Chairship was not divorced from the broad SADC agenda and priorities, as well as from the resolutions taken in Swaziland just under a year ago. As endorsed by the Ministers in Swaziland, that the Troika should convene to ensure a proper hand over to the incoming chair; the three members of the Troika met three times during this term, in Gaborone, East London and Cape Town. The engagements in the Troika meetings focused on various strategic issues including ensuring a seamless transition from the sitting Chairperson to the next. The Troika sessions were also key in ensuring the success of the two technical meetings and the ministerial meetings preparations. In this regard, we recognise the commitment of Botswana, Swaziland and Namibia, and also thank them sincerely for their contributions and support.
It is pleasing and reassuring that creating decent work and ensuring that our countries are ready for the workplace of the future, underpinned everything we did in the period under review.
In pursuit of the objectives of the sector, the South African chairmanship sought to build on the results of previous meetings and relevant international frameworks, notably the SADC Regional Indicative Strategic Development Programme (RISDP), the African Union Agenda 2063 and the UN’s 2030 Agenda for Sustainable Development. From this, we drove an agenda using policy priorities informed by the Future of Work and Decent Work, namely: Promotion of Decent Work; Employment Creation; Youth Unemployment; and SMME Development.
In this regard, two senior officials’ meetings and/or the SADC Joint Tripartite Technical Meetings and one ministerial meeting plus six workshops, were held. The workshops sought to implement previous resolutions and dealt with bottlenecks that were frustrating implementation. This work also covered various topics in furtherance of different elements of SADC priorities, including transition from informal to formal economy, public employment services, dispute prevention and resolution, labour inspection and enforcement, international labour standards, and portability of social protection benefits.
Flowing from this, Member States committed, in line with Article 4 of the SADC Charter of Fundamental Social Rights, to establish three regional forums on public employment services; dispute prevention an, resolution labour inspection and enforcement. It was agreed that these forums would meet on a yearly basis to engage on issues of common interest and to share experiences and knowledge, with the hope of improving labour market regulation systems in our respective jurisdictions.
This is obviously some of the work that the incoming Chairperson will have to pick up going forward and moderate in which-ever way necessary.
Operational challenges
The biggest challenge we faced was the lack of capacity, support and visibility of the SADC Secretariat. It is noteworthy that it is the first time in this session that the sector is graced by the presence of a senior representative of the Executive Secretariat. The support of the Executive Secretariat is a matter that will require special attention from the Ministers in this sector. Without the consistent support of the SADC Secretariat in so far as providing effective support to member-states, our efforts may not yield the desired outcomes.
The incoming Chairperson will have to pay urgent attention to this aspect, otherwise all the efforts will be in vain. The Executive Secretariat will have to play its role if the sector is to succeed in its efforts. Perhaps the first step for the incoming chair will be to organize a bilateral meeting with the SADC Executive Secretariat to thrash out better ways of working together going forward.
Funding for the Sector is another huge challenge which needs critical assessment. We must thank the ILO (International Labour Organisation) for coming to our rescue when budgetary constraints threatened to collapse our work. Our honest assessment is that these challenges pose a real threat to the implementation of the decisions we take as this platform and getting the Sector to function optimally. Of course, we are not aware of the challenges if any, faced by other sectors, but it is our considered view that the matters outlined herein be raised with the Secretariat as a matter of priority. We hope that this meeting will also come out with some brilliant ideas of how to arrest these challenges.
Efforts to strengthen SADC-ELS processes
In the past, as you all aware, the reporting to the Ministers focused on the implementation of a number of frameworks and protocols that govern our sector, such as the RISDP, the SADC Youth Employment Policy Framework, the SADC Decent Work Protocol and so forth. However, we are of the view that this methodology needs some fine-tuning so that the efforts by Member States to implement these protocols are enhanced. We have a few suggestions that we want to put forward for consideration in this regard.
Firstly, an activity-based approach is required to facilitate implementation, not only of the SADC priorities, but also our international commitments as Member States. For the first time and as mentioned above, the Chair selected a broad theme and also identified priorities, both of which were supported by activities, in the form of workshops, in order to ensure that Ministerial decisions and SADC protocols were implemented. The decision by Member States to establish forums on labour inspections, public employment services and dispute prevention and resolution will, therefore, go a long way in expediting regional priorities in these selected areas.
Secondly, there is nothing stopping a Chair from creatively enhancing the programme for the year. In the case of South Africa, besides the workshops on labour inspections, public employment services and dispute prevention and resolution, we elected to venture into areas of capacity building, knowledge sharing and strengthening of institutions in our countries. As such, R204 and ILS were incorporated into our programme to assist Member States to focus their energies on employment creation and to solidify labour market regulation efforts.
In addition, the Ministerial Symposium focuses on enhancing the capacity of our Principals and creating an enabling environment to engage more comprehensively on topical issues which are relevant to the sector. For example this year’s symposium is on Decent Work in Global Supply Chains. The symposium present an update on the global developments on decent work in global supply chains, including the key findings of the 2016 ILC report. A symposium of this nature helps to give all of us a sense of the goings-on on this front and the complexities relating to this matter. The symposium also lifts lessons from which we can all learn.
Thirdly, to foster collaboration between and among member-states, cooperation between Member States, as far as labour employment and labour regulation issues are concerned, should enjoy prominence in SADC-ELS meetings. These may include more than the collaboration at ILO/ILC levels but also at bilateral and multilateral levels. This is to encourage Member States to build stronger relations amongst themselves with the long-term view of aggregation of this work at sectoral level.
For example, the tobacco issue, involving a few member countries, is quite important for the sustainability of economies, and thus employment.
In light of this, Member States should be allowed to table similar issues at the SADC-ELS level in order to craft joint interventions where necessary.
Fourthly, there should be more coordinated cooperation in the exchange of experiences on policy architecture, bearing in mind the sovereignty of each member state. Sharing information on how each state is dealing with inclusive growth, with a particular focus on health and employment, skills development and vocational training, as well as gender equality; reducing income inequalities, and promoting labour productivity, will be extremely useful going forward. This will also facilitate synchronisation of programmes of different sectors and contribute positively to the functioning of the SADC as a body.
The “silo-effect” or fragmentation in the work of the different sectors undermines the very purpose of SADC, which is fostering regional integration and collaboration between and among the countries. There has to be a strong synergy between and amongst the different sectors within SADC at least in terms of initiatives that are being pursued.
We want to offer the following as some of the recommendations that could be considered by the incoming chair; We recommend that;
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The traditional JTTS meetings should be enhanced through some of the interventions proposed above, particularly the work of the three approved forums; and a declaration at the end of the presidency to sum up resolutions of ministerial meetings. Furthermore, knowledge sharing and capacity-building efforts should be adopted as a standard way of ensuring that Member States are on par in terms of labour market administration systems, operational standards and laws;
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Member States to ratify key international labour standards and also to seriously consider taking the necessary steps to realise full implementation of such standards;
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The Ministers should consider finding long-lasting solutions to the operational challenges in the Secretariat;
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We continue to agitate for Gaborone to take this sector as seriously as it does other sectors in SADC. We must demand as we deserve the same attention and support from the Executive Secretariat that which it gives to the other sectors;
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We elevate our concerns to our respective countries’ Focal Points on SADC issues; in case of South Africa the Department of International Relations and Cooperation;
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The issues relating to the capacity of the Secretariat to attend to matters relating to our sector should be raised very sharply and possibly feature more prominently in the Summit documents including the Summit Declaration, and
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We stand ready to provide support within the context of the Troika, to work with the incoming chair, Namibia in this case, As well as other Member States in furthering the goals of the sector.
This Report is but a synopsis of our work both in terms of achievements and challenges of SADC ELS in the period under review, and does not purport to be a comprehensive account of all our activities.
We happily pass on the baton to Namibia as the incoming Chair and wish you all the best in your tenure. Once again we wish to give you our unreserved assurances that we will do everything humanly possible to support you.
Ministerial Declaration
“Horizon Decent Work: Advancing Coherence, Connectivity and Inclusivity”
We, the SADC Ministers for Employment and Labour and Social Partners, having met in Cape Town on 1-2 March 2018, to contribute to an integrated future for the region, by exploring ways and approaches for fostering collaboration to reduce unemployment, inequality and poverty through employment policies that will facilitate inclusive economic growth for all Member States:
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Welcome the Union of the Comoros to the SADC family, as announced at the 37th Ordinary SADC Summit in August 2016, and commit to closely work together within the context of the SADC Employment and Labour Sector (SADC-ELS);
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In pursuance of regional integration and leveraging on synergies, seek to establish a conducive and harmonious labour market within the region;
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Pledge that in order to advance labour rights, connectivity, policy coherence and inclusivity, will continue promoting employment opportunities for our societies and economies that will benefit all our Member States and peoples of Southern Africa;
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Recognise that cooperation is key to regional integration in all spheres of labour market regulation within state and cross-state issues that underpin the SADC Decent Work Programme and commit to pursuing employment, fundamental principles and rights at work, social protection and social dialogue.
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Commit to creating an enabling environment for sustainable enterprises in the SADC region by providing conducive legal and regulatory environment, and political stability
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Commit to the institutionalisation of endeavours aimed at deepening our cooperation through the advancement of knowledge sharing and technical cooperation including tripartite forums for dispute prevention and resolution bodies/ agencies; labour inspection; and public employment services;
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Acknowledge on-going efforts geared towards enhancing the programme of the SADC-ELS such as the formalisation of the informal economy and portability of Social Security benefits taking into account the ILO Recommendation 204 and the Code on Social Security in SADC, respectively;
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Upholding the principle of inclusiveness, urge Member States to develop and implement inclusive employment policies, strategies and programmes that address the digital divide, rural-urban divide and ensure the participation of people with disabilities and other vulnerable groups.
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Commit to building on the results of previous meetings and relevant international frameworks, notably the SADC Regional Indicative Strategic Development Programme (RISDP), African Union Agenda 2063 and the United Nations Sustainable Development Goals (SDGs).
We hereby commit to the following policy priorities informed by the Future of Work:
Promotion of Decent Work
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In line with Article 4 of SADC Charter of Fundamental Social Rights and ILO’s Fundamental Principles and Rights at Work, note the programme of action agreed at 2017 SADC ELS and endorse the recommendations for the establishment of tripartite regional forums on labour dispute resolution, labour inspection and public employment services, to deliberate on issues of mutual interest as well as to continue to share experiences and exchange information on best practices; and
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Approve the rules on the operation and functioning of the forums with specific emphasis on these being convened annually to consider priority issues of regional dimension.
Promoting Decent Work for sustainable Global Supply Chain
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In support of the 37th SADC summit’s theme: Partnering with the private sector in developing industry and value chains, which also covered labour migration issues, and a presentation of a compendium of SADC labour laws by the private sector;
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Recognize that value chains involve national and regional processes that facilitate investments with potential to increase manufacturing, diffusion of knowledge and technology, and local supplier linkages between Member States;
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Acknowledge that SADC’s international trade and investment flows have grown considerably over the last two decades, but integration into value chains remains low compared with other regions in the world;
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Further acknowledge the need to address the different decent work deficits associated with Global Supply Chain through collaborative global and regional actions;
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Work in conjunction with the ILO in increasing policy coherence amongst our Member States as well as in maximizing opportunities and addressing challenges in the promotion of decent work in global supply chains; and
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Undertake to explore the ratification of international labour standards and their full implementation to complement national legislations and other international commitments such as the ILO Declaration on Fundamental Principles and Rights at Work, the UN Guiding Principles on Business and Human Rights, and ILO Tripartite Declaration of Principles concerning Multi-National Enterprises (MNEs) and Social Policy of 2017 in order to address decent work issues in all work circumstances, including cross-border supply chains;
Portability of social security benefits
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Acknowledge the movement of citizens of our Member States across borders and the accompanying challenges including the portability of migrants’ social security benefits. SADC has taken some positive action in this regard and amongst others, the 1998 SADC Protocol on Facilitation of Movement of Persons in SADC is a standing commitment by the region in recognising that people will inevitably move from one country to another;
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Having adopted the SADC Cross-Border Portability of Social Security Benefits Policy Framework in May 2016, demonstrates our political commitment to make progress towards coordination, harmonization and integration of social protection systems in the region; and
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Commit to recognizing international standards pertaining to migrants and, more importantly, standards pertaining to the portability of benefits as well as extension of social protection to non-citizens who contribute to our respective economies through their labour.
Employment Creation
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Recognising the advent of technology has changed the manner in which organisations exchange information and how they share goods and services. Digitalisation has potential to change the face of the workplace of the future, at the same time it offers new opportunities that may be exploited for the benefit of our Member States;
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Bearing these realities in mind as well as the speed and depth of change which accompany technological revolution and digitalisation, potential to generate new demand in terms of adjustment of skills, agile social dialogue and adequate social protection provision, Member States need to direct their energies towards dealing with the resultant challenges, including issues pertaining to ‘decent work deficits’ by addressing labour market distortions; and
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Commit to creating an enabling environment for job creation and prepare our economies and the region for the future in line with the SADC priorities as contained in the SADC Decent Work Programme and the SADC Protocol on Employment and Labour; and
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Put in place employment promotion policies and build the capacity of governments, employers and workers organisations to meet these new challenges.
Youth Unemployment
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Recognising the challenge of unemployment and underemployment of youth and the need to adopt relevant policy interventions to stimulate employment and integration of youth in the labour markets;
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Recognising the relevance of priorities of Goal 8 of the SDGs, African Youth Charter of 2006, and the SADC Youth Employment Policy Framework for improving employment prospects of young people in Africa and the region, respectively. Our policy priorities will continue to facilitate transition from school to work, enhance the quality of employment for the youth through work readiness programmes;
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Building on our previous commitments, Member States must give priority to tackling youth unemployment in the region by implementing the SADC Youth Employment Policy Framework;
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Complementing this through developing coordinated policy and institutional frameworks that promote efficient and effective vocational training and education in the region and skills for the future of work; and
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Further, ensure that SADC Labour Market Information Systems are implemented to monitor, evaluate and report in order to contribute to the development of employment schemes.
SMME Development
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Recognise that a significant proportion of people work in the informal economy, which contributes between considerably to the region’s gross domestic product (GDP), excluding agriculture. As a result, the informal economy’s contribution to our economies plays a vital role in the overall long-term development objectives in the region. Policies and legislation are important in our endeavours aimed at creating a conducive, supportive environment for small, micro and medium enterprises (SMMEs) not only to thrive but also to enable them to formalize and to move up the value chain;
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Formalisation will create sustainable jobs and also address some of the problems associated with the informal economy. These include amongst others unemployment, underemployment, poverty, gender inequality, and lack of representation and precarious work;
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Reiterate our intent for Member States to adopt a regional approach to follow-up on the ILO Recommendation 204 on the transition from informal to formal economy in order to enhance the implementation of other regional strategic programmes and plans.
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Endorse the implementation of the ILO R204 informal economy support project in selected Member States focusing on reconciling and adapting, where relevant, policies and legislation in order to address decent work deficits in the informal economy.
Way Forward
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As SADC Ministers for Employment and Labour and Social Partners, we commit to implementing key strategic frameworks which include the SADC Decent Work Programme (2016-2019); SADC Employment and Labour Protocol; Revised Indicative Strategic Development Plan 2015-2020 (RISDP) and the SADC Industrialisation Strategy and roadmap (2015-2063);
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Continue our dialogue on the Future of Work and develop concrete policy actions taking into account the SADC RISDP priorities and the Industrialisation action plan;
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Further, reinforce our cooperation with other SADC sectors with regard to exchange and joint policy development on inclusive growth with a particular focus on health and employment, skills development and vocational training, gender equality, reducing income inequalities, promoting labour productivity and managing migration;
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Equally collaborate and influence as part of the Africa group, at the ILO on issues of common interest and pledge to strengthen this collaboration to further promote common objectives at other international fora;
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Commit to strengthen tripartism and social dialogue through guaranteeing freedom of association and collective bargaining especially in the private sector, public sector and informal sector;
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Reaffirm the position that ILO should continue its cooperation with the tobacco industry to promote decent work in the agricultural sector; and call upon Malawi, Tanzania and Zambia to champion this position.
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We appreciate the support provided by the ILO and IOM to the SADC Employment and Labour Sector. We look forward to continue our fruitful cooperation with them.
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We will present this Declaration to the SADC Summit of Heads of State and Government in Namibia through established SADC channels, for their consideration as they strive to advance coherence, connectivity and inclusivity in pursuit of regional integration.
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We thank the South African chairship in steering the meeting and other activities of the SADC ELS and look forward to our next meeting in 2019 under the chairship of the Republic of Namibia.
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Post-MC11: Charting a way forward for LDCs, SVEs and SSA countries
The 11th World Trade Organization (WTO) Ministerial Conference (MC11) was held from 10-13 December 2017 in Buenos Aires, Argentina, against a backdrop of considerable changes to the global, political, economic and trading landscape, particularly since the time the Doha Round of multilateral trade negotiations was initiated in 2001, almost 17 years ago.
These changes to the landscape and new geopolitical dynamics obviously lead to evolutions in Members’ interests and positions on traditional negotiating issues, making it extremely difficult to make meaningful progress on them. To add to the complexities, a host of trade and trade-related issues with impacts on global trade have emerged, such as the rapid growth in e-commerce, the rise of global value chains and climate change, which all pose new challenges to the world economy.
More remains to be done to ensure the WTO and countries continue to engage to sustain the momentum created by the Trade Facilitation Agreement (TFA) and to build confidence in the multilateral trading system to bring global prosperity. The multilateral trading system is particularly important for the poorest, smallest and least developed countries of the world.
This issue of the Commonwealth Trade Hot Topics examines the outcome of MC11 and assesses the technical and strategic way forward for least developed countries (LDCs), small, vulnerable economies (SVEs) and sub-Saharan African (SSA) countries, especially from the perspective of a changing global, political, economic and trading landscape and the evolution of interests and negotiating terrain at the WTO.
The changing global economic and trading landscape
Several notable changes have taken place on the global economic and trading scene since the inception of the Doha Round in 2001. The growing importance of technology has given rise to changes in the way trade is conducted, requiring new rules, institutional frameworks and physical infrastructure. There is growing fragmentation of production, which has increased countries’ interdependence. Climate change is acting as a‘sword of Damocles’, forcing countries to rethink production processes and the way they organise economic and social life. Recent scientific research has confirmed that Pacific tropical cyclones and Atlantic hurricanes are likely to intensify and become more destructive as a result of ocean warming. The same study shows that the number of severe hurricanes has increased by 25-30 per cent for each degree of global warming.
Further, the advancement of several developing countries into stronger competitive economies has triggered a rebalancing exercise in a global economy that has hitherto been dominated by a few developed countries. The rising economies can now project themselves outward and play an increased role in the global economy.
Another significant development has been growing anti-globalisation and anti-trade sentiment, which contributed to a dip in global trade in 2016 and 2017. In its Trade and Development Report 2016, the United Nations Conference on Trade and Development noted that the global economy was in a fragile state and that growth in 2016 had dipped to below 2.5 per cent, the rate experienced in 2014 and 2015. The WTO forecasted trade expansion in 2017 to be between 1.8 and 3.6 per cent, primarily because of the uncertainty of the global economy, which was partly a result of growing anti-globalisation sentiment and some countries pursuing protectionist and inward-looking policies that undermined high trade growth.
These changes have meant that the global economic and trading landscape is different to the one that existed in 2001 when the Doha Round was agreed, and to that in 1995, when the WTO was launched and entrusted with the responsibility of providing a forum for trade negotiations among its Members, who now number 164.
Changing positions and negotiating dynamics
The changes that have taken place have had a bearing on the evolution of countries’ interests and their positions at the WTO, including in terms of the manner in which they conduct trade negotiations. This is especially seen in the new alliances countries have created to help advance their evolved interests. The clearest example of this is that of the interests of some developing countries coming to blend with those of developed countries, as in the case of e-commerce and investment facilitation.
There are two main reasons for this evolution. First, prior to the Doha Ministerial Conference some developing countries did not have much interest in discussing e-commerce and investment, as at that time they lacked much understanding of the implications of multilateral agreements in these areas for their economies, but managed to gain in-depth knowledge which made them comfortable to discuss the issues. Second, some developing countries have developed capacity in these areas and become aware of the vital role of e-commerce and investment facilitation in trade and development. This coalescence of interests between developed and developing countries has led to the development of new alliances aimed at advancing these.
Some Members felt that the Doha architecture was no longer relevant to confront emerging issues related to modern business practice and trade. Should Member States conduct a reality check and look at the reforms necessary to enable the organisation to deliver on contemporary issues? The systemic reform agenda has unfortunately become embedded within a political agenda that is proving extremely difficult to pursue, at least for the time being, given lack of progress on the core Doha Round issues.
The way forward for LDCs, SVEs and SSA countries
The evolution of country interests and positions has left the WTO facing the challenge of balancing discussions to 1) find solutions to longstanding issues and 2) try to satisfy a strong urge to expand the negotiating agenda to include emerging issues that are relevant to new economic sectors. Given their limited capacity, LDCs, SVEs and SSA countries have always been opposed to an expanded agenda, particularly in view of the implications for them of such an agenda while longstanding issues of interest to them remain unresolved. They also face strategic challenges to their effective participation in multilateral trade negotiations, especially given their limited negotiating capacities. They also face the challenge of trying to catch-up with developed countries and at the same time avoid being left behind in new economic sectors.
Given the transformative nature of interests and the negotiating terrain, it is imperative for LDCs, SVEs consider ways that enable them to continuously and vigorously enlighten or demonstrate the need for all the elements of the development dimension at the centre of the multilateral trade negotiations and at the same time to prepare to participate in engagements on issues of modern business that are relevant to them. Consideration should be given to LDCs, SVEs and SSA countries cooperating with both developed and bigger developing countries, not only through existing coalitions but also on present common interests – that is, creating new coalitions. Such an approach would help LDCs, SVEs and SSA countries influence the negotiations, as they cooperate with different and more significant powers on different negotiating issues of interest to them.
Critical to this approach is the evidence-based representation of interests that is grounded in robust analysis that takes into account the transformative nature of these interests, to enable the construction of persuasive proposals. The multilateral trading system has demonstrated dynamism concerning interests, strategies, agenda-setting and the negotiating terrain: countries advance their changing interests by attempting to reshape the negotiating agenda, with implications for other countries’ interests and negotiating strategies. In this regard, LDCs, SVEs and SSA countries can conduct case study-based analysis to strengthen their positions. For example, showing benefits from long periods of derogation from WTO rules can strengthen their position on S&DT. Evidence-based proposals would also help deepen understanding of these issues by their negotiating counterparts and influence a change in their perceptions. Analytical work is also critical in areas relevant to modern business practice and trade, to generate an understanding of the challenges facing LDCs, SVEs and SSA countries and of how they can harness the opportunities these issues bring regarding revolutionising productive capacities, business and trade.
LDCs, SVEs and SSA countries must also demand continuation of the open-ended inclusive approach, particularly in view of the desire among some developed countries to pursue discussion on some critical areas with like-minded partners. A strong rules-based, transparent and predictable multilateral trading system is a prerequisite for growth, employment and sustainable development. Small and weak countries need a robust, rulesbased and transparent and predictable trading environment the most. The TFA negotiations were a success partly because they allowed for the assessment of S&DT based on individual country implementation capacity rather than the traditional approach of granting flexibilities based on the group to which the country belongs. Such an open-ended inclusive approach will allow LDCs, SVEs and SSA countries to cooperate with both developed and major developing country players on shared interests. Besides, this approach represents a workable and tested model that will ensure the participation of these countries in both the Ministerial and the Geneva processes.
As such, it is essential that the LDCs, SVEs and SSA countries stress the importance of the multilateral trading system and preserve and strengthen it in order to ‘promote the rules-based, open, transparent, inclusive, non-discriminatory and equitable trade embodied in the WTO’ and ‘provide it with the tools it needs to face the challenges of the 21st century’ (Presidential Declaration) as well as to provide space to promote LDCs, SVEs and SSA countries’ interests.
The authors are, respectively, Trade Adviser in the Commonwealth Small States Office in Geneva and a.i. Head and Economic Adviser of the International Trade Policy Section, Commonwealth Secretariat. Any views expressed in this article are those of the authors and do not necessarily represent those of the Secretariat.
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U.S.-Africa relations: A new framework
Remarks by Rex W. Tillerson, Secretary of State, at George Mason University, Virginia, 6 March 2018
MR CABRERA: Good morning, everyone. Thank you so much for being with us today for a very, very special presentation. I’m honored to welcome our Secretary of State to George Mason, who, as you know, is on his way to a very important trip to Africa. And I’m slightly biased, but I think his choice of George Mason for this presentation couldn’t be any better.
Secretary Tillerson, who’s now beginning his second year on the job, obviously, who was not a politician or a government person by training, and yet there are aspects of his career when you think about it make him absolutely perfect for this job assignment. You know that he ran ExxonMobil for a number of years, since 2006 until 2017. You know that Exxon is one of the largest publicly-held companies in the world and one of the most global companies. So yeah, it is pretty intimidating to run the State Department with over 44,000 employees, plus another 44,000 local employees all over the world, and a $50-plus billion budget. But that’s actually smaller than what he used to run when he was at the helm of ExxonMobil. Plus he has spent a lot of time around the world running operations in the Middle East and in many other parts of the world.
SECRETARY TILLERSON: Later today I will be leaving on my first official visit to Sub-Saharan Africa – not my first visit to Africa, as I made many, many trips and many visits during my past career, but it’s a trip that really began its planning and originated back in November following a ministerial of 37 African nations and the African Union hosted at the State Department. Our conversation during that summit focused on counterterrorism, democracy and governance issues, and strengthening trade and investment ties with the continent – and these are all themes that I’ll address in a moment.
As I said, in my previous life, I spent quite a bit of time in Africa. And my firm belief is that there is ample opportunity on the continent – for economic growth, for greater prosperity, and for responding to global challenges through mutually respectful partnerships. I do look forward to returning and building on a strong foundation of U.S.-Africa relations. And that includes visiting Chad, a country that has never before welcomed a visit by the Secretary of State.
Over the past century, as African nations emerged from their colonial past, we have witnessed a dramatic increase in America’s engagement with Africa. The State Department created the Africa Bureau in 1958 – a year following then-Vice President Richard Nixon’s trip to the continent. Ghana had invited the Vice President and Martin Luther King, Jr. to attend their independence day celebration – an event that took place exactly 61 years ago today.
A few years later, President John F. Kennedy established USAID with an eye toward African development, and our first Peace Corps volunteers arrived in Ghana and Tanzania. Forty years ago this month, President Jimmy Carter visited Liberia and Nigeria, where he announced that “our nation has now turned in an unprecedented way toward Africa.”
Today that turning continues. Our country’s security and economic prosperity are linked with Africa’s like never before. That will only intensify in the coming decades for the following reasons:
First: A major demographic shift. By the year 2030, Africa will represent about one quarter of the world’s workforce. And by the year 2050, the population of the continent is expected to double to more than 2.5 billion people – with 70 percent of them under the age of 30.
And second: Africa is experiencing significant economic growth. The World Bank estimates that six of the ten fastest growing economies in the world this year will be African.
For context, by the year 2050, Nigeria will have a population larger than the United States and an economy larger than Australia’s.
To understand where the world is going, one must understand that Africa is a significant part of the future. African countries will factor more and more into numerous global security and development challenges, as well as expansive opportunities for economic growth and influence.
While Africa contains a wealth of diversity – among its peoples, its cultures, and its governments – there are common challenges and opportunities. Africa’s vitality is reflected in its youth, but a growing population of young people means a requirement for more jobs. As more Africans move out of poverty, nations will require more infrastructure and development. The growing population of young people, if left without jobs and a hope for the future, will create new ways for terrorists to exploit the next generation, subverting stability and derailing democratic governments. Leaders will be challenged to innovate and to manage the limited financial resources they have.
As we look ahead, this administration seeks to deepen our partnership with Africa, with an aim of making African countries more resilient and more self-sufficient. That serves our partners, and it serves the United States as well by creating a stable future for all of our children and our grandchildren.
The future of stability is dependent on security – the condition that is necessary for economic prosperity and strong institutions. Without it, none of the other pieces can be put into place.
Today, the long reach of terrorism threatens to steal the future of countless individuals. This August, we will remember the hundreds of lives lost 20 years ago in the U.S. embassy attacks in Nairobi and Dar es Salaam – where hundreds of lives ended.
Since that day, thousands more have died at the hands of terrorists in Africa. Terrorist attacks rose from less than 300 in 2009, to more than 1,500 in each of the years 2015, 2016, and ‘17. And more recently, we witnessed again the heartbreak of the abduction of more than 100 Nigerian schoolgirls – ripped from their families, forever changing their future. […]
[T]he United States has committed to working with African partners to rid the continent and the world of terrorism by addressing the drivers of conflict that lead to radicalization and recruitment in the first place, and building the institutional law enforcement capacity of African nations. We want to help Africa states provide security for their citizens in a lawful manner.
Today African nations are stepping up to take action, including the sacrifices that go with such commitment. […]
The United States is grateful for the African Union’s leadership in a growing, multilateral role. The AU Mission in Somalia – or AMISOM – includes troops from five African countries, stabilizing areas under attack from al-Shabaab and permitting much needed aid to reach the Somali people. I look forward to meeting with AU Commission Chairperson Faki on my upcoming trip to explore more ways in which we can work together to counter terrorism on the continent.
The United States’ role in these and other regional and multilateral efforts is to build capacity – not dependency – so our partners can provide for their own security. That’s true of our approach to peacekeeping on the continent as well.
As the largest contributor of peacekeeping capacity-building in Africa, the United States trains, deploys, and sustains forces that provide counterterrorism support, remove landmines, and facilitate peaceful transitions of power. This creates security, allows health – excuse me – allows health, food, and other services to reach areas of need.
Last year, the United States supported more than 27,000 African peacekeepers from over 20 African countries. Here too more African countries have taken ownership of their future. A decade ago, Africans made up only about 20 percent of peacekeeping forces on the continent. Today that number exceeds 50 percent.
As we support important security efforts, we must work to find long-term diplomatic solutions to conflicts that cause so much human suffering. Until we do, the United States, as the world’s largest provider of humanitarian assistance, will continue to stand with those most vulnerable.
As a testament to that commitment, today I’m announcing $533 million in additional humanitarian assistance to fight famine and food insecurity and address other needs resulting from conflicts in Somalia, South Sudan, Ethiopia, and the Lake Chad Basin. The alarming levels of hunger in these areas are largely man-made, as conflicts erupt and people flee their homes. Under these conditions, people cannot produce crops and often lose access altogether to food, education, and health care. Many lose everything. And regrettably, Mother Nature can still be cruel, such as in the Horn of Africa, where a prolonged drought is contributing to grave food insecurity.
These additional funds will provide emergency food, nutrition assistance, and other aid, including safe drinking water, thousands of tons of food, and deliver health programs to prevent the spread of deadly diseases like cholera to millions of people. This will save lives.
The American people, as we always have been, are there to partner with African countries to ensure their most vulnerable populations receive life-saving assistance. We also call upon others to join us in meeting the growing humanitarian needs in Africa. We hope these initial contributions will encourage others to contribute aid to increase burden sharing and meet the growing humanitarian needs in Africa. However, this assistance will not solve these ongoing conflicts, but only buy us time – time to pursue diplomatic solutions.
As many African countries assume greater responsibility to address their needs at home, the United States needs our partners in Africa to take an active role on the global stage as well. […]
Security on the continent is a prerequisite for greater prosperity. And greater stability will, of course, attract greater United States trade and investment with African nations, leading to further development, building on what we have accomplished through the African Growth and Opportunity Act, or AGOA.
AGOA has been the cornerstone of U.S. trade policy in Africa for almost two decades now. And with AGOA, we’ve seen a lot of progress. Total non-oil goods trade has more than doubled from $13 billion a year to almost $30 billion a year. In fact, last year, total U.S. trade climbed to $38.5 billion, up from $33 billion in 2016.
We’re encouraged by the actions of many of our African partners who are seeking ways to expand trade with the United States. On his trip to the United States last week, President Akufo-Addo of Ghana addressed the National Governors Association, the first African president to do so. He talked about his desire – his people’s desire – to transition from poverty to prosperity in a generation. The United States wants to help enable the public and private sectors in Africa and here at home to make that a reality.
Africa still has vast, undeveloped natural resources. Private sector expertise in the United States can facilitate the responsible development of those resources, helping bring more Africans out of poverty to share in the economic values of those resources. But significant transcontinental infrastructure is necessary to support the development, spur economic growth, and boost intraregional trade on the continent.
Today only about 12 percent of total African exports are delivered to their neighboring countries on the continent. Compare that to 25 percent among ASEAN countries and more than 60 percent in Europe, and the potential for more economic prosperity through trade on the continent itself is quite evident. As African nations achieve greater regional integration through lowering tariff barriers and improving transport, energy, and infrastructure links, that will create more opportunities for U.S. businesses, investment, and transatlantic trade.
And importing American business practices and expertise provides the best combination for Africa’s future by contributing to economic prosperity, equipping African nations with new capabilities, and doing so in an open, transparent framework. That is why we want to create the new development finance institution. DFIs are specialized government banks designed to support private sector development to improve development effectiveness. We’re working with Congress to give the United States the ability to compete with countries that already utilize finance to achieve their goals in the developing world.
Power Africa, a USAID-led program, is one of the largest public-private partnerships in the continent’s development history. Established five years ago, Power Africa was created to provide African countries access to one of the most basic needs for development: electricity. Today tens of millions of Africans – across Sub-Saharan Africa – have access to electricity in part because of commitments from more than 140 private sector partners. Our aim is to provide 30,000 megawatts of power by the year 2030 – or 60 million new connections – to reach 300 million Africans. Administrator Green announced Power Africa 2.0 just last week to expand even more power opportunities.
The United States is eager to reduce barriers to trade and investment with our African partners, helping African countries transition from dependency toward self-sufficiency, growing their middle class, and better integrating African economies with the rest of the world.
To prepare for the future and realize the continent’s potential requires an educated and a healthy workforce. This is true all over the world, but it takes on even more urgency, given Africa’s expanding youth population.
The Young Africans Leaders Initiative is one way the State Department and USAID are investing in the next generation of African leaders. YALI provides leadership and professional development training to up-and-coming African leaders on the importance of a free press, how to build more resilient institutions, and even how to start a business. Today, YALI has over 500,000 members and representatives from every Sub-Saharan country. […]
For security, trade and investment, and economic development to sustain itself requires effective and accountable government institutions that earn the trust and support of their citizens. Peace and prosperity are only possible in a democratic society. Media freedom, open communications, religious freedom, and a vibrant civil society foster creativity, ideas, and the human energy for economic growth. Today, Africa has much to gain by creating stronger, more transparent, democratic institutions that reflect their citizens’ voices, that reject corruption, and protect and promote human rights.
The African Union estimates that Africa has lost hundreds of billions of dollars to corruption – hundreds of billions that was not invested in education, infrastructure, or security. Bribes and corruption keep people in poverty. They encourage inequality and they undercut the citizens’ faith in their own government. Legitimate investment stays away, and insecurity and instability grows, creating conditions ripe for terrorism and conflict. We strongly support the African Union’s summit’s highlighting and encouraging efforts on “Winning the Fight Against Corruption.” We hope this year’s theme is only the beginning of a more sustained, long-term focus on anti-corruption.
In support of this theme, the United States will continue its work with African countries to strengthen their democratic institutions. Last month, the State Department requested $137 million from Congress to support democracy, human rights, and government programs to create more transparent, less corrupt institutions that value consensus building over conflict.
Democracy requires transitions of power through free and fair elections. It also needs a vibrant civil society and independent media to help inform citizens and keep them connected to their government. Last year, the United States helped support free and peaceful elections in Liberia, a country that hadn’t experienced a peaceful transition of power in decades. That included civic and voter education programs with a focus on youth, women, and other hard-to-reach, first-time voters, and working with media to promote responsible reporting.
And the Fiscal Transparency Initiative Fund helps governments create more transparent, publicly available budgets, and equips civil society to advocate for areas of improvement. The United States is currently working on 31 projects – and is about to award nine more – throughout Africa. Already, the Financial Transparency Initiative Fund has helped Kenya, Chad, and Malawi develop measures to fight bribery and better serve their own people.
We also keep good governance initiatives in mind when it comes to development. As Secretary of State, I am chairman of the Millennium Challenge Corporation, or MCC. Through this agency designed to reduce poverty, the United States is able to incentivize good governance – including greater transparency – by tying it to development assistance. And about 60 percent of MCC’s funding goes to Africa. Last November, we signed a $524 million compact with Cote d’Ivoire to improve its education and transportation sectors. This was only possible after the country had implemented policies to strengthen economic freedom, democratic principles, human rights, and to fight corruption. Spurring reforms before a dollar of U.S. taxpayer money is even spent is the MCC’s model.
It’s an American model of development that has proven itself to work.
The United States pursues, develops sustainable growth that bolsters institutions, strengthens rule of law, and builds the capacity of African countries to stand on their own two feet. We partner with African countries by incentivizing good governance to meet long term security and development goals.
This stands in stark contrast to China’s approach, which encourages dependency using opaque contracts, predatory loan practices, and corrupt deals that mire nations in debt and undercut their sovereignty, denying them their long-term, self-sustaining growth. Chinese investment does have the potential to address Africa’s infrastructure gap, but its approach has led to mounting debt and few, if any, jobs in most countries. When coupled with the political and fiscal pressure, this endangers Africa’s natural resources and its long-term economic political stability.
We welcome other countries’ involvement in the development of Africa; in fact, it is needed. That’s what the free market is all about, competition leading to more opportunities. But we want to see responsible development and transparent free market practices that foster greater political stability on the continent. We hope China will join us in this effort as well.
The United States sees a bright future in Africa. We have an opportunity to be part of Africa’s journey to a stable, prosperous future for its people. Each of these priorities – trade and investment, good governments – governance, respect for human rights, combatting terrorism and instability – have the same guiding principle in mind: to help African countries build the capacity to take care of their own people.
There are no quick fixes to these challenges, but the United States is committed to meeting them in partnership with nations of Africa so that the continent can increasingly become a place of prosperity and freedom in the 21st century. Thank you for your very kind attention. (Applause.)
MR CABRERA: One last question. I’m reading some nonverbal messages – (laughter) – from your team. But the role of women in the future of Africa and my hope that you carry a very, very strong message – I know this is not new to you. I am aware of the investments that ExxonMobil made in women entrepreneurship. We know the impact that it has when women are kept in school instead of given into marriage. We know the impact that women have in improving health and the quality of life in communities. Let us – help us understand what our message is going to be in that regard.
SECRETARY TILLERSON: Well, it is something that I gained an appreciation for more than 20 years ago in the private sector, and largely because of investments and business activities that my previous life had in Africa, but also in emerging economies and emerging government systems, including Russia and – which I spent a lot of time in as well. And what I learned through studies, academic studies, but also my own experience is so much about creating these conditions that I’ve talked about and so much about creating the conditions for people to thrive the way – and have a life like we enjoy is about breaking the cycle. And I was speaking earlier with the president of your student body about breaking the cycle and that we’re – I think we’re a generation away from breaking that cycle in Africa, but we have to stay at it.
An important element of that starts with women because it starts with mothers, and what we learned through our studies is that mothers – and probably this is true even here in this country, it was for me – mothers are the greatest influencers on how children are going to grow up – the values they hold, how they conduct themselves, and what they aspire to. And so first it’s important that we support women’s health first and their capacity to participate in the economic well-being of the country because too often we have women that are raising families without a lot of help from fathers. And so it starts with giving them capacity because they will raise better families.
But then secondly, putting women into not just the workforce, but the governance. They bring a very different perspective – and I see this in my private sector life, I saw it and I experienced it in the government sector as well – having a perspective brought that women bring, it’s different from ours. I mean, that’s – it’s not that it’s – it’s not that we’re bad, but we have gaps and we have blind spots and women fill those in for us. But I think it’s as much about anything – this is how we break the generational cycle is by really empowering women to fully participate in all aspects of our human life as mothers, as participants in the economy, as entrepreneurs, as participants in government. That is what will ultimately transform the next generation of leaders. Both men and women will be transformed by that and it’s particularly important in Africa. And part of this is the history and culture of Africa. We know it works because we’ve seen it work. We’ve seen it work in very distinct areas. We just have to grow it out now.
So it is crucial to, I think, the success of Africa creating a quality of life that we all want for people in the African continent. We want them to have the quality of life we have, and it’s an important element of how we’ll achieve that.
MR CABRERA: Mr. Secretary, we thank you again for coming to share that message with us, and most importantly for recognizing the huge importance that the African continent has for the rest of us, for carrying that message of economic development and opportunity, and for making Africa a priority. We wish you a productive and safe trip to Africa. Thank you so much.
SECRETARY TILLERSON: Thank you, and all the best to George Mason.
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IMF Executive Board 2018 Article IV Consultation with Nigeria
On March 5, 2018, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Nigeria.
The Nigerian economy is exiting recession but remains vulnerable. New foreign exchange measures, rising oil prices, attractive yields on government securities, and a tighter monetary policy have contributed to better foreign exchange availability, increased reserves to a four-year high, and contained inflationary pressures. Economic growth reached 0.8 percent in 2017, driven mainly by recovering oil production. Inflation declined to 15.4 percent year-on-year by end-December, from 18.5 percent at end-2016.
Reforms under the government’s pdf Economic Recovery and Growth Plan (6.59 MB) have resulted in significant strides in strengthening the business environment and steps to improve governance. However, all these factors have not yet boosted non-oil non-agricultural activity, brought inflation close to the target range, contained banking sector vulnerabilities, or reduced unemployment. A higher fiscal deficit driven by weak revenue mobilization amidst still tight domestic financing conditions has raised bond yields, and crowded out private sector credit.
Higher oil prices are supporting the near-term projections, but medium-term projections indicate that growth would remain relatively flat, with continuing declines in per capita real GDP under unchanged policies. The improved outlook for oil prices is expected to provide welcome relief from pressures on external and fiscal accounts, and growth would pick up to 2.1 percent in 2018, helped by the full year impact of greater foreign exchange availability and recovering oil production. Renewed import growth would reduce gross reserves despite continued access to international markets. After arrears clearance in 2018, the fiscal deficit would narrow, and public debt levels would remain relatively low, but the interest payments-to-Federal Government revenue ratio would remain high.
Risks are balanced. Lower oil prices and tighter external market conditions are the main downside risks. Domestic risks include heightened security tensions, delayed fiscal policy response, and weak implementation of structural reforms. Stress scenarios highlight sensitivity of external and public debt, particularly to oil exports and naira depreciation. Faster than expected implementation of infrastructure projects are an upside risk. A further uptick in international oil prices would provide positive spillovers into the non-oil economy.
Staff Report
Background: Fragile Recovery
A historic terms of trade shock – exacerbated by falling oil production and inadequate policy implementation – has taken a major toll on Nigeria’s economy. Output contracted for the first time in more than two decades in 2016, while external and fiscal buffers dwindled considerably. The initial policy response – including increases in electricity and fuel prices and a more depreciated exchange rate – did not yield the expected benefits, as sabotage of oil infrastructure, foreign exchange restrictions, and delayed implementation of structural reforms worsened investor confidence, increased borrowing costs, and crowded out private sector credit.
New policies and recovering oil prices are supporting Nigeria’s slow exit from recession. The doubling of oil prices from their early 2016 levels, new foreign exchange (FX) measures – including the introduction of a new investor and exporter FX window (IEFX) – and a tighter monetary policy have contributed to better FX availability, a significant narrowing of the parallel market exchange rate premium, contained inflationary pressures, a soaring financial market, and reserve buffers that reached a four-year high. This performance was accompanied by positive economic growth for two consecutive quarters in 2017, propped up by recovering oil production. Reforms under the government’s Economic Recovery and Growth Plan (ERGP) have resulted in significant strides in Nigeria’s latest Doing Business Ranking and steps to improve governance.
However, important vulnerabilities persist. Non-oil non-agricultural economic activity has yet to pick up. Fiscal dominance – driven by weak revenue mobilization – has complicated monetary policy and increased the ratio of interest payments to Federal Government revenue to unsustainable levels. Supply factors are keeping inflation high, banking sector vulnerabilities are rising, and foreign exchange market distortions are slowing efforts to attract long-term investment and diversify the economy. A large infrastructure gap, high gender and income inequality, pervasive corruption, low financial inclusion, and the ongoing humanitarian crisis in the North East remain continuous concerns.
Policy action to address current and longer-standing challenges remains urgent and should not be delayed by approaching elections and rising oil prices. Demographic trends imply that Nigeria could be the third most populous country in the world by 2050 – requiring faster growth to improve per capita incomes and significantly reduce high unemployment and poverty. The need for strong policy implementation – particularly of the ERGP – for the most part aligned with the recommendations of the 2017 Article IV consultation – remains as urgent as it was in 2016-17 but could be delayed by political jockeying ahead of the 2019 elections.
Policy Discussions: Urgent Reforms for Macroeconomic Stability and Growth
Policy action based on a comprehensive package of measures remains urgent. Discussions focused on measures to: (i) initiate a growth-friendly fiscal consolidation; (ii) establish a more transparent monetary policy to reduce inflation to single digits; (iii) move towards a market-determined exchange rate; (iv) properly assess and contain banking sector risks; and (v) advance decisively on structural reforms. Actions in all these areas would lay the foundation for a diversified private-sector led economy and help achieve growth rates that can make a significant dent in reducing poverty and unemployment.
Fiscal Policy: Reduce oil revenue dependence and create space for the private sector
The draft 2018 budget – which is expected to be approved by Parliament in March 2018 – is targeting a significant fiscal consolidation, with the FG’s overall fiscal deficit declining from 4.3 percent of GDP in 2017 to 1.4 percent of GDP in 2018. This consolidation relies on tripling non-oil revenue based on improved compliance and enforcement, higher excises (0.1 percent of GDP), an increase in public enterprises’ (SOEs’) surplus revenue (0.4 percent of GDP), a review of the fiscal regime for oil Production Sharing Contracts (0.2 percent of GDP), and divestment of oil assets (0.5 percent of GDP of privatization proceeds). Budgeted spending would remain relatively flat, with savings in recurrent spending offset by a doubling of the capital budget.
However, even with projected oil prices 30 percent higher than budgeted, the 2018 budget deficit could turn out to be at least twice as high. Staff estimates an overall budget deficit of 3.6 percent of GDP in 2018 after accounting for: (i) unbudgeted spending pressures, such as pension and salary arrears repayment (0.2 percent of GDP) and the full cost of electricity subsidies and past historical deficits (0.7 percent of GDP) associated with the power sector reform; and (ii) more conservative projected yields on tax collection and oil revenue measures (including divestment from oil assets) that are likely to take time to materialize. Net oil revenue gains available to the FG would also be limited by the national oil company distributing fuel products at a loss (retail prices are currently 15 to 20 percent lower than the implied market price) and some savings accruing to the Excess Crude Oil Account. The likely under-execution of the capital budget is not expected to offset the spending overruns and revenue shortfalls.
Strengthening non-oil revenue mobilization to reduce financing constraints and avoid crowding out of private sector credit should anchor fiscal policy over the medium term. This anchor would require moving towards reducing the non-oil primary deficit below 3 percent of non-oil GDP to ensure sustainability in case of an oil price collapse. This would be achieved by increasing the non-oil revenue-to-GDP ratio from 3.2 percent in 2017 to close to 13 percent by 2023, with State and Local Governments (SLG) contributing through automatic revenue increases linked to revenue sharing arrangements and higher mobilization of internally generated revenue (e.g. property tax). These efforts – which are consistent with the authorities’ plans – would allow Nigeria to catch up with its peers, relative to which it has one of the lowest revenue ratios. As a result, the FG interest payments-to-revenue ratio would decrease towards the authorities’ 30 percent objective by 2022. Priority social cash transfers and public investment would be increased to 0.2 and close to 6 percent of GDP, respectively, over the medium term. Supporting the adjustment would require:
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Mobilizing non-oil revenue through a two-pronged strategy (see Selected Issues Paper I: Mobilizing Tax Revenues in Nigeria). A comprehensive tax reform – guided by a strengthened tax policy unit, consistent with IMF technical assistance – could increase revenues by 1.1 percent of GDP within a year and 8.3 percent of GDP by 2023, respectively). Main planks of the reform would include:
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Tax administration measures to double the compliance rate to at least 50 percent. Steps taken to increase tax audits, use e-filing, conduct data matching exercises to close collection loopholes, strengthen tax enforcement, and combat corruption in tax offices are welcome. A stronger focus on large taxpayers would help sustain revenue collection and move beyond reliance on one-off improvements, such as last July’s nine-month tax amnesty. The upcoming Tax Administration Diagnostic Assessment Tool (TADAT) exercise will establish performance benchmarks necessary to anchor comprehensive tax administration reform.
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Tax policy. Staff welcomes recent proposals to increase excises on tobacco and alcohol, review stamp duties, and introduce a registration threshold for VAT. Additional reforms needed at the FG level would imply: (i) broadening the pool of products subject to excises; (ii) undertaking a comprehensive reform of the VAT regime – including revising the design of the tax to allow input credits on capital goods, broadening the base by removing exemptions, and increasing the VAT rate; and (iii) rationalizing tax incentives and exemptions. The publication of tax expenditures with the annual budget will help identify and quantify revenue foregone from incentives while strengthening transparency.
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Improving the transparency of government operations in the oil and energy sectors. Staff welcomes the recent adoption of the longstanding Petroleum Industry Governance Bill (PIGB) – a bill pending since 2008, which will create new regulatory independent agencies and allow the national oil company to be run on a commercial basis. To support this aim, and with import fuel prices rising relative to the retail structure established in 2016, staff recommends a full implementation of the fuel price adjustment mechanism to avoid further losses accumulating at the national oil company for refined product retail sales. Such losses are expected to lower the operating surplus to the federation account in 2018 by an estimated 0.45 percent of GDP, and could put pressure on the national oil company’s ability to fund JV commitments. Staff also recommends that the full costs of the power sector reform be budgeted.
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Adopting a draft petroleum fiscal legislation that balances revenue mobilization aims with the viability of new investments. Staff supports the authorities’ objective to ensure that the government take from oil exploration is appropriate. To that end, it welcomes the minimum royalty payment on all oil and gas production but notes that the proposed combination of price-based and production-based royalties is overly complicated and risks posing an unnecessary barrier to investment. Some proposals to be considered could include: (i) avoiding a price-based royalty while having the Nigerian Hydrocarbon Tax become the main fiscal tool to capture mineral rents; and (ii) modifying the proposed tax inversion penalty to soften the adverse impact on investment and marginal production.
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Continuing to rationalize current expenditures to make room for much needed capital spending to close the infrastructure gap. To this end, overhead and personnel costs should be contained – including through cost auditing, full use of the whistleblower policy, and continuous payroll audit – as well as resisting pressures to increase minimum wages or deviate from approved budget appropriations.
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Strengthening public financial management and explore savings from public investment efficiency. This should happen through closer coordination of central financial agencies, stronger expenditure controls and auditing functions to avoid arrears accumulation, an efficient procurement process that includes rolling out e-procurement and open contracting, strengthening multi-year budgeting, and the creation of a single SOE oversight unit to monitor fiscal risks, which could be presented in the budget as part of a fiscal risk statement.
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Improving debt management. The strategy to substitute a quarter of outstanding T-Bills with Eurobonds – $3 billion, with expected savings of N60 to N70 billion in 2017/2018 – and to increase FX borrowing is welcome, in view of the low external debt-to-GDP ratio, negligible external interest payments, lengthened maturity, and the fiscal space created for private sector credit. Looking ahead, the long-term objective of achieving an external-to domestic-debt ratio of 40 percent may need to be reviewed in view of lumpy redemptions in the future and the doubling of the exchange rate risk.
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Strengthening coordination between cash management, debt management and central bank operations. CBN’s mopping-up operations and T-bill issuances should be more closely coordinated. Staff welcomes the Ministry of Finance’s actions of moving funds away from government agencies that are not immediately using the cash released to them. Staff recommends a more effective use of the Treasury Single Account to ensure that overdrafts from the CBN are avoided while large idle government cash deposits are available (N6 trillion by end-2017). Additionally, through better longer-term government cash flow forecasts, cash management operations can be supported through adjustments in T-bill issuances to limit unremunerated cash balances at the central bank.
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Increasing SLG monitoring, including to reduce arrears accumulation and increase internally generated revenue. Ensuring strict compliance with the 22-point Fiscal Sustainability Plan – including on fiscal reporting – prior to states receiving any additional budget support would help maintain budget discipline and better monitor risks from SLGs. Additional internal revenue could be generated from tax reforms, such as the introduction of a property tax and an overhaul of the personal income tax, reinforced by improvements in compliance.
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Social safety nets should be expanded and transfers scaled up to mitigate the impact of fiscal reforms on the most vulnerable. Plans to expand the national cash transfer program are welcome and should be accelerated. As the proposed revenue reforms under the adjustment scenario will have an impact on households’ purchasing power and thus could increase poverty (albeit expected to decrease inequality), existing cash transfers would also be used to target the poorest households as a mitigating measure. An illustrative scenario (doubling the VAT rate, increasing compliance to 70 percent) shows that cash transfers of about N400 billion would be needed to keep the poverty gap unchanged relative to current levels. As social safety nets are likely not fully scalable in the short term, complementary measures (lifeline tariff; increase in health and education spending) will be needed as part of the reform package (see Selected Issues Paper II: The Distributional Impact of Fiscal Reforms in Nigeria).
Structural Policies: Reforms to support inclusive growth and employment
Structural impediments, including a large infrastructure gap, hamper the recovery of the economy and Nigeria’s diversification objective. Export diversification has decreased in recent decades, reflecting longstanding structural issues: a large infrastructure gap and logistical challenges, a weak business climate and burdensome regulations, and high corruption. Nigeria ranks 136 among 176 countries in the Corruption Perceptions Index and one out of three Nigerians reports having paid bribes. Weak financial inclusion and inequality of opportunity and income constrain a large share of the population. Gender inequality is very high by most measures, with Nigeria ranking 122 among 144 countries (World Economic Forum). Narrowing the infrastructure and gender gaps could respectively boost growth by more than ¾ percentage points and 1¼ percentage point a year, with varying growth impacts across states (Selected Issues Paper III: The Macroeconomic Costs of Gender Inequality in Nigeria).
Addressing structural impediments is a priority of the Nigerian government and its ERGP. Notable actions initiated so far include:
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Doing Business. Nigeria’s ranking among the 10 economies showing the most improvement in the recent World Bank Doing Business Rankings (rising by 24 places to 145th place) is commendable. Welcome actions include the significant decrease in documents required to import and export, the implementation of the 48-hour electronic visa, and the establishment of a collateral registry.
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Power sector and infrastructure. Actions under the Power Sector Recovery Plan (PSRP) have included increased power supply generation (a new record peak generation of 5100MW in the grid in December 2017), appointment of new boards for sector agencies, appropriate budget provisions to ensure government agencies pay their electricity bills and enable the Bulk Trader to pay in full for generated power, and an off-grid electrification strategy. The PSRP aims to restore financial viability, technical stability, regulatory certainty and governance in the sector to attract much needed private sector investment throughout the value chain. In addition, the ERGP aims at partnering with the private sector through public-private partnerships to scale up infrastructure investment more generally.
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Anti-corruption and transparency. Staff welcomes the development and adoption in August 2017 of the National Anti-Corruption Strategy (NACS), the recent passing of the PIGB by the House of Representatives, initial efforts taken to digitize public officials’ asset declarations, the publication of the first national money laundering and terrorist financing risk assessment report, and the ongoing development of the action plan to address risks identified (Selected Issues Paper IV: Strengthening Transparency and Governance in Nigeria).
To continue the structural reform agenda, staff recommends:
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Further strengthening the business environment, including through completing reforms under the second 60-day Doing Business plan, pushing for further simplification of administrative and tax procedures, increasing the speed and efficiency of conflict resolution, and launching the 24 hours accelerated pilot port operations. The planned submission of the “Omnibus Bill” to parliament would help achieve quick-wins in removing administrative constraints.
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Urgently implementing the PSRP. In line with World Bank technical assistance, the review of the multi-year tariff schedule should be accelerated to help reset the revenue requirements and cost recovery levels with a view of setting the stage for tariff increases in 2019. The tariff review would provide more time to improve collection (through metering) and further increase power delivery in a reliable manner.
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Accelerating ongoing plans to revise the financial inclusion strategy – which aims at reducing exclusion from 41 percent overall (80 percent in the North) to 20 percent by 2020. Key priorities include developing reliable and inclusive wholesale and retail payment systems, mobile money and agent expansion, and creation of a harmonized biometric citizens’ database.
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Strengthening governance and transparency initiatives, including through (i) streamlining the legal and institutional framework to improve the effectiveness of investigation, prosecution and conviction of corruption and facilitate asset recovery; (ii) advancing efforts to enhance transparency, particularly in the extractive sector in line with the EITI standard; (iii) strengthening the asset declaration regime; (iv) continuing to strengthen AML/CFT measures by formulating prioritized policies to address identified risks and target CBN’s AML/CFT supervision; and (v) addressing risks posed by politically-exposed persons and vulnerabilities of BDCs.
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Implementing policies to level the playing field for men and women, including through executing and updating the 2006 national gender strategy (notably on adopting equal legal rights); allocating more funds to the health sector; improving awareness and protection against gender-based violence; and reinvigorating efforts with respect to gender-based budgeting. The provision of gender-disaggregated data should be strengthened.
Selected Issues paper
I. Mobilizing Tax Revenues in Nigeria
Relative to peers, Nigeria has one of the lowest revenue-to-GDP ratios. Between 2011 and 2017, a sharp decline in oil revenues led to consolidated government revenues falling from 17.7 percent to 5.1 percent of GDP. During this period, non-oil revenue stayed relatively stable at about 3 and 4 percent of GDP, although with an accelerating decline in 2016-17. In particular, the corporate income tax (CIT) decelerated by 0.1 percent of GDP and value added tax (VAT) by 0.2 percent of GDP relative to 2011. Comparing Nigeria’s tax structure with those of a selected sample of advanced, emerging, and developing economies, none of its domestic tax collection showed a promising performance. Nigeria raised the least revenue of all comparators and at 5.3 percent of GDP in revenue in 2016 was significantly below the sample’s 22 percent of GDP average. In most countries, excises alone raise 3.6 percent of GDP.
Nigeria has a significantly higher revenue potential. Recent empirical work shows that internationally, there is a tipping point in the relationship between tax capacity and growth. A minimum tax-to-GDP ratio of 12¾ percent is associated with a significant acceleration in the process of growth and development, and likely with changes in social norms of behavior and state capacity. Taxation is not an end in itself, but an instrument for advancing citizens well-being as part of a well-functioning state. Tax is a core part of state-building and constitutes a visible sign of the social contract between citizens and the state, enshrining the principle of revenue-for-service. Estimates of tax potential from the literature (Fenochietto 2013, IMF 2017b) suggest that a non-oil tax capacity of 16 to 18 percent would be optimal for a country with Nigeria’s economic structure and per capita income levels. This estimate implies space for additional tax collection of 12 percent of GDP.
The authorities have made a key development objective raising the non-oil revenue to GDP ratio to 15 percent by 2020. Both the ERGP published in March 2017, which seeks to keep the fiscal deficit within the boundary established by the Fiscal Responsibility Act, and the draft 2018 Budget emphasize this revenue target. Increasing non-oil tax revenue would be realized through a series of tax administration initiatives (improving tax compliance, broadening the tax net, employing appropriate technology) combined with tax policy reforms (strengthening tax legislation, introduction of tax on luxury items, and other indirect taxes to capture a greater share of the informal economy).
Tax Administration Reforms
Recent reform measures have sought to strengthen revenue collection at the federal level through information technology improvements and by expanding the number of registered taxpayers. FIRS has implemented technology initiatives such as online portals for assessment and payment of stamp duties (e-stamp) which has dramatically reduced the time to register a company, the processing of tax clearance certificates (e-TCC), and the automation of withholding tax remittances by MDAs. The Integrated Tax Administration System (ITAS) project had also been completed following its deployment in a majority of tax offices, although a major test for success remains that it also be actively used for compliance management FIRS has also continued to expand the taxpayer register, and has taken steps to create a specialized collection enforcement function and improve the integrity of the audit process. It also continued to improve staff capacity and infrastructure. Importantly, these measures are strengthening the foundation of tax administration, yet compliance levels across all levels of tax payments remain low. The strategy of relying on strengthened collection efforts and one-off initiatives (such as the Nigerian Voluntary Asset and Income Declaration Scheme, VAIDS) as a first level intervention may not be that effective in delivering higher revenues sustainably.
Additional revenue could be raised in the short term with tax and customs administration measures, including by:
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Initiating large scale data analysis and cross matching using the Taxpayer Identification Number (TIN) and the Unified Taxpayer Identification Number (UTIN) as part of a broader compliance management framework. Data analysis and cross matching offers real potential for enhancing revenue, reducing both administrative and compliance costs, and strengthening the working relationship between the FIRS and the Nigerian Customs Service (NCS). Developing a repeatable data matching methodology for deployment, initially for a small group of data sets, will be needed.
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Recovering tax arrears (such as, unremitted withholding of PAYE). The stock of arrears has grown significantly and as of mid-2017, it stood at N 1.4 trillion – N1.2 trillion of which were attributable to large taxpayers. Early wins could thus be made by targeting large and medium taxpayers for migration into ITAS, fully utilizing the debt management module, and implementing a well-resourced collection and enforcement compliance improvement plan to validate arrears, institute collection measures, and enforce difficult debt, including debt owed by public agencies. Staff estimates that additional minimum revenue yields of N150 billion could be generated in 2018 only from these measures.
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Improving filing and payment compliance. In the short term, the focus would need to be on outreach initiatives for dormant registered taxpayers to motivate them to start filing and paying taxes and actively sending bulk reminders to taxpayers shortly before the filing dates. Data analysis and cross-matching can help identify taxpayers with active economic activities.
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Improving integrity and putting in place appropriate management controls in customs. Stakeholders report widespread “irregular practices and payments” that have a negative impact on revenue flows and investor confidence. Implementation of a comprehensive integrity strategy that is anchored in a strategic plan would help improve ease of doing business and improve revenue. At a minimum, these measures could yield N15 billion in additional revenue in 2018.
Rationalization of Tax Incentives
The extensive use of tax holidays, reduced rates, and generous allowances have eroded revenues from CIT, which only yielded 1 percent of GDP in 2016. Despite imposing a relatively high statutory rate of 30 percent, Nigeria’s CIT efficiency, as measured by the ratio of CIT revenues to the product of GDP and the corporate tax rate, is 0.03 when calculated with respect to the non-oil economy only, and 0.06 when CIT revenue is compared to total economy GDP. These values are significantly below the 0.07 ECOWAS average and the 0.13 average for the group of emerging and developing economies, indicating that Nigeria’s corporate tax base has been eroded by tax expenditures.
Nigeria offers several types of tax incentives and allowances. The income tax system has generous incentives in the form of tax holidays of 3 to 5 years for pioneer industries and products, complete exemption of tax at the federal, state and local level for companies under the free zones regime, and various waivers and reductions by presidential decree or as embedded in the CITA for preferential sectors. Without coordination between measures, in practice some of these incentives are likely to overlap and be redundant.
The authorities intend to rationalize Nigeria’s endemic use of tax incentives as one of the strategies of increasing non-oil revenues, which is a timely development. An Inter-Ministerial Committee was constituted in January 2016 and tasked with undertaking a review of tax expenditures resulting from 52 types of incentives being implemented by the Federal Government through its agencies (NCS, FIRS and NIPC). The Committee’s preliminary findings based on a partial quantification of expenditures indicate that between 2011 and 2015, the government conceded N1 trillion, or 1.28 percent of GDP to the granting of only four types of incentives: import duty waivers / concessions / grants, VAT waivers / concessions / grants, and pioneer status – separately for nonoil companies and oil companies – which carries tax holidays of 3 to 5 years. The largest share of incentives came from the granting of import duty waivers, which represented almost half of the total cost of incentives. Importantly, these estimates do not include incentives granted by Government under existing laws such as the Corporate Income Tax Act, Personal Income Tax Act, Petroleum Profits Tax Act, or the Minerals and Mining Act, on which the Committee could not obtain data, but nevertheless suggest that the size of expenditures is likely considerable.
A systematic review of tax expenditures, ideally accompanying the annual Budget, would help quantify the cost of incentives and identify ways to improve the fairness of the tax system and recover lost revenue. The scarce availability of corporate taxpayer-level data would need to be considerably improved to undertake such an assessment. Cost-benefit analyses of tax incentives would also allow determine which incentives provide a net benefit to the economy. Generally, there are better options for low income countries’ effective and efficient use of tax incentives for investment than tax holidays and income tax exemptions:
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Mechanisms such as investment tax credits and accelerated depreciation generally yield more investment per dollar spent than tax holidays and income tax exemptions, which tend to be fiscally costly for the country and often redundant;
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Tax incentives targeted at export-oriented sectors and mobile capital appear to be more effective, while those targeted at sectors producing for domestic markets or extractive industries generally have little impact;
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Enabling conditions (such as good infrastructure, macroeconomic stability, and rule of law) are critical for effectiveness and efficiency, as are the good governance of incentives and transparency – the granting of tax incentives should be rules-based and consolidated under the authority of the Minister of Finance.
While the justification for tax incentives is to change relative prices, profits and costs to steer investment in a desired direction, if granted almost to all sectors of the economy their efficiency is diffused and make little difference in attracting investments. Streamlining tax expenditures in the short term would require placing a moratorium on the introduction of new profit tax incentives, followed in the medium term by a rationalization of granted expenditures. The expansion of the tax base will afford to the gradually alignment of CIT rates to the current international average of approximately 25 percent for non-extractive industries, which in itself would help reduce pressures for tax incentives from the business community.
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IMF Executive Board 2018 Article IV Consultation with Mozambique
On March 5, 2018, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with the Republic of Mozambique.
In recent years, Mozambique’s economy has been adversely affected by the fall in commodity prices and adverse weather conditions, as well as by the issue of undisclosed loans in the spring of 2016 and the ensuing freeze in donor support. Growth decelerated in 2016 to 3.8 percent (from 6.6 percent in 2015) and the latest data show that the economy grew by 3.7 percent in 2017, driven by a recovery in agriculture and mining activity (due to a surge in coal production).
A tight monetary stance, coupled with exchange rate appreciation, led to a steep fall in inflation to 6.3 percent (year on year) in January 2018, from a peak of 26 percent in November 2016. However, the 2017 fiscal deficit on a modified cash basis (i.e., including external and domestic arrears) is estimated to have increased to around 8.2 percent of GDP compared to 7.6 percent of GDP in 2016, mainly due to continued spending pressures, including from a higher wage bill and high debt service costs.
The external current account deficit continued to narrow in 2017. This was due to a boom in mining exports and to a contraction in megaproject imports of services. Another factor was the one-off inflow in income associated with the capital gain tax from the sale of ENI’s stake in the Coral South natural gas field to Exxon Mobil. Debt remains in distress as the stock of public sector debt-to-GDP reached 128.3 percent at end-2016, with several debt payments missed, including on the Mozam Eurobond.
The outlook remains challenging. Absent further policy action, real GDP growth is expected to further decline over time while inflation would remain at current levels. The fiscal deficit would expand, leading to further accumulation of public debt and crowding out of the private sector. Banks’ rising exposure to the government, combined with high interest rates, create potential macrofinancial vulnerabilities.
Staff Report
Background
Mozambique’s economy faces serious macroeconomic challenges. Despite a loose monetary/fiscal policy mix through mid-2016, the economy slowed from 2015 because of a series of shocks, including lower commodity prices and adverse weather conditions. The economic situation deteriorated further following the disclosure in April 2016 of undisclosed borrowing by the Proindicus and MAM public companies and the ensuing freeze in donor budget support. Growth has continued to slow and fiscal policy has remained fairly loose in 2017. Public debt has been rising at an unsustainable pace and debt has remained in distress with several payments on external borrowing missed.
Monetary policy has carried the burden of adjustment. Tight monetary policy since October 2016 has helped rebalance the foreign exchange market, lower inflation, and strengthen net international reserves. The government eliminated fuel and wheat subsidies, reintroduced automatic adjustment of fuel prices, and raised electricity and public transportation prices. However, significant spending pressures are expected to result in an overall 2017 fiscal deficit exceeding 8 percent of GDP (on a modified cash basis). The large financing needs of the Treasury combined with a restrictive monetary stance to stabilize inflation continues to press market interest rates higher, depressing credit availability to the private sector – particularly to SMEs – and affecting economic activity, employment, and socio-economic conditions.
Mozambique’s financial sector has come a long way since the volatility observed in 2016. The instability created by the resolution of Moza Banco and Nosso Banco has abated. The system is currently characterized by an increasing gap between credit growth and monetary aggregates and high government financing needs. The rapid disinflation and returned stability in the FX market have left real interest rates in domestic currency at elevated levels. Private credit demand has contracted, which resulted in high liquidity for the balance sheet of the system being allocated to government securities. Vulnerabilities remain related to rising NPLs, increasing government expenditures arrears and debt sustainability of SOEs.
Recent Economic Developments
In response to then high inflation and depreciating exchange rate, the Bank of Mozambique (BM) considerably tightened monetary policy from October 2016. This tightening increased demand for domestic currency and helped stabilize the exchange rate and rebalance the foreign exchange market. Since June 2017, broad stability has returned to the foreign exchange market. International reserves increased because of the accumulation of external arrears and of occasional interventions by the BM. At end 2017, reserves reached a level equivalent to 5.5 months of non-megaproject imports. In April 2017, the BM changed its operational monetary target to a short-term interest rate (MIMO) and started a cautious easing cycle totaling three policy rate cuts by 225 basis points to 19.5 percent in December (see Selected Issues Paper Chapter I). In the same period, reserve requirements were reduced by 150 basis points to 14 percent.
The current policy mix has resulted in a sharp decline in credit to the economy. The rapid reduction in inflation in the last year led to high real interest rates and higher demand for deposits and lower demand for credit in domestic currency. In December 2017, the policy rate reached 12 percent in real terms while y/y domestic credit to the economy contracted by 12 percent in nominal terms whereas deposits in domestic currency grew by 13 percent till November. The resulting gap between credit to the private sector and monetary aggregates in domestic currency has helped finance the governments’ significant funding needs, albeit at a higher cost.
The current account deficit has continued to narrow in 2017. An essential factor in this narrowing was the one-off inflow in income associated with the capital gain tax. It was also due to a 12.7 percent of GDP megaproject current account surplus. This surplus resulted from a boom in coal export volumes and prices, and to the 55 percent contraction in megaproject imports of services as many of the on-going projects were completed in 2016. The non-megaproject trade balance of goods deteriorated, with exports of goods falling by almost 8 percent, and imports growing by 3.3 percent, year-on-year in 2017. At the same time, net foreign direct investment in the non-megaproject economy continued to fall to about $1.3bn in 2017, half of the $2.6bn inflows registered in 2015.
Mozambique’s public debt is in distress. The stock of public sector debt-to-GDP reached 128.3 percent at end-2016, including domestic debt (24.6 percent of GDP). Sovereign arrears have been incurred on the Mozam Eurobond coupon and on the debt service of Proindicus and MAM, as well as on two loans from Brazil to the state-owned airports company, Aeroportos de Mozambique (AdM), for which the state-guarantee has been called. The overall stock of external arrears on public and publicly guaranteed external debt service reached $709.7 million by end-2017, including arrears under bilateral discussions with five official creditors amounting to $94 million (Libya, Iraq, Angola, Bulgaria and Poland). The authorities are currently servicing all other multilateral and bilateral external debt obligations. Discussions between the government and private creditors have not progressed since the government announced in October 2016 its intention to restructure the private external debt.
Policy Discussions: Maintaining Macroeconomic Stability
The current economic situation requires an urgent rebalancing of the policy mix to ensure durable macroeconomic stability, while enhancing growth prospects and making inroads in reducing poverty and income inequality. Discussions focused on the need for: (i) fiscal adjustment to restore fiscal sustainability and bring the fiscal deficit in line with financing availability while containing public debt; (ii) normalization of monetary policy and challenges in the financial sector, and (iii) strengthening governance and transparency, including by addressing the institutional weaknesses and corruption underlying the hidden loans, while advancing other structural reforms to generate growth and employment.
Strengthening resilience and containing financial sector risks
The central bank is committed to implementing further monetary and financial sector reforms to gain structural resilience. The central bank continues to strengthen its governance, organization, analytical tools and monetary and FX operation framework with cooperation of Norges Bank and IMF technical assistance. The plan intends to enhance financial stability analysis, reporting, communication; modernize the national payment system and oversight; and improve currency cash management. The financial regulatory framework is being strengthened to mitigate vulnerabilities and enhance bank resolution capacity.
The current environment constrains credit growth. Banks are placing their extra-balances in domestic currency at the central bank in the form of excess reserves, or via reverse repos in the overnight market. The currently high real returns and low risks of those liquidity placement options constrain credit growth. Moreover, the increase in minimum capital requirements, to be phased in over three years, while welcome for the overall strengthening of the system, reduces at the margin the profitability of intermediation in the current circumstances.
The banking system continues to hold significant capital and liquidity buffers. New regulations to increase the CAR and establish minimum liquidity requirements were put in place in 2017. While reports indicate that banks remain liquid, well capitalized, and profitable on average, there is heterogeneity across institutions. In addition, nonperforming loans (NPLs) have increased substantially, from 5.5 percent of total loans at end-2016 to 11.4 percent in September 2017. Several factors underlie this deterioration. Staff encouraged the authorities to remain watchful of loan classification, collateral valuation, and provisioning.
The bank resolution framework needs strengthening to deal with systemic failures and the safety net is still incipient. Weaknesses in the legal framework complicated the resolutions of Moza and Nosso Banco. In the absence of other reputable buyer, Moza was sold to the BM’s pension fund; Moza is currently run by professional bankers and is gradually recovering. Staff encouraged the authorities to establish a policy to ensure independent governance and adequate surveillance, and prepare a divestment strategy for the medium term. It supports ongoing work to prepare a new bank resolution framework aimed at enhancing the resolution powers of the BM. Strengthening the deposit insurance scheme is also warranted. The Fund stands ready to continue providing technical assistance in these areas.
Modernizing the 1992 central bank law would strengthen the BM’s credibility and monetary policy effectiveness. In particular, the law allows lending to the government interest-free yearly-loans up to 10 percent of revenue collected in the penultimate year. Staff recommended that, as a first best, the new law ban credit to the government or strictly limit it as a second best.
Staff commended the authorities for their efforts at promoting financial inclusion within the 2016-2022 National Strategy. Mobile banking and electronic currency could play a key role in extending the network of transactions and creating opportunities for people in rural areas with low income levels. Staff encourages the authorities to continue efforts to implement the Financial Inclusion Strategy and periodically assess if further measures are needed.
Mozambique adopted IFRS in 2007 and will transition to IFRS9 in 2018. The change includes a move toward impairment modelling, among other factors, and the process should be carefully phased-in to avoid unintended consequences.
Structural Policies: Strengthening governance and promoting inclusive growth governance
While Mozambique’s anti-corruption legal framework is sound, it is lacking in implementation and enforcement. In 2012, a comprehensive legislative anticorruption package was approved and aligned the legal framework with international standards. Notwithstanding these efforts, lack of resources and poor prioritization have resulted in an ineffective implementation of the legal framework. A Central Public Ethics Commission (GCCC) was created to prevent and investigate conflict of interest. Yet it was only recently given an office; the commissioners cumulate their GCCC responsibilities with other full-time jobs. While the asset disclosure system is comprehensive, its implementation falls behind international best practices: asset disclosures are not published, sanctions for non-compliance or false declarations are not sufficiently dissuasive, and verifications are not strategic. During 2017, only 55 percent of officials complied with their obligation to declare assets with no consequences for the 45 percent who did not declare.
In the wake of disclosure of hidden debt in 2016, the authorities are working on an action plan to strengthen governance, improve transparency, and ensure accountability. Fund and World Bank staff discussed with the authorities’ joint recommendations for the action plan. The key recommendations include:
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Governance:
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Introduce a framework for fiscal responsibility and efficient management of natural resources wealth.
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Strengthen the issuance and management of public debt and guarantees, and prepare recovery or restructuring plans for SOEs in financial distress; the latter includes liquidating Ematum, MAM, and Proindicus after transfer of security assets to the State.
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Improve public investment and assets management, and put in place a framework for government autonomous entities, and address arrears.
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Transparency:
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Support public and parliamentary oversight through reporting, disclosure, and amendments to laws governing public finance, SOEs and the extractive industry sector. Improving fiscal reporting through: (i) enhancing reporting on commitments, arrears, debts and other obligations under guarantees, and major public investment decisions; (ii) requiring annual reporting on SOEs and government autonomous entities, including quarterly reporting on the financial operations of a subset of SOEs presenting large fiscal risks; (iii) publishing annual fiscal risks assessment and consolidated financial statements of SOEs in line with IFRS standards; and (iv) disclosing beneficial ownership in the extractives sector, including State’s participation and the rules governing its financial relations with SOEs.
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Accountability:
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Resolve the issue of unreported loans of EMATUM, MAM and Proindicus, and strengthen compliance, enforcement and key laws supporting the fight against corruption, including stepping-up anti-corruption efforts to prevent abuses in the administration of SOEs, and back accountability process and case resolution. Staff commends the authorities for submitting to Parliament the SOE law and for approving a decree providing a regulatory framework for the issuance of public debt and guarantees.
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Information gaps in the audit of hidden loans need to be addressed. The completion of the Kroll audit report and the publication of its summary in June 2017 are important steps towards greater transparency. However, critical information gaps remain unaddressed regarding the use of the loan proceeds. Staff urged the authorities to provide full clarity on this use.
Strengthening the fiscal framework for managing natural resource wealth is essential. Staff recommended to consider fiscal rules and a sovereign wealth fund to underpin a fiscal responsibility law, while noting that reducing costly debt must take precedence in the short term. To raise awareness on these issues, staff suggested organizing a high-level workshop to discuss international experiences and best practices ensuring an efficient management of natural resources over time.
Structural reforms to support inclusive growth, reduce poverty, and promote economic diversification. Structural reforms to remove impediments to investment and employment creation are necessary for diversified and sustained inclusive growth, and to support poverty reduction. Underdeveloped infrastructure, difficulties with corruption, and ambiguous regulations are key challenges according to Doing Business (Mozambique ranks 138th out of 190 countries in 2018). The private sector also struggles with unresolved public-sector arrears and tight and expensive access to credit. Staff urged the authorities to adopt, in consultation with the World Bank, a set of reforms aimed at improving the weak business climate.
Mozambique is one of the most vulnerable countries to natural disasters and climate risks. The country’s geographic location and topography (particularly low-lying elevation) add to the risk. Additionally, weak socio-economic infrastructure, high poverty, and heavy dependence on rain-fed agriculture magnify these risks, in a context of limited access to insurance. Limited preparedness and lack of adequate resources further inhibit the country’s crisis adaptation and response capacity. Staff recommends the authorities integrate climate change mitigation within their developmental agenda and preparedness going forward.
Selected Issues paper
I. Towards a new monetary policy regime in Mozambique
Many central banks in low-income countries (LICs) in Sub-Saharan Africa are modernizing their monetary policy regimes. The role of monetary policy in LICs has been a controversial topic. Mishra et al. (2012), for example, argue that the weak institutional framework prevalent in LICs drastically reduces the role of securities’ markets rendering traditional monetary transmission mechanisms using market interest rates and market-determined asset prices weak and unreliable. However, Berg et al. (2013) based on event studies applied to four Sub-Saharan economies (Kenya, Rwanda, Tanzania and Uganda) found that the transmission mechanism is effective with large policy-induced changes in the short-term interest rates strongly transmitting to market interest rates, exchange rates, output and inflation. The transmission occurred even though, like in other LICs, the four countries have relatively small, concentrated and bank-dependent financial systems. The authors observed that monetary transmission was stronger in Kenya and Uganda. In the first case, the authorities explicitly signaled the monetary policy stance with a short-term interest rate and described their intentions in terms of an inflation objective. In the case of Uganda, the inflation targeting lite regime seemed simpler and more transparent. The initial success with modernizing monetary policy frameworks in some central banks in Sub-Saharan economies has attracted the attention of other central banks in the region, including that of Mozambique.
Box 1. Transiting to a New Monetary Policy Regime
The BM is gradually transiting to a new monetary policy regime. In April 2017, it introduced, for the first time, the Reference Monetary Policy Interest Rate (known as MIMO). The MIMO is an overnight interest rate at which the BM intervenes in the interbank market. The interventions are conducted through overnight reverse repos at the MIMO rate with full allotment, thereby aligning overnight secured money market rates closely with the MIMO. It was also expected that the MIMO would help strengthen the interest rate formation mechanism and transparency in the market. While the MIMO is expected to signal the monetary policy stance, the BM continues to monitor monetary aggregates for informational purposes. The introduction of the MIMO rate implicitly recognized the difficulties entailed in communicating the monetary policy stance through reserve money ceilings, but it also somewhat encouraged the public interpretation that the BM will seek to maintain the MIMO rate positive in real terms. In this context, understanding the bimonthly MPC decisions regarding the level of the MIMO rate and the resulting impact on future inflation appears to have gained greater public attention in Mozambique.
Important changes have also been introduced in the foreign exchange and credit markets, which should support the new monetary policy regime. A Reference Exchange Rate was introduced in May 2017 which replaced the multiple exchange rates that were in effect in the market. The new reference rate is based on transactions between commercial banks and their customers, and it is published three times a day in the BM website. In June 2017, the BM introduced, in consultation with commercial banks, the Standardized Prime Interest Rate (Indexante Unico) for banks’ lending. Although banks can add a risk spread over this prime rate, it makes banks’ final interest rates on loans directly linked to monetary policy decisions. This is because the prime rate is strictly defined as the arithmetic average between the BM’s FPC rate and the reverse repo rate plus 600 basis points which have been agreed to represent banks’ funding risk. While some argue that the 600 basis points spread may be too high, the Reference Exchange Rate and the Standardized Prime Rate, which are published in the BM website, were important measures to strengthen transparency in the process of exchange rates’ and interest rates’ formation.
The embryonic monetary regime will often face challenges that will likely test the policy resolve and credibility of the BM. Building credibility is critical to enable the central bank to effectively signal the monetary policy stance and help anchor inflation expectations. Building capacity to improve inflation forecasting, correctly identifying the monetary policy transmission mechanisms, fostering the development of the interbank market, improving communications, striving for a close coordination with the fiscal authorities, and strengthening the BM legal framework are all essential in the process of building credibility.
II. The governance challenge in Mozambique
An increasing body of literature, including case studies and survey data, shows that weak governance and corruption severely hampers economic performance. Economic performance is impacted through several channels, especially in the domains of fiscal, market regulation, financial sector oversight, and the rule of law. This undermines the society’s trust in government, puts at risk the quality of public institutions, and give rise to rent seeking behavior, eroding the general rule of law, and slowing overall economic development.
For Mozambique, governance and corruption indicators have been progressively deteriorating. Over the past ten years, the Worldwide Governance Indicators (WGI) deteriorated on all six dimensions. While Mozambique still fares better than Sub Saharan Africa’s (SSA) averages on two indicators, (voice & accountability and regulatory quality), it continues to fall behind neighboring countries in government effectiveness, control of corruption, and rule of law. The gap between its percentile ranking for control of corruption (21) and SSA average (31) stands out and marks a rapid drop since 2010 (41 percentile rank). This is in line with findings from other governance and perception of corruption indices, including the Corruption Perception index (CPI), the Ibrahim index of African Governance (IIAG), and the survey of business leaders by the World Economic Forum.
Several factors underlie this progressive deterioration in governance and corruption in Mozambique. These include: (i) a large informal economy with limited financial inclusion, which allows for a high share of cash transactions, and makes it difficult to track and control illicit transactions; (ii) a large, complex and obscure structure of beneficial ownership of state owned enterprises; (iii) a patronage political culture that often relies on the provision of benefits and public goods in exchange of political support; and (iv) weak and underfunded oversight and regulatory institutions.
The government recognizes the magnitude of the problem, but a coherent strategic plan remains to be enforced. Supporting anti-corruption efforts was at the forefront of president Nyusi 2014 presidential campaign and was emphasized in his inauguration speech, promising zero tolerance with government corruption. However, progress has been slow with momentum building up only recently. A new anti-corruption plan was adopted in November 2016 after the disclosure of hidden loans. This was also followed by other corruption cases making it to the news headlines. While Mozambique has an updated anti-corruption framework, it faces the challenge of effective implementation and enforcement.
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tralac’s Daily News Selection
Featured statement, WTO DG Roberto Azevêdo: “In light of recent announcements on trade policy measures, it is clear that we now see a much higher and real risk of triggering an escalation of trade barriers across the globe. We cannot ignore this risk and I urge all parties to consider and reflect on this situation very carefully. Once we start down this path, it will be very difficult to reverse direction. An eye for an eye will leave us all blind and the world in deep recession. We must make every effort to avoid the fall of the first dominoes. There is still time.”
Featured tweet, @SongweVera: ECA is facilitating US investors of securities and pension fund managers with a total of $137bn in a meeting Dakar to discuss partnerships with funds from Nigeria, Ghana, South Africa, Gabon, Senegal. My message: We need to harmonize pension legislation in Africa.
The East African Legislative Assembly resumed its sitting in Arusha yesterday. The Third Meeting of the First Session of the 4th Assembly will continue until 23 March. The report of on-spot assessment of the Northern and Central Corridors is one of the agenda items.
Related EAC trade policy events: (i) In Mombasa: EAC Single Customs Territory Monitoring and Evaluation meeting; (ii) In Nairobi: Meeting of the taskforce to develop Bills for institutions of the EAMU
Prof Benno Ndulu: The conduct of monetary policy in East Africa in a changing policy environment (CBK)
Debt sustainability challenges – are we borrowing too much? (i) Based on DSA carried out for each of the East African member countries External debt and Total public debt are broadly within the acceptable int’l thresholds and EAC limit of PV of debt at 50%; (ii) None is currently already at risk of distress; (iii) Nevertheless recent build up has been rapid with higher cost and shorter maturities as non-concessional borrowing increased faster than debt stock; (iv) PV of Kenya’s total public debt ratio to GDP has approached the 50% mark (although there are disputes for discount rate for domestic debt) and could breach the threshold for sustainable debt.
Prof Yemi Osinbajo: The Lagos-Kano Partnership (GoN)
I have taken this quick historical digression to demonstrate that any serious planning of local and international commerce in Nigeria must take the Lagos-Kano connection seriously, especially its catalytic role for commerce across the country. This is why the Governors of Lagos and Kano State deserve our commendation for this landmark gathering. This summit for the first time, brings together two of Nigeria’s most demographically significant States and its major centers of commerce, with a combined share of 37% of our National GDP, to explore opportunities for leveraging their individual and combined economic potentials for the benefit of their citizens and the entire country. As salespeople will say, this is truly a buy-one-get-one-free opportunity for investors, policy makers and all who have a stake in the economic future of Nigeria.
It is not out of place to say that, by virtue of their commercial and demographic importance, where Lagos and Kano go, so Nigeria follows. The clout of the two cities extends well beyond the borders of Nigeria, Lagos is arguably the most important coastal city in all of Africa, just as Kano has historically served as a major crossroads on the trans-Saharan trade route that stretches into the Mediterranean and has lasted more than a thousand years in doing so. With the opening up of national borders across West Africa and even the entire continent, there will be even more room for both cities to assert themselves economically; to seize rapidly emerging opportunities, to ride on the waves of investment and innovation to become truly globally competitive, and to show the way to the rest of Nigeria. [Lagos, Kano sign MoU for economic partnership, investment]
Address delivered yesterday by the President of the Nigeria’s Senate, Dr Abubakur Bukola Saraki, to the Parliament of Ghana
Nigeria: Border smugglers hindering Nigerians from enjoying cheap petrol (ThisDay)
The Nigerian National Petroleum Corporation says Nigerians are being denied the benefits of the government’s insistence on keeping the pump price of petrol at N145 per litres across service stations in country by the unwholesome activities of cross border smugglers of petroleum products. NNPC’s Group Managing Director, Dr Maikanti Baru explained that because of the low price of petrol in Nigeria as compared to prices per litre within West African countries around her, smugglers are taking advantage of this to divert loaded tankers of products from their destinations in-country to service stations at border towns to supply to countries like Niger, Ghana, and Benin Republic, amongst others. He specifically laid the blame of smuggling on independent petroleum marketers, adding that such diversion and cross-border smuggling impacted efficient supply and distribution of products in Nigeria. He noted that while Nigeria sold petrol at N145 per litre, Ghana sold at N311, Togo – N308, Benin Republic – N292.8, Niger – 367, Chad – 326.35, and Cameroon at N400 per litre.
Borderline: Women in cross-border trade (UNCTAD)
UNCTAD travelled to Malawi, Tanzania and Zambia to hear from nearly 200 women who eke out a subsistence living on the borderline – between countries, between legal and illegal trading, and often between providing for their households or not. As most women cross-border traders are breadwinners, empowering them has a beneficial impact on their communities and on the prospects of coming generations. “The purpose of the project is to see, on the one hand, the challenges that women face when they cross the border but also to look at what are the impediments that make their businesses very small with very little ‘value addition’,” UNCTAD’s director of trade and gender Simonetta Zarrilli said. UNCTAD found that women like Jane have limited knowledge of customs rules and trade regimes but are at the same time forced to earn money this way for the good of their families. Across many countries in sub-Saharan Africa it is estimated that women make up about 70-80% of informal cross-border traders.
The challenges of regional integration, trade facilitation and gender equity for Africa: recommendations for policy action (pdf, SAIIA)
At a policy level, it is important for women’s organisations as well as international partners such as UNCTAD and UNECA to apply pressure on governments to broaden the collection of ex-ante and ex-post gender disaggregated data. Regional economic communities should also develop regional frameworks and standards for gender benchmarking to measure this data. Gender should be included in FTA and value chain analyses, and ultimately in FTA provisions. To improve the effectiveness of these policies, governments should allocate budget for gender sensitive training in ministries.
Lesotho: Selected Issues report on macro-financial linkages (IMF)
This paper provides further background on the macro-financial sector analysis that informed Lesotho’s 2017 Article IV consultation. Lesotho’s financial sector is small, concentrated, and lacks financial inclusion, although mobile banking services and financial cooperatives offer some encouraging potential. Exposure to developments in South Africa, and dependence on revenues from SACU, are Lesotho’s most important vulnerabilities.
Ethiopia: Second International Agro-Industry Investment Forum (UNIDO)
The President of Ethiopia, Mulatu Teshome, has encouraged the international business community and development partners “not to miss the boat” when it comes to investing in one of Africa’s fastest growing economies, setting the tone at the opening of Ethiopia’s Second International Agro-Industry Investment Forum (AIFE 2018, 5-8 March). Organized by UNIDO and the Government of Ethiopia, AIFE 2018 (pdf) aims to mobilize private investment in light manufacturing, with a particular focus on sectors with high growth potential, namely agro-processing, textiles and garments, and leather. In Ethiopia, around 80% of the country’s population depends on agriculture for their livelihoods.
Two business networking side events are being organized during the Forum focusing on strengthening business partnerships with the Chinese and Italian business sectors, respectively. Several agreements are to be signed on the sidelines of the event. UNIDO and the Chinese Academy of Agricultural Mechanization Sciences are signing a MoU to promote agro-industry development and technology transfer, including in PCP countries. The Government of Ethiopia is also signing an agreement with the China Africa Trade Investment Association and with three of its member companies to facilitate Chinese investment in Ethiopia, as well as a MoU with Buhler Limited, the Ethiopian Millers’ Association and the African Milling School. [Ethiopia-UAE technical committee meeting highlights economic cooperation]
East African governments dangle tax breaks, economic zones to Volkswagen, General Motors, Hyundai (The East African)
Auto makers, who is the fairest of us all? This is the question whose answer informs the region’s policies crafted to attract and retain vehicle manufacturers. Rwanda seems to have started off as the favourite, followed closely by Uganda with both countries reeling off numerous incentives. [Related: East Africa’s motor assembly sector raring to fire on all cylinders again]
Rwanda: Startups to benefit as govt eases access to Export Growth Fund (New Times)
The existing criteria were prohibitive especially for startups, which, experts argue, need the most support. One such criteria is the requirement for businesses to have previously exported 40% of their products in order to qualify for financing. The move to review the Export Growth Fund is one of the 13 resolutions reached during the 15th National Leadership Retreat (Umwiherero), that ended last week.
Official preview of Secretary Tillerson’s Africa tour (US State Department)
The other issues aside too, though, is China builds things. We don’t construct. And so in that regard China can play a helpful role. The other issue, too, is that China has some really good ideas on development in developing areas, such as how to do better healthcare, how to do water production. So those are things that are good. Also China did a good favor for us in Sudan, providing an engineer battalion to provide assistance to the UN operations there. So when you look at China, it’s a very complex relationship. We have a lot of areas and issues that we’re in conflict, but the issue comes in is that we’re trying to find the areas where we can build some type of support and cooperation that will be to the betterment of Africa. But one area that’s not to the betterment is these loan rates, which is terrible. So we’ve looked at countries, and we’re doing data dumping. Some – a lot of countries in Southern Africa and parts of the east and west are having anywhere from 50% to in one case 200% of GDP debt. And 80% and 50% are probably Chinese loans, and that’s really not acceptable, and that’s an area that we really need to address and focus on. [Deborah Brautigam: Secretary Tillerson heads to Africa: and China is (a?) (the?) focus; Tomorrow in Washington: Foreign Affairs sub-committee hearing on China in Africa: the new colonialism?
Q&A: How digitally connecting a continent could transform Africa (Devex)
Speaking to Devex at Barcelona’s Mobile World Congress, Jean Philbert Nsengimana, special adviser at Smart Africa and Rwanda ICT minister from 2011 to 2017, discussed what these initiatives will mean for the continent’s digital transformation. He also offered insights into opportunities opening up for prospective financial and technical partners in the ICT space. Extract: However, as we connect our physical infrastructure, it becomes clear to everyone that the next logical step is to engage in the bulk purchase of bandwidth and even to start running some shared applications. Creating this single digital market is the overall mission of Smart Africa. In parallel, our alliance member Liquid Telecom is accelerating the deployment of land internet connections between major African cities — Africa Digital Corridor — and it is connecting Cape to Cairo via the Red Sea — Liquid Sea. [South Atlantic undersea cable in Brazil signals new chapter in Africa and America’s telecoms]
Africa, IT hub: Cameroonian startup launches drones for global market (Japan Times)
Talking fast and dreaming big, William Elong shows off the first “made in Cameroon” drone at his sixth-floor workshop in downtown Douala, minutes from the economic capital’s Atlantic seafront. The 25-year-old, known as a high-flyer after being named one of Forbes’ most promising young Africans under 30, is enthusing about his new unmanned aerial drones and keen to promote his company and Africa as a place where IT and new tech can flourish. We must “get out of the Afro-centric vision of business” to “understand that when one has a global vision, worldwide, this includes Africa,” Elong said in a discussion of future technologies. Elong has no degree in IT or robotics but studied strategy and competitive intelligence in France, becoming the youngest-ever graduate from Paris’ Economic Warfare School. Elong’s firm, Will & Brothers, is represented in Ivory Coast and plans to open offices in France and the United States, but he stresses the development of artificial intelligence is his primary goal.
Today’s Quick Links: South Africa: Statistics South Africa posts GDP, 4th Quarter 2017 report Tanzania: New private sector policy in pipeline says government Zimbabwe joins neighbours in banning South Africa meat over listeria Trump extends targeted Zimbabwe sanctions Local demand cuts Uganda’s exports Africa’s mounting thirst for foreign direct investment |
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Borderline: Women in informal trade want to do business legally and become more prosperous
Cross-border trade has broad women’s economic empowerment, poverty alleviation and development ramifications in many developing countries.
UNCTAD travelled to half a dozen frontier communities in Malawi, Zambia and Tanzania to find out more about women living on the borderline.
Jane Phiri is a cross-border trader from Chipata, a city in Zambia near the border with Malawi.
She owns a small business selling second-hand clothes, known locally as salaula, from a clothing stall in the Chipata’s large regional market. She crosses into Malawi several times a week to source her merchandise – colourful ladies’ skirts and blouses – but Jane is an informal trader and moves her goods across borders through unofficial routes.
Jane, like tens of thousands of other small-scale traders in the region – eight out of ten of whom are women – would prefer not to have to smuggle her goods but finds the customs duties and the other taxes she must pay at the border too high and the rules too complex.
“I have to improve,” she says.
Like others, she doesn’t know much about a scheme run by the 19-country Common Market for Eastern and Southern Africa (COMESA), of which Malawi and Zambia are members, to ease trade for lone traders in certain goods.
“We are not fully sensitized,” Jane says. “We don’t know the people or even the offices to go to when we have arrived at the border.”
Lone traders
UNCTAD travelled to Malawi, the United Republic of Tanzania and Zambia to hear from nearly 200 women who eke out a subsistence living on the borderline – between countries, between legal and illegal trading, and often between providing for their households or not.
As most women cross-border traders are breadwinners, empowering them has a beneficial impact on their communities and on the prospects of coming generations.
“The purpose of the project is to see, on the one hand, the challenges that women face when they cross the border but also to look at what are the impediments that make their businesses very small with very little ‘value addition’,” UNCTAD’s director of trade and gender Simonetta Zarrilli said.
Across many countries in sub-Saharan Africa it is estimated that women make up about 70-80% of informal cross-border traders.
The predominance of women in this work is often a result of constraints on their time and mobility, but also of reduced access to productive resources like land and financial resources like loans.
Lengthy clearance processes and weak governance at the border further contribute to make informal trade one of the few options available to women to earn a living in such areas.
Costly consignments
Like many other informal cross-border traders, Jane does not make much money and her takings are barely sufficient to support her family or pay for children’s school fees.
This prevents these women from not only to scaling-up their businesses beyond subsistence levels but also to formalizing them so that they comply with legal requirements.
Jane complains about lack of information regarding border requirements and paperwork she must complete. She also complains that the existing simplified trade procedures meant to facilitate small-scale trade are hardly brought to the attention of those who would benefit from them. Above all, she finds that the charges that are being imposed on small consignments are too costly.
Second-hand clothing represents a large share of goods traded informally in sub-Saharan Africa.
Yet, small-scale traders like Jane are not always aware that second-hand clothes are not on the list of products covered by simplified trade measures targeting small-scale traders, and therefore they are subject to high import duties.
Stella’s story
Stella Mumba is a cross-border trader from Mchinji, central Malawi, about 12 kilometres from Zambia.
“I’m doing kitchenware. It’s a very good business. It has more profit, especially here,” she says near her market stall piled high with pots and pans. “But it also has some challenges, like paying the taxes. The taxes are just very…high!”
Stella imports the saucepans and other kitchen items she sells from Zambia into Malawi – but finds the tariffs excessive.
“They charge us almost 32%, because they say that we trade some goods that they already have in Malawi,” she says. “So, there’s a challenge, especially at the border.”
This charge takes value added tax (VAT) and import duties together, but even for goods that pass the border duty free thanks to regional agreements the issue of high taxes remains.
However, like Jane, Stella meets this challenge by using an informal route over the border that doesn’t involve paying tariffs. She wants to know more so that she can import the goods she trades legitimately.
“Educate us to know the trade we are doing,” she says. “Help us to know more about what we should do to improve our business.”
Lucy Chikhawo, deputy station manager for the Malawi Revenue Authority says the border authorities are quite aware of the problems at the border, and the way certain traders avoid the customs by going across informal crossings.
“Talking about the kind of trade we experience as a station, there is formal trade for these small traders and then informal trade, which we know is higher than the formal kind of trade that we experience,” she says.
“This is because most of the traders are using the non-prescribed roads to smuggle these small items which they import from Zambia bypassing the normal border transactions. It impacts very much on the operations and the revenues that we collect as a station,” Ms. Chikhawo adds.
People will use it
Cross-border trader Mary Mgwingwa, who sells dried fish, knows all about problems on the borderline.
“I buy the fish all the way from Tanzania,” she says.
“The challenges I face mostly on the borders are the time it takes to clear our goods. Some people jump the border and use other routes. Then when we both bring our commodity to here in Zambia, the prices are very different because we use the border while others jump the border and sell their goods at lower prices while our prices increase because of the customs fee. Taking the advantage, those using the other routes will get to the market faster,” she says.
UNCTAD found that many women mix up customs duties and other taxes, mainly VAT, and sometimes customs officers take advantage of the confusion by charging customs duties that are not due.
But like the other women UNCTAD spoke to, Mary does not want to evade customs duties and is desperate to know how she can trade fairly.
“People should be told what the advantages of using the border are,” she says. “When people know what the advantages of using the border are, more people will use it.”
Ms. Chikhawo of the Malawi Revenue Authority agrees. She says that lack of knowledge is the key problem small-scale women traders face.
“There’s a facility that COMESA put in place, for COMESA members including Malawi, which these small traders, when they are importing or exporting goods from or into Malawi, can use: it’s called the Simplified Trade Regime (STR), whereby they can import these small consignments and enjoy not only lower rates of duties but also fast clearance,” she says.
“We find that most of these people are not using the facility, and, according to the information we have at hand, there is a lack of training. Most the Malawians, most of these small traders, are not aware of this STR facility and the benefits they can get from using it.”
Win-win for women
But Ms. Zarrilli of UNCTAD says that knowledge-building programmes would have a win-win outcome.
“Most of the women we interviewed are very unclear about what are the rules at customs and what they should do to cross the border formally in compliance with the rules,” she says.
This can lead to some women paying bribes to customs officials, Ms. Zarrilli says.
“We believe the United Nations should, on the one hand, help these women make their businesses more profitable, more sustainable and help them grow so that they have prospects for the future,” she says.
“But we also feel that it is important that the customs procedures are respected and that the governments get the earnings and revenues from this kind of trade.”
This is because least developed countries like Malawi, Zambia and Tanzania can ill afford to miss out on revenues their governments need for schools, roads and hospitals. And by formalizing their operations, small-scale women traders would gain better access to credit and other services they need to build better businesses.
With its activities on informal and small-scale cross-border trade, UNCTAD aims to support traders like Jane, Stella and Mary at selected border crossings across Tanzania, Malawi and Zambia so that they can acquire awareness about existing trade measures and regulations, as well as to strengthen their entrepreneurship skills. The project can facilitate dialogue between cross-border traders and their trade associations, border agencies and trade ministries in the three countries.
This will help to make women cross-border traders’ businesses more profitable and sustainable while making cross-border trade in general more efficient and less cumbersome.
It’s a win-win for all.
The theme for this year’s International Women’s Day, 8 March 2018, is “Time is Now: Rural and urban activists transforming women’s lives”. UNCTAD is celebrating the occasion with an event entitled “Borderline: Women in cross-border trade” on 6 March.
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The conduct of monetary policy in East Africa in a changing policy environment
The Central Bank of Kenya and the University of Nairobi hosted a public lecture in honour of the late Prof. Francis Mwega on February 27, 2018. The keynote address was by Prof. Benno Ndulu, the former Governor of the Bank of Tanzania, on the subject ‘Conduct of Monetary Policy in a Changing Policy Environment’.
The public lecture drew a large audience comprising of CEOs and other representatives of private sector institutions, policy makers and other senior Government officials, the Deputy Governor of Bank of South Sudan, Mr. Odera Innocent Ochan, Vice Chancellors and other senior university staff, as well as development partners including the World Bank and IMF, research institutions including the African Economic Research Consortium (AERC) and KIPPRA, the CBK Board of Directors, and current and former CBK Governors and MPC/MPAC members.
The Keynote Speaker, Prof. Benno Ndulu, served as the Governor of the Bank of Tanzania from January 2008 to January 2018. He started his career at the University of Dar es Salaam in the early 1980s before joining the World Bank as a Lead Economist. He is best known for his involvement in setting up and developing one of the most effective research and training networks in Africa, the AERC.
More recently, Prof. Ndulu has coauthored a book titled Tanzania: The Path to Prosperity, published by Oxford University Press. The book highlights the challenges of securing economic prosperity in Tanzania in the coming decades.
“We in the Central Banking fraternity, also recognize Prof. Ndulu for his key role in driving the regional integration initiatives, especially harmonization of monetary, exchange rate and financial sector policies, within the auspices of the East African Community,” stated Dr. Patrick Njoroge, Governor of the Central Bank of Kenya, in his introductory remarks.
The Conduct of Monetary Policy in East Africa in a Changing Policy Environment
A Memorial Lecture in Honour of Prof Francis Mwega by Prof. Benno J. Ndulu
Conduct of monetary policy in the EAC has been largely successful. Two key sets of indicators for measuring such success: The first relates to achievement of the core mandates of the central banks – price stability, inflation for domestic prices, and exchange rates for price of tradables. Secondly, success is also deduced from ability to ride through major shocks to enable the economies continue on a path of sustained growth after brief disruption
Since 2013 inflation rates have remained subdued and within the EAC convergence band, save for Burundi recently, mainly due to successful conduct of monetary policy helped along by stability of oil prices, and improved food supply
Nominal exchange rate index has been reasonably stable with correction for shocks; real effective exchange rates stable; and larger correction in countries pursuing more flexible exchange rate regimes.
Growth in the region was strong and robust supported by public investment in infrastructure, favourable commodity prices, subdued global oil prices and favourable weather conditions. Growth has remained resilient to shocks, quickly recovering after each shock – with robust macrostability.
Managing Shocks for Sustained Macrostability
Since 2008 the region managed to ride through three major shocks with consequence on macrostablity:
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Global Financial Crisis (2009) – the biggest shock with impacts transmitted through a spike in exchange rates (heightened by speculative attacks) and through a global economic recession
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The Euro Crisis (2011/12) – again transmitted mainly through a spike in exchange rates and its impact on lengthening the period of recovery from GFC recession
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Commodity Price Collapse (2014/15), with its effect transmitted mainly via pressure on exchange rates
Judging from the short duration of stress from each shock – short lived inflationary and exchange rate spikes and quick recovery of growth – management of shocks was quite successful.
Major Changes Impacting the Conduct of Monetary Policy
More frequent supply side shocks with exogeneous impact on inflation; sharp rise in transaction velocity of circulation with the advent of mobile money; dilution of fiscal dominance; and changes in the approach to conducting monetary policy – from targeting quantities to targeting prices
The impact of slow growth in monetary aggregates was partly reduced by rising transaction velocity of money associated with ongoing financial innovations and technological dividend.
The main imperatives of monetary policy implementation have changed significantly. In 2008 when I became Governor of the Bank of Tanzania – our main preoccupation was mopping up liquidity from the system to reduce inflationary pressure. Fiscal dominance meant Government was busy injecting via spending foreign savings and the Central Bank mopping up excess liquidity arising from this.
Currently fiscal dominance is significantly diluted. Greater government reliance on domestic revenue means enhanced neutrality in monetary effects of govt operations – withdraw liquidity when collecting revenue and injecting liquidity when spending it. Significant proportion of foreign savings – via grants or loans – spent on big projects meant leakages via imports of goods and services and fees. Loans given in kind – i.e. with no cash transfer for big projects also meant less liquidity injections.
Central Banks have been pushed to rely more on their own instruments to provide liquidity, for example, via repos, purchase of forex from the market, etc. – depth and efficacy of financial markets are key challenges for effectiveness of transmission mechanisms
Sharp decline in liquidity injecting financing as donor budget support sharply decreased, and non-concessional borrowing also slowed down with increase in the cost of borrowing. Loans given in kind are not-liquidity injecting – many Chinese-funded infrastructure loans are in that form (Rail in Kenya; Gas pipeline in Tanzania). Dominance of large infrastructure projects in the development budget – where foreign firms dominate in securing contracts –means large leakages in the multiplier effects. As the share of development budget rises, these leakages become more pronounced.
Major Macrostability Risks Going Forward
Independence of Central Banks to pursue price stability and protect the value of the local currency; tendency to fix interest rates, a key price of monetary policy, blunts efficacy of monetary policy transmission; debt sustainability / debt distress – unsustainable levels of borrowing, risks from currency mismatch in major borrowing for infrastructure, big push (borrowing for non-tradable services), and risks from maturity mismatch for major infrastructure investment; and the end of quantitative easing in US to be followed by Europe.
Debt Sustainability Challenges – Are we borrowing too much?
Based on DSA carried out for each of the East African member countries, external debt and total public debt are broadly within the acceptable international thresholds and EAC limit of PV of debt at 50%. None is currently already at risk of distress.
Nevertheless, recent build up has been rapid with higher cost and shorter maturities as non-concessional borrowing increased faster than debt stock. PV of Kenya’s total public debt ratio to GDP has approached the 50% mark (although there are disputes for discount rate for domestic debt) and could breach the threshold for sustainable debt.
The Risks from Currency Mismatch
The greater risk is that from currency mismatch (liquidity risk). Loans for large infrastructure projects (transport, power, water communications) are contracted in foreign currency and have to be repaid in the same, but revenue streams from these investments are in local currency and servicing to a large extent depends on growth of export sector.
Unless these investments accelerate growth of exports, a country may face challenges in externalizing debt service even if there is enough revenue from these investments. Hope lies in getting oil and gas exports to start flowing early to boost foreign exchange earnings
Concluding Remarks
The conduct of monetary policy in the region has been overall successful. Part of this success can be attributed to letting Central Banks pursue its mandates unencumbered. Sustaining this success will partly depend on: Protecting the independence of central banks to implement its mandate; improved accountability of central banks for its actions – including more effective communication of its activity; and stronger capacity and flexibility to manage response to shocks.
Let us sustain regional coordination and coherence of policy and action in response to shocks and in this era of cross-border banking.
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IMF Executive Board 2017 Article IV Consultation with Lesotho
On February 14, 2018, the Executive Board of the International Monetary Fund concluded the Article IV consultation with the Kingdom of Lesotho.
While Lesotho has grown faster than its regional peers over the last decade, partly driven by capital intensive mining and infrastructure projects, high levels of unemployment, poverty, and inequality persist. GDP growth is expected to be around 3 percent in FY 2017/18, below the average of 4.1 percent for the past decade, and driven by mining and agriculture. Over the next three years, GDP growth is expected to be led by mining and construction related to the Lesotho Highlands Water Project Phase II.
An expansionary fiscal stance has shielded the economy from external shocks recently, but at the cost of shrinking buffers. A steep decline in Southern African Customs Union (SACU) transfers, a major source of government revenue, will result in a fiscal deficit that is likely to exceed 6 percent of GDP for the second year. The government is financing the deficit by using its deposits at the Central Bank of Lesotho (CBL), causing a sharp drop in the CBL’s international reserves. The drop in reserves is compounded by weaker remittances and demand for exports, particularly from South Africa.
With SACU revenues only expected to recover in FY 2020/21 in line with the cyclical upswing in South Africa, the outlook is fragile. Addressing the fiscal and external challenges remains difficult in an environment of high inequality and weak institutions. While tax revenues are already relatively high, there is scope for expenditure measures, including by reducing the very high public wage bill. However, efforts by the authorities to stabilize the political environment, including by implementing the recommendations of the Southern African Development Community (SADC), should contribute to macroeconomic stability.
The banking system is generally sound, but its impact on growth is limited and formal financial access remains low. While further work will be necessary to reduce the high levels of household debt, banks’ capitalization and liquidity are sufficient to weather major shocks. Rapid growth in the mobile money sector has brought a welcome increase in financial inclusion levels. Speedy implementation of the new supervision framework for the non-bank financial sector has the potential to further strengthen stability. Improvements to financial access and oversight would complement private sector development efforts, which are critical to reduce inequality. The new government’s focus on promoting more labor-intensive sectors such as agriculture and tourism and reducing red tape to open a business also could help stimulate the demand for labor.
Staff Report
Context: High vulnerabilities amidst political fragility
Economic performance in Lesotho is subject to spillover-driven volatility. Customs revenues, which are pooled at the Southern African Customs Union (SACU) level, are dominated by South Africa’s import demand. Thus, Lesotho’s fiscal revenues are subject to considerable external volatility. In addition, South Africa’s economic conditions directly affect remittances. Lesotho’s exports are concentrated (diamonds, textiles, and water), further increasing volatility.
In addition to these economic vulnerabilities, Lesotho has been suffering for decades from political fragility and military interference in politics. In 2017, Lesotho elected a new, four party coalition government – the third government in five years. Ambitious political reforms initiated by the new government are guided by Southern African Development Community (SADC) reform recommendations after the 2014 attempted military coup. They aim at addressing human rights violations, but also to mitigate political instability through constitutional reforms. However, political fragility persists as evidenced in the recent killing of the army commander by officers. In response, several SADC member countries deployed military to Lesotho at the government’s request.
Political fragility has complicated much-needed reform efforts to make growth broad-based and inclusive. Strong growth of 4.1 percent on average over the past decade has not made inroads into unemployment, and poverty remains stubbornly high. At 23 percent, the HIV/AIDS rate is among the highest in the world.
Expansionary fiscal policy shielded the economy from a large SACU revenue shortfall (around 7 percent of GDP compared to the FY 2014/15 peak), but with buffers dwindling quickly, severe vulnerabilities developed:
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Real growth for the last three years averaged 3 percent, driven by textile manufacturing, which benefitted from the Rand/dollar depreciation, and more recently, by a strong recovery of agriculture after the severe droughts of 2015 and 2016.
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Inflation peaked at 6.2 percent in March 2017, mainly on higher food prices after the droughts.
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The drop in SACU revenues, lower remittances, and weaker demand for Lesotho’s exports are responsible for the widening of the current account deficit to 7.4 percent of GDP in FY 2016/17 from under 5 percent of GDP the previous fiscal year. The international reserves to import coverage has been declining from its 6-month peak in March 2016 to around 4 months by March 2017, reflecting spillovers from South Africa, the depreciation of CBL’s Rand holdings, and the expansionary fiscal stance. The external position remains broadly in line with medium-term fundamentals and desirable policies (Annex IV).
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The government responded to the SACU shortfall by allowing the fiscal deficit to increase. Lower-than-expected domestic revenues in the first half of FY 2017/18 added to the revenue shortfall. The fiscal deficit of around 6 percent of GDP for two consecutive years was financed by drawing down sizable buffers in form of government deposits at the CBL, which has been mirrored in the loss of international reserves. Measures in the FY 2017/18 budget to contain the wage bill – one of the highest in the world – were broadly offset by higher recurrent spending to implement a campaign promise to raise old-age pension.
Outlook and Risks
The SACU revenue shortfall is projected to deepen further over the next two years, confronting the new government with large adjustment needs as buffers have already been used aggressively. Reserve coverage is projected to drop to 3.6 months of imports by the end of the current fiscal year, compared to an optimal reserve level of around 4½ to 5 months. While SACU revenue projections are subject to a large margin of error beyond FY 2018/19, current projections anticipate a recovery only by FY 2020/21. Without decisive fiscal adjustment measures, government deposits available for deficit financing would be already depleted during FY 2018/19.
Growth prospects are tilted to the downside except for the positive growth effect from large foreign-financed investment projects. In case of fiscal adjustment, expenditure cuts would weaken growth prospects in the short term. Without adjustment, arrears accumulation and rising uncertainty would be a drag on growth over the medium term. There is also a risk that a delay of measures could force a drastic and disorderly fiscal adjustment later, which would create negative spillovers into the real economy and the financial sector. The growth impulse from mining and the LHWP II project will only create temporary employment during the construction phase. Finally, there is some scope to increase external financing with a sizable grant element for high quality public infrastructure projects, which would mitigate fiscal adjustment’s drain on growth.
The main external risks would be channeled to Lesotho through the tight links with South Africa. Lower global growth and an increase in global financial volatility would weigh negatively on South Africa’s economic outlook which would delay the cyclical recovery of SACU revenues and activity for Lesotho. In addition, South Africa’s slow progress in structural reforms and political tensions could negatively impact the already declining longer-term trend for SACU revenues. While the new government’s efforts to address human rights violations around the 2014 attempted coup reduced the immediate risk of losing African Growth and Opportunity Act’s (AGOA) preferential access to the U.S., Lesotho’s export concentration in textiles creates additional risk.
Policy Discussions
Discussions with the new government centered around the following priority reforms: (i) Establishing a fiscal framework that ensures sustainability in an environment vulnerable to external shocks and constrained by the Common Monetary Area (CMA) pegged to the Rand, while protecting the poor. (ii) Improving conditions for private sector employment and inclusive growth, including by advancing financial sector reform and access to finance. While discussions during the mission on how to address the current fiscal imbalance were productive, there are indications that reaching a political consensus on the way forward has been difficult.
Private Sector Development
The government’s focus on private sector development has the potential to ease the pain of the fiscal adjustment. Discussions focused on how to prioritize reforms with a focus on widening growth beyond capital-intensive projects to strengthen the growth-employment nexus and ease poverty and inequality (Annex VII). The government is in the process of developing a new National Strategic Development Plan (NSDP II) that will reflect these priorities.
Reducing Red Tape
A comprehensive strategy to abolish red tape will be part of the NSDP II, but some progress is already under way. The government pointed to ongoing reform efforts like the implementation of the one-stop shop for business registration, even though further work is necessary to integrate all elements of the registration process. With assistance from a World Bank project, the cost and time for obtaining construction permits has dropped; guidelines for a risk-based inspection regime for new businesses are being developed. Preparations are also underway to establish product standards so that local producers would gain access to new export markets, and for local agricultural producers to be able to sell to large retail chains in Lesotho.
Staff cautioned the government regarding changes under consideration in the draft Minerals and Mining Bill. Duplicating regulatory structures, imposing local participation requirements, and forcing domestic processing and beneficiation in a very specialized sector would increase costs and thereby create disincentives for future investment. Instead of trying to enforce mines to source locally, the government should focus on a fiscal regime that ensures a fair share of economic rents to the public. A rent tax in line with international best practice would be a more efficient tool to achieve this objective than the current practice of government equity participation according to IMF TA.
Sectoral Reform Focus
In view of high unemployment, especially youth unemployment, the government is aiming at developing productive, labor-intensive sectors. The government has identified tourism, technology and innovation, agriculture, and manufacturing as priority sectors for the NSDP II. While the Fund team acknowledged that there is strong evidence of the growth potential of these sectors, the government should evaluate existing programs before deciding on potentially costly new programs to promote these reforms. This would also address concerns in the business community that these programs are vulnerable to corruption. The government pointed out that based on recommendations of a World Bank sponsored review, the Lesotho National Development Corporation is being restructured to serve better its mission of private sector development, but agreed that a comprehensive review of existing instruments would be useful.
Over the long-term, the government and Fund staff agreed that better education and health spending efficiency will not only contribute to fiscal adjustment, but is also essential to improve labor productivity, facilitate access to opportunities, and, consequently, reduce inequality. Despite strong economic integration with South Africa, wages in Lesotho remain very low. For instance, anecdotal evidence suggests that manufacturing wages in Lesotho range from a fifth to a third of what South African workers receive. Low wages reflect a deficient labor productivity caused by weak human capital. Improving the quality of education and health care is therefore critical to raise labor productivity and living standards.
Annex IV. External Sector Assessment
The external position of Lesotho weakened in 2016/17 because of a decline in SACU revenues and lower exports, but remained broadly in line with medium-term fundamentals and desirable policies. Over the medium term, the large current account deficit is expected to persist as the new government deals with the vulnerabilities associated to spillovers from South Africa. Rand volatility and weaknesses in competitiveness pose challenges for policy making in Lesotho.
The current account deficit deteriorated in 2016/17 due to a steep drop in SACU transfers of about 7 percent of GDP and lower diamonds exports. SACU transfers dropped by almost half in FY 2016/17 compared to the peak of 24 percent of GDP in FY2014/15. Lesotho’s imports represent about 90 percent of GDP and their financing is highly dependent on SACU transfers. As SACU transfers are highly correlated with South African imports, they will decline further in FY 2018/19 and are expected to bottom out only in FY 2019/20. Over the medium term, they are projected to recover in line with the cyclical upswing in South Africa. The current account will also be subject to large capital grants in the near term with the beginning of the Lesotho Highlands Water Project Phase II, which will be only partly offset by imports of capital goods. Over the long term, the project will contribute to exports. Risks also arise from Lesotho’s export concentration with over 25 percent (mainly textiles) directed to the United States, exposing the country to volatility in the Rand/dollar exchange rate.
FDI inflows have contributed to financing in recent years, but cannot offset the drop in SACU transfers. FDI inflows reached about 4 percent of GDP in 2014/15 and 2015/16, partly reflecting investments in diamond mining. Moving forward, international reserves in months of prospective imports are projected to decline as there are no offsetting factors to the sharp drop in SACU revenues.
The EBA-lite current account model points to an exchange rate that is broadly in line with Lesotho’s fundamentals. For the EBA-lite current account approach, the current account norm is based on a cross country panel regression, cyclical factors, and desirable medium-term policy levels. It considers a broad set of factors such as desirable level of policies, cyclical factors, aid and remittances. The EBA-lite current account deficit norm of 6.6 percent of GDP is just slightly lower than the 7.4 percent of GDP deficit for FY 2016/17.
Real effective exchange rate developments are driven by factors that originated in South Africa and broadly mirrors nominal exchange rate movements. The depreciation trend from 2011 to 2016, has been partly offset by the recent Rand appreciation.
Considering the effect of the importance of SACU transfers and the currency peg on the EBA-lite models, the Loti appears to be broadly in line with current fundamentals. Lesotho’s external position is heavily determined by the economic developments in South Africa, in particular the outsized influence of SACU transfers and the volatility of the Rand vis-à-vis the dollar.
The World Bank and the World Economic Forum competitiveness indicators highlight Lesotho’s struggles. Lesotho is among the worst ranked SACU members in both the 2017 Ease of Doing Business and the 2016-17 Global Competitiveness Report overall rankings. Access to financing is pointed out as the most problematic factor for doing business in Lesotho, followed up by corruption and inadequate supply of infrastructure.
Selected Issues paper
Macrofinancial linkages in Lesotho
This paper provides further background on the macrofinancial sector analysis that informed Lesotho’s 2017 Article IV consultation. Lesotho’s financial sector is small, concentrated, and lacks financial inclusion, although mobile banking services and financial cooperatives offer some encouraging potential. Exposure to developments in South Africa and dependence on revenues from the Southern African Customs Union (SACU) are Lesotho’s most important vulnerabilities. Shocks to SACU revenues can become a source of systemic risk by affecting the fiscal position and the balance of payments. The financial system will be affected by both channels, with substantial implications if the shock is permanent. While the available data are not sufficient to model and quantify the exact impact of a shock across all sectors, it is still possible to analyze the macrofinancial linkages and to assess resilience and buffers in the system.
This paper focuses on two potential consequences of a severe SACU revenue shock for the financial system: A decline in reserves that may threaten the sustainability of the hard currency peg with the South African rand, and the impact of a forced fiscal consolidation on household income and the quality of credit to households, affecting both bank and nonbank lenders. It turns out that financial shallowness and lack of inclusion may be a defining feature of the formal banking system, raising questions about potential trade-offs between inclusiveness and financial stability. Hence, we further explore nontraditional instruments and institutions that have potential to foster financial inclusion.
Some Key Characteristics of the Financial Sector
Banks are the largest component of Lesotho’s financial sector, but pension funds and insurance also play an important role. Three foreign-owned banks and one public bank hold 50 percent of the system’s total assets. Funeral and life insurance is popular in Lesotho, and insurance companies represent nearly a fifth of total assets, but this number includes assets on behalf of group pension products offered by insurance companies. The public pension fund and private collective investment schemes (such as mutual funds and other asset management companies) are also significant.
Bank lending is concentrated toward private resident households. Uncollateralized personal loans and mortgages make up 50 percent and 17 percent of the lending portfolio, respectively. Only one third of loans are directed to business enterprises. Banks are therefore significantly exposed to the financial health of private households. Households often borrow from multiples types of lenders, such as money lenders and financial cooperatives. The credit bureau, originally created in 2014, now covers most formal financial institutions, mitigating information asymmetries and allowing households to build up a credit record.
Compared with countries of similar size and income, Lesotho’s loan-deposit ratio is low, averaging less than 60 percent over the past six years. Interestingly, the loan-deposit ratios of these countries are inversely correlated with the interest rate spread between loans and deposits, a measure of the efficiency of financial intermediation (higher spreads signal higher costs of credit). The underlying cause appears to be the higher interest rate on loans that is needed to produce a comparable net interest margin, when the yield-producing loan base is small compared to the deposit base.
Banks in Lesotho hold an unusually large share of liquid foreign assets placed at banks in South Africa. An obvious question is whether banks’ NFA holdings are high because the loandeposit ratio is low, possibly due to the lack of bankable projects, or whether lending is subdued because of the large NFA holdings. One potential motive that may tilt banks’ portfolio choice toward a large share of liquid foreign assets could be self-insurance under Lesotho’s hard currency peg, given the absence of a lender of last resort.
Mobile Banking and Financial Inclusion
Mobile banking and nonbank financial institutions offer the largest potential for fostering financial inclusion in Lesotho. Since its introduction in July 2013, the use of mobile financial services has exploded, and 60 percent of Lesotho’s total population are now registered mobile money users. The industry is dominated by two companies (EcoCash and M-Pesa), but given the increased significance of e-payments, nearly all banks surveyed have indicated that they plan to offer mobile banking services, too. The CBL supervises mobile payments operators, and a new set of regulations has been enacted in March 2017.
The wide diffusion of mobile money in the past four years is an indicator for progress in financial inclusion. Unfortunately, the last comprehensive data for Lesotho available from the World Bank’s financial inclusion database is from 2011, so it is not possible to compare the ascendance of mobile money with progress in other areas. In the absence of conclusive data, it is worthwhile to take a look at the potential of other nonbank financial institutions to widen and improve access to credit and other financial services.
Financial cooperatives (SACCOs) suffer from structural problems, but offer potential for enhancing financial inclusion. SACCOs are supervised by the Cooperatives Department in the Ministry of Small Business, Cooperatives, and Marketing (MoSBCM). There is currently a gap in the reporting of financial data due to some hardware problems that occurred during a recent move, but the Ministry has established a new reporting template that will cover all districts of Lesotho, and the new Cooperative Data System is scheduled to come alive in early 2018. Many of the SACCOs of older generations face demographic challenges, as they are closed to new members, and the MoSBCM is organizing workshops to advise them on how to merge. The MoSBCM is also encouraging the creation of a single financial cooperatives league, which would allow younger and older SACCOs to join forces and share infrastructures and members. The medium-term objective is to strengthen the SACCOs such that they can provide financial services not only to their individual members, but also to other nonfinancial cooperatives. However, this will require more differentiated legislation than the General Cooperatives Act. A draft law for financial cooperatives has been prepared in the MoSBCM, and it should be brought to the cabinet level as soon as possible.
Appropriately, the 2012 Financial Institutions Act now requires the supervision of large financial cooperatives by the Banking Supervision Department of the CBL. But Boliba Savings and Credit, the largest financial cooperative with more than 65,000 members, has not yet completed its licensing process and is currently supervised neither by the CBL nor by the MoSBCM. Moreover, it appears that the governance structure of Boliba is not appropriate for an institution with more than 65,000 members. Boliba has been recapitalized a few years ago; while an eventual bailout, if required, could pose some moderate fiscal risk, there is no systemic risk for the financial system.
Microfinance Institutions. While serving a similar client base, microfinance institutions (MFIs) are regulated separately from financial cooperatives and report to the CBL. The regulation also provides for deposit-taking MFIs, but there are currently only credit-only MFIs operating in Lesotho. The industry is in an infant stage and it is too early to assess their impact, but they, too, hold potential to foster financial inclusion.
Conclusions
Under the baseline scenario, the financial system is well endowed with ample foreign exchange and capital buffers, which are sufficient to prevent a confidence crisis or systemic spillovers to the rest of the economy. This is confirmed by the results of the CBL’s stress-testing exercises, which subjected the banking system to significant hypothetical credit and liquidity shocks. In the baseline scenario used for Lesotho’s 2017 Article IV consultation, the current shock to the SACU revenues recedes in 2020-22. Under these assumptions, gross international reserves of the CBL would gradually decrease from 3.6 months of imports (2017/18) to 1.9 months of imports (2021/22). Over the same period, the overall fiscal balance would improve from -6.5 to 0.3 percent of GDP.
Under an extended shock scenario, the fall in SACU revenues would be permanent, raising questions over the medium-term sustainability of the exchange rate peg. Predicting the timing of a speculative attack under rational expectations has been a widely researched topic, going back for nearly 40 years. In practice, it is difficult to specify the exact reserves threshold under which a confidence shock with an ensuing speculative attack becomes likely. But it is an established finding that a foreign currency run would occur well before international reserves have fallen to zero. Such a nonlinear event would come with severe and multiple repercussions in the real economy, including a contraction of bank credit, default by households and private sector business, a collapse of fiscal revenues, bank failures, and further next-round spillovers and spillbacks.
To prevent the dire consequences of such an extended shock, proactive fiscal consolidation will need to be the principal policy instrument. An orderly adjustment, initiated in time, is necessary to maintain confidence and mitigate the negative impact of fiscal consolidation on domestic demand, household income, and economic growth. Fiscal measures should be complemented by monetary policy instruments that strengthen domestic liquidity control. Macroprudential measures, such as debt-service-to-income ceilings for consumer lending, could also be used to enhance household resilience to income shocks.
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AIFE 2018: Investment in agro-industry key to accelerating Ethiopia’s economic growth
The President of Ethiopia, Mulatu Teshome, on Monday encouraged the international business community and development partners “not to miss the boat” when it comes to investing in one of Africa’s fastest growing economies, setting the tone at the opening of Ethiopia’s Second International Agro-Industry Investment Forum (AIFE 2018).
Taking place from 5-8 March in Addis Ababa, the event is expected to gather around 3000 participants from around the world.
Organized by the United Nations Industrial Development Organization (UNIDO) and the Government of Ethiopia, AIFE 2018 aims to mobilize private investment in light manufacturing, with a particular focus on sectors with high growth potential, namely agro-processing, textiles and garments, and leather. In Ethiopia, around 80% of the country’s population depends on agriculture for their livelihoods.
“This Forum is an excellent platform for all stakeholders, especially the private sector, to make a first-hand assessment of the status of the economy, unfolding business and investment opportunities and forge partnerships and linkages that set you on a long and sustained profitable venture for years to come,” said President Teshome.
The Forum presents specific investment opportunities and investment incentive regimes, and has a strong focus on networking, including B2B and B2G meetings, as well as an exhibition for national companies and field visits to industrial infrastructure sites.
“There are ample opportunities in Ethiopia. Everywhere you look there are interesting investment options opening up,” said Erica van Schaik, Managing Director of Velocity Apparelz Companies Plc., Ethiopia. Velocity initially invested USD 50 million in Ethiopia and is currently expanding by developing a sustainable and service-oriented private industrial park worth USD 200 million.
Zemedeneh Negatu, Global Chairman of the Fairfax Africa Fund, noted that “one of our main objectives for participating at the Forum is to identify potential investment partners with local and international companies. We always seek qualified partners who have the capacity to run the companies we invest in. That’s why partnerships are very important for us.”
UNIDO partners with the Government of Ethiopia on the Programme for Country Partnership (PCP), a multi-stakeholder partnership model launched in 2014 to support the country in achieving its industrial development goals. The Programme’s priority initiatives include the development of Integrated Agro-Industrial Parks and of an industrial park focused on the leather industry – Modjo Leather City – which is supported by the European Investment Bank.
“Together, through the PCP, we are supporting the government to further develop key industrial sectors with a strong emphasis on creating an enabling environment for the private sector to grow,” said UNIDO Director General LI Yong at the opening of the Forum. “This also means important opportunities for young people to find skilled jobs and learn how to run their own businesses to become the entrepreneurs of the future.”
Two business networking side events are being organized during the Forum focusing on strengthening business partnerships with the Chinese and Italian business sectors, respectively.
Several agreements are to be signed on the sidelines of the event. UNIDO and the Chinese Academy of Agricultural Mechanization Sciences (CAAMS) are signing a Memorandum of Understanding (MoU) to promote agro-industry development and technology transfer, including in PCP countries. The Government of Ethiopia is also signing an agreement with the China Africa Trade Investment Association and with three of its member companies to facilitate Chinese investment in Ethiopia, as well as a MoU with Buhler Limited, the Ethiopian Millers’ Association and the African Milling School.
“Going forward, there is no shred of doubt that with the concerted effort of our government, partners, and the growing private sector, led by successfully proven development strategies, we will be able to register more laudable achievements in our effort to make the transition from an agrarian to an industrial economy,” said President Teshome. “An industrial economy that is robust enough, inclusive and sustainable, and leaves no one behind.”
Ahmed Abtew, Ethiopia’s Minister of Industry, added that “The Government of Ethiopia and partners have a strong desire to expand the reach and scope of this platform into a continent-wide event. I assure you that my ministry will spare no effort in making this a reality and will contribute in whatever modest way to strengthen the visibility of our continent in global business and investment and more specifically to ensure the success of the Third Industrial Development Decade for Africa.”
The event is organized in partnership with the United Nations Development Programme (UNDP) and the Food and Agriculture Organization (FAO).
Find out more about the Forum here.
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tralac’s Daily News Selection
Last week’s North Gauteng High Court judgement on the SADC Tribunal case is posted (pdf)
Nigeria: 2017 Nigerian Annual Trade Policy Report (NOTN)
In 2017, in ECOWAS, the NOTN engaged across a number of areas to underscore Nigeria’s commitment to deepen regional integration from the angles of Industry, Trade and Investment. Nigeria’s welfare and prosperity are interlinked with the prosperity of ECOWAS. To follow-up, in 2018, the NOTN will focus on engaging with other Member States to drive much-needed reforms needed to deliver on the economic integration agenda of ECOWAS based on the sovereign dynamics of ECOWAS Member States. Considerable devotion will also be paid to preparing the ECOWAS sub-region for the implications of the AfCFTA and for maximizing the benefits while safeguarding economies in the sub-region from unfair and injurious trade practices by partners from outside the region. One of the priorities that shall be pursued shall be be the establishment of an ECOWAS Trade Policy Committee, consisting of designated Chief Negotiators of ECOWAS Members, and which shall recommend mandates, priorities and positions to ECOWAS principals. These Chief Trade Negotiators shall have expertise and profound understanding of trade policy and the relationship for structural reforms for productivity and competitiveness.
In 2018, Nigeria will negotiate strategic relations with notable trading partners using agreed 21st century templates for Nigeria’s Trade Agreements. On the flanks of the MC11 in Buenos Aires, Argentina, in 2017, Dr Okechukwu Enelamah, signed, on behalf of Nigeria, the Joint Declaration on Cooperation with the European Free Trade Association. This was a concrete milestone. It signalled the types of agreements Nigeria intends to sign onto, going forward. These would be agreements offering mutual benefits and responsibilities, based on the establishment of global value chains.
The establishment of a rules-based trade remedy infrastructure shall be a priority in 2018. With the support of King and Spalding, signalled by the signing of an agreement with the NOTN, the pace of establishment of a trade remedy infrastructure shall be accelerated. Injurious and unfair trade practices targeted at the Nigerian market are posing ever greater risks, undermining industrialization of the Nigerian economy and posing a serious handicap to development. The current pre-occupation is with the drafting of legislation, staff requirement for an investigating authority and, training. [Note: Chapter Three examines Nigeria’s key trade statistics – deficits and surpluses, pp 45-72] [Download the full report (pdf)]
Swaziland: Budget Speech 2018
As I have alluded earlier, the public sector has grown at a much faster pace over the years creating significant dependency in the economy and compromising growth and employment creation. This has led to the large size of government, increased the wage bill significantly, and limited the space for social and infrastructure spending. The model where government is the employer of first choice has to be changed in order to create space for investment spending on critical infrastructure projects that would encourage private sector activity and job creation. The widening of the budget deficits without adequate financing is exerting pressures on the domestic economy. Government spending continues to outpace its ability to raise enough revenues resulting in cash flow challenges and accumulation of arrears. The cash flow challenges experienced in 2016/17 continued into 2017/18, and this has negatively affected local businesses. It is therefore, very important that Government restores fiscal sustainability to ensure macroeconomic stability and unlock the country’s potential to place growth on a higher growth trajectory.
The budget deficit for the financial year 2017/18 is contingent on the passage of newly identified revenue measures. If these proposed measures are passed the budget deficit is projected to stand at 6.7% of GDP with financing for 2.4% of GDP pending policy direction. This figure is in line with the SADC Macroeconomic Convergence targets of single-digit deficit levels and, in the medium term, Government intends to lower it further. Failure to pass these revenue measures would lead to a budget deficit of 8% of GDP and would imply a 3.8% of GDP as a financing gap, which would add E2.4bn to the ballooning arrears stock. [Presented by Martin G. Dlamini, Minister of Finance] [Download the full speech (pdf)]
Results of JETRO’s 2017 survey on business conditions of Japanese-affiliated firms in Africa (JETRO)
Between August and October 2017, JETRO conducted its latest survey on business operations of Japanese-affiliated firms in twenty four countries in Africa. The survey received a record-high 315 replies. Summary of results: (i) evaluation of Morocco growing due to its remarkable economy; (ii) while competition has intensified through China’s entry in the market, some Japanese companies see benefits; (iii) concern regarding the political situation and governance is extremely higher than in other regions. Extracts (pdf):
(i) Operating profit forecast and future business outlook: Morocco stands out. Results vary largely depending on the destination country. The ratio of the companies reporting a surplus ranges from over 60% in South Africa and Morocco to 25% in Kenya. Morocco has had the highest ratio in the past four surveys. When asked about their future business forecast, 90% of all respondent companies in Morocco answered that they will expand business. Among the reasons behind expanding business, the highest was “increased sales” (70.6%) and “the high growth potential of the local market” (70.6%). Morocco has been focusing efforts on cultivating exports mainly in the fields of automobiles and aircraft and proactively drawing foreign direct investment. Approximately 50 Japanese companies are active in Morocco as of 2017, and the largest foreign employer is a Japanese parts manufacturer. This is the fourth year in a row in which over half of respondents across Africa reported intentions to expand business, meaning that the trend toward expansion will continue. Over 40% of all respondent companies plan to increase the number of local employees.
(ii) Change in business environment: Market entry in pursuit of private-sector demand, reduction of ODA from Japan by half. Among the reasons for entry to Africa, there was an increase in answers of “growth potential” and “market scale” in what is believed to be pursuit of private-sector demand. In comparison with 10 years ago, the ratio for “natural resources” and “ODA from Japan” were down by half. The number of companies taking advantage of FTAs, such as the Southern African Development Community, has steadily increased. Progress has been seen in the Initiative of the African Economic Community, which aims at establishment in 2028.
(iii) Change in business environment: While competition has intensified through China’s entry, some Japanese companies consider it as benefits. Regarding China’s strengthening of economic ties with Africa, 44.4% of respondents reported that it has intensified competition and had an impact on their business. On the other hand, 15.7% of all respondents answered that the situation is bringing about business opportunities and benefits. Comments from them included “China’s speedy and aggressive entrance into Africa has led to the creation of new business by spotlighting overlooked needs in the local region, and there is a sense that new markets are taking shape.”
Looking at the greatest competitors by nationality, “European companies” (26.8%), “Japanese companies” (20.5%), “local companies” (17.8%) and “Chinese companies” (14.1%) were cited. Conversely, regarding potential partners by nationality, “France” (21.5%), “India” (20.2%) and “South Africa” (18.5%) were ranked in the top. Japanese companies have placed great expectations on collaboration with French companies in the markets of francophone countries in Africa, where Japanese companies have had a late start. [Related: JETRO Middle East report]
Govt to help Japanese firms expand into Africa (The Japan News)
The government plans to support partnerships between Japanese companies and firms from nations with economic influence in Africa, such as France and India, to encourage Japanese enterprises to branch out into the continent. Arrangements are being made to hold in South Africa in May a first-of-its-kind conference for governments and firms concerned to discuss ways to cooperate. From Japan, the meeting is expected to be attended by Economy, Trade and Industry Minister Hiroshige Seko and senior executives from nearly 100 firms, including trading companies and manufacturers. [Harry G. Broadman: Japan should refocus on Africa as a source of growth]
Kenya reaps big from TICAD conference (Mediamax)
Japan’s largest bank Mitsubishi UFJ Financial Group plans to open new offices in Kenya to support the investments of Japanese companies in Africa. Last month, the world third largest logistics company Nippon Express, opened a subsidiary office in Kenya that will offer a one-stop service from procurement logistics, optimising logistics required in product manufacturing processes, to distribution logistics. The company will use local agents to export roses and other cut flowers grown in Kenya. “The opening of a branch in Kenya by Nippon will help in exporting Kenya’s flowers directly to Japan, without necessarily going through Amsterdam.” KenInvest managing director Moses Ikiara said: “Since TICAD conference was held in August 2016, the number of companies investing in Kenya has increased by 53%, from 41 to 54 companies. More are showing interest by sending their think thank teams to do research on the country and prospect for investment opportunities.” [Ambassador Toshitsugu Uesawa: Ticad 6 key to Kenya’s industry plan; 28 SA companies to showcase at Foodex Trade Fair this week in Japan]
South Africa: Transnet launches new company to facilitate projects in Africa (Business Report)
Transnet has launched a new company, Transnet International Holdings (TIH) to facilitate multiple rail, port and pipeline projects in the rest of Africa. TIH, which has a capital injection of R100m, held its inaugural annual general meeting this week to, among others, appoint a board. According to Transnet chief executive Siyabonga Gama, the new entity would commence trading on 1 April. Gama said Khaya Ngema was the group executive responsible for overseeing TIH, while Petrus Fusi, Transnet’s general manager for cross-border strategy, is the new chief executive of TIH. Transnet Board of Directors, Department of Public Enterprises and National Treasury have already approved the establishment of the company. He said Transnet’s plans to diversify had long been on the cards. In terms of Transnet’s new strategic blueprint, called Transnet 4.0, the entity prioritised geographic diversification ”using the core competencies of port, railway, pipeline and gas. How do we assist other countries in terms of regional integration? That is the space that TIH is going to be in.” [Related: Transnet’s Market Demand Strategy, pdf; Transnet’s Siyabonga Gama: Build Africa and reignite the continent]
Kenya: Foreign supermarkets bring stiff competition to retailers (Business Daily)
The spirited entry into Kenya by multinational chain stores is set to stiffen competition, pitting listed new players against the local family-owned retailers whose footprints hardly go beyond East Africa. Last week, Shoprite - Africa’s largest retailer by sales - said it would open its first two stores in Nairobi’s Garden City and West Gate shopping malls in August, while Carrefour opened its fifth store at Sarit Centre. Kunal Ajmera, chief operating officer of professional services firm Grant Thornton: “Companies like Carrefour and Shoprite have substantial financial backing and proven track records. They can also borrow at cheaper rates from their home countries whereas the cost of borrowing in Kenya is very high.” [World Bank bets billions on Kenya’s private firms]
Tanzania: DRC, Uganda engaged on Central Corridor road user fee (Daily News)
The Central Corridor Transit Transport Facilitation Agency (CCTTFA) is engaging the DR Congo and Uganda to harmonise road user charges after Tanzania, Rwanda and Burundi agreed to lower the fee to $152. The CCTTFA Chief Executive Secretary, Capt. Dieudonne Dukundane told reporters in Dar es Salaam that they were engaging DR Congo and Uganda to harmonise the fees which have been complained to add costs of transport, a key component which affects intra-regional trade. He was speaking on the sidelines of a regional workshop organised by UNCTAD and CCTTFA to support the agency and Central Corridor member states to develop and implement a sustainable Freight Transport Strategy. [Tanzania omits Kenya from preferential transport deal]
New Commonwealth body proposed to tackle cross-border crime
Dedicated bodies that will help lawmakers tackle cross-border crime across the Commonwealth have been proposed at a meeting in London. The Heads of Central Authorities in the Commonwealth met at Marlborough House for a two-day conference earlier this month, and addressed the barriers to effective cooperation in criminal matters.
Today’s Quick Links: Dr John Maré: Uncertainties of a post-Brexit world bring opportunities for SA and Africa Index of Economic Freedom: Mauritius maintains its first position in Sub-Saharan Africa Moody’s assigns first-time B1 issuer rating to Tanzania; outlook negative Afreximbank ready to assist Egyptian businesswomen expand into rest of Africa Kenya Ports Authority: Car imports register huge increase, wheat dominates food imports at Mombasa port Kenya National Bureau of Statistics implementing the Integrated Survey of Services 2017/18 EALA corridor monitoring initiative update: lack of emergency services at OSBPs a major risk |
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2017 Nigerian Annual Trade Policy Report
The maiden Nigerian Annual Trade Policy Report has been published by the Nigerian Office for Trade Negotiations (NOTN).
This report is one of several steps to implement the firm determination of the Federal Government of Nigeria (FGN) to diversify the economy and, ensure that trade and companion investment and digital economy policies, function more effectively as drivers of the Nigerian economy. Contained in this Report are trade statistics that will be used to monitor, assess and re-negotiate Nigeria’s trading relationship with counterparts. These statistics shall be updated quarterly.
The launch of this report comes at a strategic moment and shows calculable progress and identify exciting opportunities in the economy for business. The longstanding challenges in the Nigerian economy are being addressed. In Q2 of 2017, Nigeria exited 5 successive quarters of economic recession. Recovery and growth are now underway. Exit from the recession was a response to a range of systemic domestic reforms that are being implemented.
The Economic Management Team (EMT) of Nigeria meets regularly to ensure coherence across trade (structural), fiscal and monetary policies. Strategically, the priority of economic policy is for structural transformation to diversify and modernize the economy, accelerate growth, enhance economic welfare and increase job opportunities for Nigerians. These reforms are geared to improve efficiency, productivity and competitiveness of the Nigerian economy.
Patience is required for the positive yields from corrective reforms to serious and longstanding economic and trade policy anomalies. Despite the effects of policy lag, the good news is that economy is responding positively. From a post-recession growth rate of 1.5% in 2017, the economy is estimated to grow at 2.5% and better in 2018. Inflation is on a downward trend. In the 2017 World Bank Report on the Ease of Doing Business ranking, the economy was moved up 24 places. Nigeria was ranked amongst the Top 10 Reformers in the global economy. Positive FDI flow has improved and confidence has returned to the business community.
Trade policy and accompanying negotiations are key to sustaining the economic upturn, recovery and growth. These are areas where the FGN has taken significant steps forward. The Government has re-organized and revamped Nigerian Trade Policy. Using trade policy and negotiations, Nigeria is taking concrete steps not only to maximize its trade and economic potential, but also to correct and re-balance longstanding economic anomalies in Nigeria’s trading relationships. The goal is to update and modernize and also, to forge stronger bilateral, regional, continental and global trade relationships. A major step forward to actualize these objectives was the decision by the Federal Executive Council to establish the Nigerian Office for Trade Negotiations (NOTN) in May 2017.
In accordance with the mandate from the Government, the NOTN will lead all of Nigeria’s trade negotiations and, in coordination, with the Nigerian Investment Promotion Commission (NIPC), unify Nigeria’s trade and investment negotiating policy framework. In unifying trade and investment negotiations, the objective would be to create value chains that connect regionally and globally, bolted into Nigerian producers of goods, service providers and industry.
To this end, a key objective is growing the domestic market and also connecting it, profitably, to regional, continental and global markets. Critically, the NOTN has been mandated to establish rules-based safeguards to protect the Nigerian economy from unfair and injurious practices from trading partners. This process is underway. The greater the exposure, the greater the risks for which rules-based safeguards should be emplaced. In using trade, investment and technology as engines for growth, Nigeria shall remain committed to international cooperation, regionally, continentally and multilaterally.
As we sustain Nigeria’s leadership, multilaterally, at the WTO, the Economic Community of West African States (ECOWAS) and the African Continental Free Trade Area (AfCFTA), on the threshold of establishment, shall be at the center of Nigeria’s economic operations. The foundation of Nigeria’s welfare and prosperity are inextricably connected to ECOWAS and the AfCFTA. As stated by President Buhari, at the 30th Assembly of African Union (AU) Heads of State and Government in Addis Ababa, Ethiopia, on 28th January, this year: In a rapidly changing global economy, with much uncertainty we believe that the establishment of a Continental Free Trade Area would provide Africa with tremendous opportunity to achieve significant growth driven by intra-Africa trade.
As the Number One economy in Africa, Nigeria is acutely aware of its obligation for leadership. We shall do what is required to grow the Nigerian economy and contribute to mutually profitable business relationships, and prosperity in a rules-based global economy. In doing so, we shall employ trade, investment, technology and the abundant intellectual property of creative Nigerians to grow the economy and enhance welfare. This report is an invitation to Nigeria’s trading partners and businesses to join hands with the Government in the reconstruction, modernization and growth of the Nigerian economy. I am sure that readers of this report will find elements for engagement in the Nigerian economy. The trade statistics illuminate the opportunities for engagement, re-balancing and expansion of Nigeria’s trading relationships. Most importantly, I recommend this report to all readers and subscribers as the reference point on Nigeria trade policy
Federal Republic of Nigeria
Prospects for the year ahead (2018)
2017 was the first and start-up year for the NOTN. The foundation of the office was set, both in hard infrastructure and office culture. There is a commitment to world class top performance, in negotiations and improved domestic coordination for trade policy and associated areas of policy.
In 2017, Nigeria led the negotiations as Chairperson at all levels of the African Union (AU) to establish the AfCFTA. The establishment of the AfCFTA, expected to adopted and approved African Union Summit of Heads of States and Government in March 2018. The emergence of the AfCFTA will be historic and unprecedented. The CFTA will be the biggest Trade Area Agreement since the 1995 WTO Agreement by number of countries. In the year to come, there shall be a Nigeria-wide Sensitization Workshop on the AfCFTA Agreement and given particular attention to sensitizing Nigerian businesses and corporations to take advantage of the new opportunities and market access that the CFTA will herald.
In the year under review, the NOTN deepened national consultations on trade policy. The preparations for the Eleventh WTO Ministerial Conference in Buenos was thorough and across all areas of trade policy. Negotiated trade benefits will not by themselves deliver any economic growth benefit to Nigeria, except they are used and the opportunities maximized by Nigerian businesses and individuals.
In 2017, in ECOWAS, the NOTN engaged across a number of areas to underscore Nigeria’s commitment to deepen regional integration from the angles of Industry, Trade and Investment. Nigeria’s welfare and prosperity are interlinked with the prosperity of ECOWAS. To follow-up, in 2018, the NOTN will focus on engaging with other Member States to drive much-needed reforms needed to deliver on the economic integration agenda of ECOWAS based on the sovereign dynamics of ECOWAS Member States.
Considerable devotion will also be paid to preparing the ECOWAS sub-region for the implications of the AfCFTA and for maximizing the benefits while safeguarding economies in the sub-region from unfair and injurious trade practices by partners from outside the region. One of the priorities that shall be pursued shall be be the establishment of an ECOWAS Trade Policy Committee (ECOWAS TPC), consisting of designated Chief Negotiators of ECOWAS Members, and which shall recommend mandates, priorities and positions to ECOWAS principals. These Chief Trade Negotiators shall have expertise and profound understanding of trade policy and the relationship for structural reforms for productivity and competitiveness.
Given Brexit, the Commonwealth Heads of Government (CHOGM), and its 25th Session (CHOGM-25) should provide new variables for deepening intra-Commonwealth trade and investment flows. The NOTN is participating actively in the preparatory activities for the CHOGM-25, scheduled to hold in London in April, 2018. The NOTN chairs the Ministry of Foreign Affairs Sub-Committee on “Trade and Business”, preparatory for CHOGM.
In 2017, the NOTN mobilized other Nigerian MDAs around the unique effort to organize the “High-Level Policy and Private Sector Forum on Trade and Investment Facilitation for Development”, in Abuja, from 2nd to 3rd November, 2017. The resulting, “Abuja Statement: Deepening Africa’s Integration in the Global Economy through Trade and Investment Facilitation for Development” has now become a multilateral reference point on Investment Facilitation for Development. In 2018, Nigeria will build on those efforts, continue to push for trade and investment facilitation for growth, development and job creation. The purpose will be geared to multiplying the gains of the multilateral trading order for Nigeria and ensuring improvements in the development dimension of the rules-based multilateral trading system.
2018 will be an even more important year for Nigeria’s trade policy leadership. The NOTN shall improve its focus by implementing action to design relationships in updated strategic alliances, and its role in the multilateral trading system. The goals and priorities of Nigeria’s trade relationships shall be to dynamically scale up action to use trade, investment and associated areas to accelerate growth, modernize and diversify the economy and expand employment opportunities for approximately 2 million Nigerians entering the labour market, annually.
In 2018, Nigeria will negotiate strategic relations with notable trading partners using agreed 21st century templates for Nigeria’s Trade Agreements. On the flanks of the MC11 in Buenos Aires, Argentina, in 2017, Honourable Minister Dr. Okechukwu Enelamah, signed, on behalf of Nigeria, the Joint Declaration on Cooperation (JDC) with the European Free Trade Association (EFTA). This was a concrete milestone. It signaled the types of agreements Nigeria intends to sign onto, going forward. These would be agreements offering mutual benefits and responsibilities, based on the establishment of global value chains.
The establishment of a rules-based trade remedy infrastructure shall be a priority in 2018. With the support of King and Spalding, signaled by the signing of an agreement with the NOTN, the pace of establishment of a trade remedy infrastructure shall be accelerated. Injurious and unfair trade practices targeted at the Nigerian market are posing ever greater risks, undermining industrialization of the Nigerian economy and posing a serious handicap to development. The current pre-occupation is with the drafting of legislation, staff requirement for an investigating authority and, training.
The establishment of the database for all of Nigeria’s Trade Agreements since independence, shall be completed. Competent use shall be made of Nigeria’s Trade Statistics, which shall be updated, quarterly. These trade statistics shall be prepared and updated in coordination with the National Bureau of Status (NBS). The parameters for these statistics shall be systemically institutionalized.
The key NOTN currently functions, pursuant to the Executive Act of the Federal Executive Council. Another priority in 2018, will be engagement with the Nigerian National Assembly to enact the NOTN law, in accordance with the FEC decision of 10th May, 2017.
Training of NOTN staff and cooperation with key MDAs shall remain a key priority and will scaled-up in 2018. Training shall cover all areas of trade policy: trade in goods, services, investment, intellectual property, competition, negotiations, legal drafing and economic and trade policy analysis. NOTN staff shall be sent for training to centers of economic and trade policy excellence, in the global economy. All of Nigeria’s neighbours are francophone. In 2018, the NOTN shall add bilingual capacity. As part of its capacity building efforts to bridge the skill gaps, the NOTN Memoranda (MOUs) are being negotiated and concluded with leading international universities, including the African Law Association of the Harvard University, for students to undertake attachments at the NOTN.
In 2018, Nigeria’s trade policy shall be updated to reflect the tectonic global shifts in the economic and trade policy landscape, including the AfCFTA and the on-going changes in the center of economic and trade gravity in the global economy.
The NOTN remains committed to fostering international and regional cooperation that can facilitate trade and investment, and deliver jobs, economic growth, wealth creation and modernization of the Nigerian Economy. The 2018 Nigerian Annual Trade Policy Report (NATPOR) will give an account of the NOTN’s stewardship in 2018.
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Swaziland Budget Speech 2018/19
The Minister of Finance, Martin G. Dlamini, has presented to Parliament the National Budget 2018/19
It is once again my honour to present to the fifth session of the tenth Parliament, the National Budget for 2018/19 Fiscal Year. I am truly delighted that this budget is presented during the most auspicious period for the Kingdom of Eswatini as the Nation looks forward to celebrate the Golden Jubilee – 50 years of independence.
This is my last Budget presentation in our term of office as well as the end of the tenth Parliament. As I look back in the last four years, I have come to the conclusion that one must always strive and hasten to do good works and God will make straight your paths. I believe I have given my absolute ability, and I thank God for the graces he has bestowed upon me. In that spirit, I acknowledge with gratitude the achievements that we have made as Government.
Milestones
In spite of the severe fiscal challenges, Government managed to achieve the following milestones during the course of 2017/18:
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Government has successfully concluded two trade agreements; the WTO Trade Facilitation Agreement, and the SADC Protocol on Trade in Services.
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New Tinkhundla Centres have been constructed and completed at Lugongolweni, Mayiwane, Lobamba and Mhlambayatsi and completed installation of Local Area Network (LAN) in 50 Tinkhundla Centres
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Government approved and implemented a total of 101 projects under the Regional Development Fund. Of these, 12 were income generating and 89 were infrastructural projects.
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Government rehabilitated rural water systems whereby 57 boreholes were refurbished and 60 were cleaned for harnessing and constructed 8 dip tanks across the country
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Launched the high technology dairy farm at Sidvokodvo, known as Swazi Milk that will produce over 25 million litres of milk a year.
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Completed the feasibility study for Mpakeni and Ethemba Dam.
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Improved maize yield from 33,000 metric tons in 2016 ploughing season to 83,000 metric tons in 2017 ploughing season.
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Government was able to extend electricity coverage to 2,444 households, 8 schools, one clinic and one hammer mill.
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Completed the upgrading of the access road to Phuzumoya Strategic Oil Reserve Facility.
Creating Fiscal Space for Inclusive Growth
As I have alluded earlier, the public sector has grown at a much faster pace over the years creating significant dependency in the economy and compromising growth and employment creation. This has led to the large size of government, increased the wage bill significantly, and limited the space for social and infrastructure spending. The model where government is the employer of first choice has to be changed in order to create space for investment spending on critical infrastructure projects, that would encourage private sector activity and job creation.
The widening of the budget deficits without adequate financing is exerting pressures on the domestic economy. Government spending continues to outpace its ability to raise enough revenues resulting in cash flow challenges and accumulation of arrears. The cash flow challenges experienced in 2016/17 continued into 2017/18, and this has negatively affected local businesses. It is therefore, very important that Government restores fiscal sustainability to ensure macroeconomic stability and unlock the country’s potential to place growth on a higher growth trajectory.
In His Speech from the Throne, His Majesty The King commanded Government to prepare a budget that is based on available resources. Indeed, in this budget we have initiated fiscal consolidation measures in order to reduce the unfinanceable deficits. This would allow us to prudently address fiscal challenges, which are now exerting pressures on the economy and depriving the country from realizing growth dividends. Fiscal consolidation will be reenforced in the medium term to strategically interrogate all budget items including the wage bill and transfers to public enterprises.
The role of Government in the economy cannot be emphasized enough. However, Government spending should not come at the expense of economic growth. In recent years, Government has not been able to raise enough revenues to cover the everincreasing expenditures, which is a clear indication that the current Government model cannot be sustained in the medium-term.
Budget Strategy for 2018/19
Fiscal Consolidation
Significant effort will be required to reduce the wage bill, rationalize spending and prioritize growth enhancing capital spending. If well planned, high-quality public investment could augment private sector initiatives, especially in infrastructure.
The country is facing significant fiscal challenges. Restoring fiscal sustainability is critical to ensure macroeconomic stability and unlock the country’s potential to place growth on a higher trajectory. The Government is therefore looking at adopting a fiscal consolidation, reform and recovery strategy that will address the fiscal challenges and create the needed fiscal space for investment and social spending.
One critical element of the consolidation and recovery strategy is to establish the right size of the public sector that would make Government more agile and efficient in delivering public goods and services.
The size of the adjustment we need to restore fiscal sustainability is significant as the vulnerabilities have accumulated over time. Therefore, the fiscal consolidation will have to be spread over the medium-term. In this regard, the success of the planned adjustment and recovery strategy will require a combination of revenue, expenditure and structural reform measures. At the same time, the implementation of the newly enacted Public Finance Management Law will be crucial in ensuring efficiency and accountability in the use of public resources.
As part of the consolidation strategy and in line with His Majesty The King’s Pronouncement, for the 2018/19 Budget, upfront measures have been adopted to make the budget realistic, ease the cash flow challenges and reduce arrears. These include a freeze on hiring across all sectors of the Government, reducing recurrent spending and slowing capital investment.
Promoting Inclusive Growth and Industrialization for Job Creation
While Government’s primary objective in this budget has been fiscal consolidation we have attempted to balance our efforts without infringing on our commitments to the promotion of inclusive growth.
Financial Inclusion
His Majesty’s Government intends to ensure access to affordable, appropriate and quality financial services & products, since this is a key component of inclusive economic growth. Not long ago, Government led by His Excellency the Right Honorable Prime Minister officially launched the National Financial Inclusion Strategy for Swaziland (NFIS) covering the period 2017-2022. This strategy will provide the framework for an effective partnership between policy-makers, financial regulators, and financial institutions as well as the mobile network operators to enhance access to financial services for micro and small and medium businesses, as well as those segments of the Swazi population that have, hitherto, been unable to access financial services.
During the course of 2018/19, Government and partners will establish a Centre for Financial Inclusion (CFI), which will coordinate all issues of financial inclusion. This represents Government’s commitment to creating an enabling environment, therefore making it easier for Swazis to save, invest, do business and mitigate risks, as well as access appropriate financial products in order to enhance sustainable livelihoods.
Government through the Central Bank of Swaziland has launched the Financial Sector Development Implementation Plan (FSDIP). This is a three-year national strategy, that will guide the development of the financial sector. Implementation of this strategy is facilitated with the help of the World Bank with a grant amounting to approximately E5.4 million. This strategy will also promote Government’s agenda for financial inclusion.
Tourism
Tourism continues to be one of the sectors that have a potential to stimulate economic growth. As such the country has advanced its efforts in ensuring the development of the tourism industry, safeguarding the environment, conserving wildlife and culture. Mr. Speaker, the Ministry’s efforts to market the country as a preferred tourist destination has resulted in an increase in tourist figures.
Public Enterprises
Government is concerned with the ever-increasing numbers of public enterprises. Most of these entities are fully dependent on Government funding and very few are self-sustaining. Therefore, the Government of Swaziland through the Ministry of Finance, has secured technical assistance from the World Bank to conduct a study to streamline, enhance performance and self-sustenance of these entities. Within the assistance from the World Bank there will be development of policy guidelines for the establishment and management of Public Enterprises.
Information, Communication and Technology
The opportunities unveiled by the advancement of Information Technology also present a challenge for Government to not only keep abreast with the constant changes, but put in place policies that address the present scope and also seek to protect the country from cybercrimes going forward. In this regard, in 2017/18 Government began the development of a new Broadcasting and Media Policy in order to harmonize the industry developments with improvements and innovations in the broadcasting and media sector. This policy will therefore guide the diversification of the media industry as it opens up for entry by the private sector.
The banking industry and telecommunications companies are partnering in efforts that will make movement of funds easier, in the promotion of financial inclusion. As a country, we will endeavor to mitigate the threats that come with a development of this nature. In this regard, we have started the process of enacting cybersecurity laws to prevent cyber-crime and other related incidents.
Government is also continuing to work towards the full operationalization of the Royal Science Parks which will drive cross cutting research and encourage innovation through access and applications of new technologies. I am happy to report to the Honorable House that in 2017/18, the Advanced School of IT housed at the Innovation Park, enrolled its first batch of students; the incubator for IT business start-ups also admitted ten start-up companies; and a Service Agreement with the Swaziland Posts and Telecommunications (SPTC) for the management of the National Call Centre was signed. Moreover, the National Data Centre’s infrastructure, which will allow for the effective roll-out of E-Government has been completed.
Government is committed to ensuring that the nation benefits from the efficiencies that come with technology for improved service delivery. In this regard, Government has automated the tracking of road transport permit licenses through mobile phone services, implemented fingerprint live scan for the Royal Swaziland Police in the Shiselweni region, as well as completed developments for the use of Point of Sales (POS) at revenue offices.
Infrastructure
Roads
Efficient transport systems are the drivers of economic growth and development. The Government of the Kingdom of Swaziland continues to place roads infrastructure as key in moving the economy forward. Over the years, huge investments have been made in connecting the Kingdom, as well as with neighboring states. The onus now is that of keeping these roads in quality, which is why we have allocated E50 million for roads maintenance. Government will continue to explore financing options to invest further on our road infrastructure.
Government received a technical assistance from the African Development Bank in 2014 for preparation of the establishment of the Roads Fund and Roads Agency, I am happy to report that extensive work has been done along these lines and the revised Draft Roads Agency and Roads Fund Bill are now ready to be presented to Parliament. Once this Bill has been passed, Government can expect increased service delivery from the Agency which will emanate from the efficient collection of road user fees that will be used for the maintenance of our existing and upcoming roads infrastructure.
Railways
The SADC region is promoting regional integration in order to enhance trade among Member States. One of the ways in which the regional integration agenda can be implemented is through providing connectivity between neighboring states, and railways can facilitate connectivity. Railways can play a major role in integrating markets and increasing trade. It is a fact that we trade a lot with our neighboring South Africa, as a result, the two countries saw it appropriate to initiate the Joint Railway Strategic Initiative between Transnet and Swaziland Railways. This venture is expected to create 2,700 jobs related to construction on commencement, and over 300 permanent jobs on completion.
Aviation
As a landlocked country, air transport provides an alternative mode of transportation. It could also complement tourism by bringing visitors to the country. Our own state of the art airport, the King Mswati III International Airport (KM III IA) presents an opportunity for growth both in aviation and tourism. It has the capacity to handle sizable volumes of passengers, as well as cargo, hence we have the obligation of utilizing it to its full capacity.
In that regard, Government is working on strategies to revive the Royal Swaziland National Airways Corporation (RSNAC), and it will be tasked with the mandate of providing air transportation services of the highest quality and efficiency, that will suit both local and international travelers. We are aware of the costs associated with this endeavor, but we expect the benefits in return to be worth the investment.
Private Sector Private Sector Confidence
The country has made great strides in economic development supported by a vibrant private sector that is characterized by both local and foreign economic players. Despite the recent developmental challenges faced by the country, there has been some improvement in both domestic and foreign investment. Public investment in infrastructure and ICT will continue to improve the country’s competitiveness and this is expected to contribute to accelerated growth rates in the productive sectors such as manufacturing, mining, retail and services.
The Government of the Kingdom of Swaziland is continuing with efforts to create employment through the implementation of the Industrial Development Policy (2015- 2022). The development of the Sidvokodvo Industrial Estate of 301 hectares will alleviate the shortage of land for investors and create employment for Swazis. We are projecting that this investment will open up over 84,000 job opportunities when the Industrial Estate is fully operational.
Small and Medium Enterprises
The Government of Swaziland is cognizant of the role played by small and medium enterprises (SMMEs) in promoting economic growth. We are also aware that this sector is not growing fast enough. Accordingly, in 2017 the Ministry of Finance conducted a financial scoping survey on SMMEs “The Swaziland SMME National Survey 2017” (FinScope) which sought to provide us with numbers of existing SMMEs in the country. The study revealed that only 10 percent of the adult population owns a business. Therefore, the hindrances to this entrepreneurial spirit among our population need to be analyzed and a system of incentives needs to be formulated to encourage our population to set up new businesses.
On the other hand Government is continuing with other initiatives aimed at promoting growth within the SMME sector. For instance, we have reviewed the Smallscale Loan Guarantee Scheme in order to align it with the Graduate Enterprise Programme. This will allow our graduates who want to start businesses access leverage from this Scheme. We have also taken the initiative to re-capitalize and increase the leverage value from 3 to 5 times the value of an investment. Graduates are therefore encouraged to visit the Ministry of Commerce Industry and Trade for advice on how they can benefit from this initiative.
Government is cognizant of the existence of many businesses that are not within the formal structures of Government. These businesses have challenges accessing assistance even with finance for investment. In 2014, Government initiated the Informal Sector Fund, however, to only service the Manzini region. This Fund has since been rolled out to the other three regions, and it is now accessible to all.
In order to further support the “Informal Sector”, Government has initiated construction of a trade hub within Manzini City. Construction of this hub is expected to commence within the financial year. On completion, the trade hub will accommodate 2,000 traders with storage facilities
Revenue and Expenditure for 2018/19
Revenue
Revenue is expected to increase by two percent in 2018/19 to E16.7 billion excluding grants. The increase is attributed to policies expected to be implemented in 2018/19, which are aimed at reducing reliance on SACU revenue. These include:
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Collection of license fees from mobile companies
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Review of the VAT Act to allow taxation of electricity at the standard rate in order to encourage domestic electricity generation
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Increasing the VAT standard rate from 14% to 15% to align with the new rate announced by the Republic of South Africa and to maintain the ‘Sekulula’ refund arrangement
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Introduction of a levy on bank revenue
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Amendment of the Income Tax Order
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Review of user fees and fuel tax
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Introduction of an import levy on non-SACU used vehicles
Expenditure
Total expenditure for the financial year 2018/19 is estimated at E21.6 billion. This estimate includes an amount of E2.2 billion which is reserved for public debt payments and other statutory obligations. Appropriated recurrent expenditure is set to grow by 0.3 percent standing at E14.8 billion. I am pleased to announce that Government has been able to deliver on His Majesty’s directive from the Throne regarding a realistic budget.
Government has conducted a thorough analysis of our expenditure in order to prioritise only the most pressing concerns. Thus, the total expenditure for this year is E183 million below the budgeted expenditure for 2017/18. This marks a decline of 1% in total expenditure, from 2017/18 to 2018/19. A similar pattern can be observed in capital expenditure which is expected to grow at a rate of 1 percent resulting from a E36 million increase from the previous year. The capital budget allocation is E5.6 billion in 2018/19.
Overall Balance
With the support of this August House Government has embarked on medium term fiscal consolidation exercise to rein in the deficit. Government’s debt servicing costs have increased exponentially as a consequence of the arrears position. Domestic debt markets have been stretched due to the issuance of multiple bonds which were earmarked for arrear-clearance, namely the infrastructure and supplier’s bonds. A fiscal adjustment to the tune of 11% of GDP has been targeted in the medium term, the first step in this exercise has been to curtail Government expenditure where possible and identify additional sources of revenue to increase the scope of our resource envelope.
The budget deficit for the financial year 2017/18 is contingent on the passage of newly identified revenue measures. If these proposed measures are passed the budget deficit is projected to stand at 6.7 percent of GDP with financing for 2.4% of GDP pending policy direction. This figure is in line with the SADC Macroeconomic Convergence targets of single-digit deficit levels and, in the medium term, Government intends to lower it further. Failure to pass these revenue measures would lead to a budget deficit of 8 percent of GDP and would imply a 3.8 percent of GDP as a financing gap, which would add E2.4 billion to the ballooning arrears stock.
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Ticad VI key to Kenya’s industry plan
The sixth Tokyo International Conference of Africa’s Development, TICAD, took place for the first time in Africa in Kenya in August 2016, and opened doors for more business between Kenya and the Asian nation. Mr Toshitsugu Uesawa, Japanese ambassador to Kenya, reflects on the impact of the meeting.
I first came to Kenya as a young diplomat way back in 1982. And I returned to serve as the ambassador on May 2016.
With the knowledge that comes from this depth of exposure to a country, I can confidently predict that Kenya will rise to the status of a newly industrialised country.
And when the history of this achievement is written, I believe that August 2016 will go down as one of the significant milestones in Kenya’s economic transformation.
That is when Nairobi had the honour of hosting the Sixth Tokyo International Conference on African Development – Ticad VI.
It was the first time that a Ticad summit was being held in Africa. Since the inaugural one in 1993, Ticad conferences were always held in Japan.
And Ticad VI proved to be a historic event, which took relations between Japan and Africa to a whole new level.
Development agenda
The Ticad summit has met regularly to promote high-level policy dialogue involving Japan, African leaders and development partners.
This way, Ticad serves as an international platform to raise global awareness as well as ensure continued support for Africa’s development efforts.
The conferences are underpinned by the twin principles of international partnership and African ownership.
Ticad VI was an overwhelming success. It brought together 35 Heads of State from all over Africa.
And, of course, the Prime Minister of Japan, Mr Shinzo Abe, was in attendance.
There were more than 11,000 accredited participants, including technocrats from international institutions and the private sector.
Targets
And at the end of it came the Nairobi Declaration – a three-year plan to promote structural economic transformation, resilient healthcare systems and social stability through shared prosperity.
The declaration outlines areas of engagement such as promoting economic diversification and industrialisation; a renewed focus on agriculture; innovation and ICT-led economy; quality infrastructure; and skills development.
The three-year plan also includes collaboration on peacebuilding, cross-border security and preventing violent extremism.
Such, then, are the ambitious targets we have in mind when we speak of the Ticad VI Nairobi Declaration.
It is about 18 months since the declaration was signed.
Monitoring and evaluation
And so, we thought that the time had come to have a workshop in Nairobi to review its progress, as well as to see how best to align the Ticad VI targets to President Uhuru Kenyatta’s ‘Big Four’ development priorities.
To illustrate, let me give one example of how Japan-Kenya development works:
I explained in an opinion article a few years ago that, while Kenya is one of the world’s leading producers of geothermal power, Japan is proud that this success has come in collaboration with Japanese companies that supply most of the turbines.
One remarkable fact is that Olkaria 1 unit 1-3 started operating 36 years ago and is still generating power on the same set of Japanese turbines.
This is because when Japan supplied those turbines to Kenya, we gave the very best that we had.
That is the kind of win-win outcome that Japan always aims for in its dealings with African nations.
Employment
But inexpensive geothermal energy is not an end in itself. It should be a catalyst for industrialisation, and job creation.
For what Kenya needs is to create jobs for its hundreds of thousands of youth who graduate from various levels of tertiary education every year.
The ongoing Special Economic Zone project and its associated Mombasa Port expansion project, both supported by Japan, are also key initiatives in job creation.
The SEZ concept offers the perfect combination of facilities to attract investment (both foreign and local) to encourage manufacturing industries, which will create many jobs for Kenyans.
Technology
My embassy has been facilitating visits by trade missions from all over the world who hope to take advantage of the opportunities that the SEZ project will provide.
The day will soon come when you will see a world-class SEZ in Mombasa, supported by a modern port, beautiful access roads and other quality infrastructure.
Results of JETRO’s 2017 survey on business conditions of Japanese-affiliated firms in Africa
Between August and October 2017, the Japan External Trade Organization (JETRO) conducted its latest survey on business operations of Japanese-affiliated firms in 24 countries in Africa. The survey received a record-high 315 replies.
Summary of results
1. Operating profit forecast and future business outlook: Morocco stands out
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Results vary largely depending on the destination country. The ratio of the companies reporting surplus ranges from over 60% in South Africa and Morocco to 25% in Kenya. Morocco has had the highest ratio in the past four surveys. When asked about their future business forecast, 90% of all respondent companies in Morocco answered that they will expand business. Among the reasons behind expanding business, the highest was “increased sales” (70.6%) and “the high growth potential of the local market” (70.6%). (Page 6 to 7 and 12 in the attached document)
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Morocco has been focusing efforts on cultivating exports mainly in the fields of automobiles and aircraft and proactively drawing foreign direct investment. Approximately 50 Japanese companies are active in Morocco as of 2017, and the largest foreign employer is a Japanese parts manufacturer.
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This is the fourth year in a row in which over half of respondents across Africa reported intentions to expand business, meaning that the trend toward expansion will continue. Over 40% of all respondent companies plan to increase the number of local employees. (Page 12 to 13 in the attached document)
2. Change in business environment: Market entry in pursuit of private-sector demand, reduction of ODA from Japan by half
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Among the reasons for entry to Africa, there was in increase in answers of “growth potential” and “market scale” in what is believed to be pursuit of private-sector demand. In comparison with 10 years ago, the ratio for “natural resources” and “ODA from Japan” were down by half. (Page 17 in the attached document)
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The number of companies taking advantage of FTAs, such as the Southern African Development Community (SADC), has steadily increased. (Page 18 to 19 in the attached document)
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Progress has been seen in the Initiative of the African Economic Community (AEC), which aims at establishment in 2028. (Page 18 to 20 in the attached document)
3. Change in business environment: While Competition has intensified through China’s entry, some Japanese companies consider it as benefits
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Regarding China’s strengthening of economic ties with Africa, 44.4% of respondents reported that it has intensified competition and had an impact on their business. (Page 21 in the attached document)
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On the other hand, 15.7% of all respondents answered that the situation is bringing about business opportunities and benefits. Comments from them included “China’s speedy and aggressive entrance into Africa has led to the creation of new business by spotlighting overlooked needs in the local region, and there is a sense that new markets are taking shape.”
-
Looking at the greatest competitors by nationality, “European companies” (26.8%), “Japanese companies” (20.5%), “local companies” (17.8%) and “Chinese companies” (14.1%) were cited. (Page 22 in the attached document)
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Conversely, regarding potential partners by nationality, “France” (21.5%), “India” (20.2%) and “South Africa” (18.5%) were ranked in the top. Japanese companies have placed great expectations on collaboration with French companies in the markets of francophone countries in Africa, where Japanese companies have had a late start. (Page 22 in the attached document)
4. Problems in administration: Concern over political situation and governance extremely higher than other regions
-
As befoe, the most commonly cited problem was “establishment and implementation of regulations and laws” (80.6%).
-
While “political or social instability” was the next most cited concern across the region (77.4%), over 85% of companies in South Africa, Egypt, Nigeria and Kenya considered it the biggest issue. (Page 23 in the attached document)
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It is believed that these results reflect the following events: the ruling party’s presidential race for the upcoming presidential election in 2019 in South Africa, deterioration of peace and order in Egypt and Nigeria (concerns about terrorism, abductions and actions of armed insurgents) and the presidential election in Kenya (from August to October in 2017).
The ratio of respondents answering “establishment and implementation of regulations and laws” and “political or social instability” as big concerns (%):
Problems in administration |
Africa |
Middle East |
Russia |
Southwest Asia |
ASEAN |
Legal system
|
80.6
|
61.7
|
45.7
|
42.8
|
33.3
|
Political instability |
77.4 |
40.7 |
51.1 |
39.2 |
28.7 |
5. Countries of note: Kenya, Nigeria and South Africa rank top three years in a row
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Kenya, Nigeria and South Africa were highly rated from the following perspectives: Kenya as a business hub in Eastern Africa, Nigeria as Africa’s largest country in terms of economy and population and South Africa as having the most developed economic infrastructure. (Page 24 in the attached document)
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The evaluation of Morocco by Japanese companies rose to sixth place from eleventh in the previous year. The reasons were high expectations toward enhancement of investment incentives, peace and order and excellent human resources capable in both English and French.
Read more and download the summary report on the JETRO website.
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Having served for almost two years as President of the Commission of ECOWAS, I would like to provide a brief overview of the major initiatives undertaken and progress made with the support of all Community statutory officers, as well as commitment of all staff of Community Institutions. I should therefore like to express my gratitude and sincere appreciation for the outstanding support I enjoyed from every single one of them. This report is structured in three (3) parts. It, first, presents an overview of the situation at the time we assumed office. It then highlights major achievements in the implementation of regional integration programmes, service delivery and working conditions. Lastly, it outlines challenges and prospects for strengthening regional integration. Extracts: Challenges and prospects (pdf):
(i) Lack of Community spirit in the region. The lack of Community spirit among Member States is very obvious and constitutes a barrier to integration and solidarity. It is therefore necessary to rebuild this spirit and ensure that regional policies are adopted and that national laws align with Community policies. Similarly, political interference has a significant impact on the Commission’s efficiency, in particular with regard to purely internal management decisions. (ii) Delay in remittance of Community Levy. Member States should continue to be sensitised on the importance of the Community Levy for programme implementation. However, cases of wasted resources and mismanagement should be discouraged in the strictest terms. (iii) Non-compliance with decisions of the Court of Justice...; (iv) No solution to the political crisis in Guinea Bissau... [The author is outgoing President of the ECOWAS Commission]
East Africa: selected postings
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(ii) Regional Learning and Investor Forum on environment and natural resources management. The two-day forum (held in Arusha, organized by the EAC Secretariat in collaboration with the Lake Victoria Basin Commission) provides an interactive space to promote networking, stimulate actions, and facilitate experiential learning that supports resilience, linking local level initiatives with those at regional and national levels. The event showcases EAC priority programs in environment and natural resources on climate change; biodiversity conservation; water, sanitation and hygiene (WASH); and transboundary water resources management.
(iii) Twaweza survey results of opinions, experiences of poverty and financial inclusion: Uganda report, Kenya report
(iv) Jaindi Kisero: Costly foreign loans the elephant in the room. Prof Benno Ndulu was in Nairobi this week to speak at a memorial lecture in honour of yet another respected economist and long-serving director of the Central Bank of Kenya, the late Prof Francis Mwega. What I found insightful in Prof Ndulu’s presentation was his analysis of the macro- economic impact of the huge loans we have been taking from China and other foreign countries to fund infrastructure projects. Here is how he argued his case: [Treasury urged to go for long-term debts]
South Africa: High Court rules against Zuma in SADC Tribunal matter (Politicsweb)
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Ethiopia acquires 19% stake in DP World Berbera port (pdf, DP World)
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Ethiopian Transport Minister Ahmed Shide, said: “The agreement will help Ethiopia secure an additional logistical gateway for its ever increasing import and export trade driven by its growing population and economy. In addition, Ethiopian participation in the development of port of Berbera and the Berbera Corridor will help bring increased economic development and opportunity to the people of Somaliland. Ethiopia will continue to further invest in and develop the Djibouti corridor and further consolidate the use of existing ports in Djibouti. It will also look for other opportunities to develop additional ports and logistics corridors in the region.”
The tipping point: the impact of rising electricity tariffs on large firms in South Africa (UNU-WIDER)
While much research has been done on the economic impacts of load-shedding in South Africa, fewer studies have focused on the effects of the rapidly rising electricity tariffs. The issue of tariff increases has now become even more critical, with technological developments making it easier and cheaper for consumers to reduce their demand for grid-based electricity. This study (pdf) examines the timing and type of own-generation investment decisions that are viable for 21 large companies, and the likely impact of this on South Africa’s electricity utility. [The authors: Angelika Goliger, Landon McMillan]
Jobs, FDI and institutions in Sub-Saharan Africa: evidence from firm-level data (ILO)
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How EU powdered milk threatens African production (EURACTIV)
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Today’s Quick Links: Trade agreement with the EU a boost for Western Cape exports DRC and the region: Peace, Security and Cooperation Framework agreement update The 2018 JCI SADC Regional Leadership Academy is underway in Johannesburg 50th Southern African Power Pool management committee meeting: update One year of Ghana’s implementation of WTO Trade Facilitation Agreement World Bank: Supporting sustainable livelihoods through wildlife tourism Mercedes Stickler: To close the gap in women’s land rights, we need to do a better job of measuring it The Sendai Framework Monitor: online monitoring tool is launched Chad P. Bown: Trump has announced massive aluminum and steel tariffs – here are 5 things you need to know |