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African leaders prep for summit on continental trade deal
African national leaders concluded the 30th Ordinary Session of the Assembly of the African Union last week, with the summit adopting a series of decisions on issues related to continental economic integration – including on the next steps for the Continental Free Trade Area (CFTA), as well as the free movement of people and air travel.
The two-day meeting in Addis Ababa, Ethiopia, also saw participants discuss progress towards realising the continent’s own development vision, Agenda 2063, as well as the UN’s 2030 Agenda for Sustainable Development. The African Union (AU) and the UN signed a framework agreement on implementing those two broad development-oriented agendas in a mutually supportive way.
High on the meeting agenda was the fight against corruption, a topic chosen as this year’s summit theme. Various African leaders emphasised that despite a growing recognition of the necessity to tackle this problem, more work needs to be done at all levels.
“We must seize the opportunity of the theme of this year on the fight against corruption to take decisive action against this scourge that impedes development and undermines social cohesion,” said Moussa Faki Mahamat, Chairperson of the AU Commission, in his address to the meeting.
The summit was also marked by the election of Rwandan President Paul Kagame as the new AU chairperson. He succeeds Guinean President Alpha Condé and will guide the work of the organisation over the coming year.
CFTA summit: the final countdown?
African leaders agreed to hold an extraordinary summit on 21 March in Kigali, Rwanda, with the goal of considering legal texts related to the CFTA and signing the agreement establishing the free trade area. It will be preceded by an extraordinary session of the Executive Council on 19 March, also in Kigali.
“Scale is essential. We must create a single continental market, integrate our infrastructure, and infuse our economies with technology. No country or region can manage on its own. We have to be functional, and we have to stay together,” said Kagame in his opening remarks to the AU Assembly.
The projected mega-FTA is expected to bring together the 55 members of the African Union into a continental market with a cumulative GDP exceeding US$3.4 billion and a total population of over one billion people. If concluded and implemented successfully, it would become the largest free trade area in the world in terms of membership.
Negotiations towards establishing the CFTA were launched in 2015 with the initial goal of concluding a first phase covering trade in goods and services by the end of 2017. Despite significant progress achieved at the end of last year, however, sources say that members are still working to finalise talks on all aspects related to phase one negotiations. Phase two will move the talks towards discussing topics such as competition policy and intellectual property.
While negotiators completed their work on the Agreement Establishing the Continental Free Trade Area and the Protocol on Trade in Services in November 2017, additional discussions are needed to resolve remaining sticking points involving trade in goods. This includes aspects related to rules of origin, sensitive and excluded products, trade remedies, and infant industries.
Negotiations resumed this week with a view towards bridging remaining differences ahead of the March summit, and the process of legal scrubbing is currently underway for the texts that have already been finalised.
The AU also announced last week at the summit a “strategic partnership” with the AfroChampions Initiative, a group of public-private projects driven by well-known African government officials and business leaders. This new collaboration will aim to promote the CFTA by boosting engagement with the continent’s entrepreneurs.
“By sharing the reflections of its members and their ‘on-the-ground’ experience, the AfroChampions Initiative will allow us to develop more relevant approaches on many technical subjects – especially with regards to common customs tariffs, facilitation of intra-African trade, and free movement of workers, goods, and capital,” said Albert Muchanga, the AU Commissioner for Trade and Industry.
Free movement of people, air travel
In another effort to strengthen continental integration, the AU Assembly adopted a protocol that provides for the progressive implementation of free movement of people, right of residence, and right of establishment on the continent, as well as a related draft implementation roadmap.
While many observers have noted that free movement of people could play a central role in unleashing the continent’s economic potential, some have also warned that implementing this policy in practice will require real commitment from member states, which could prove challenging given the divisions which have emerged during the discussions so far.
While describing the importance of having the CFTA in place, Kagame said that “freedom of movement for people in Africa is equally important,” and suggesting that in his view the goal could be reached this year.
The AU summit also saw the formal establishment and launch of the Single Market for Air Transport in Africa (SAATM), a move aimed at enhancing connectivity at a continental level and developing the aviation and tourism sectors. “This is an initiative whose execution has been long awaited,” noted AU Commission Chairperson Moussa Faki Mahamat.
So far, 23 member states have committed to the immediate implementation of the 1999 Yamassoukro decision, which provides for the liberalisation of air transport services on the continent. They will be the initial members of the SAATM. This list includes Benin, Burkina Faso, Botswana, Cape Verde, Republic of Congo, Côte d’Ivoire, Egypt, Ethiopia, Gabon, Ghana, Guinea Conakry, Kenya, Liberia, Mali, Mozambique, Nigeria, Rwanda, Senegal, Sierra Leone, South Africa, Swaziland, Togo, and Zimbabwe.
“The realisation of a Single African Air Transport Market is vital to the achievement of the long-term vision of an integrated, prosperous, and peaceful Africa under the AU Agenda 2063,” said an AU press release.
Like the CFTA and the free movement of people, the creation of a unified air transport market in Africa is among the flagship projects of the first ten-year implementation plan of Agenda 2063.
“By committing to break down these barriers, we will send a tremendous signal in Africa and beyond, that it is no longer business as usual,” said Kagame at the AU summit.
UN-AU partnership
Speaking during the AU Assembly’s opening ceremony, UN Secretary-General António Guterres reaffirmed the UN’s strong commitment to work towards addressing the continent’s most pressing challenges.
At a time of growing debate over the benefits of multilateralism, he said that the UN and the AU “can show that multilateralism is our best and only hope.”
The two intergovernmental organisations signed the AU-UN Framework for the Implementation of Agenda 2063 and the 2030 Agenda for Sustainable Development, which aims at fostering greater cooperation and ensuring that both agendas are effectively integrated into African countries’ national development plans.
“Our two agendas – the 2030 Agenda and Agenda 2063 – are mutually reinforcing. Eradicating poverty in all its forms is our overarching priority,” said Guterres.
Through taking a harmonised approach and using this new framework agreement to guide their shared work, the AU and the UN aim to optimise resource mobilisation and use, while avoiding duplication of efforts.
Going forward, the UN chief also identified five areas for enhanced partnership between the UN and the AU: peace and security; inclusive and sustainable development; climate change; migration; and the fight against corruption.
Supporting gender equality
Another theme that received significant attention was gender equality, with the AU Assembly calling on member states to implement all the commitments made in the Solemn Declaration on Gender Equality in Africa.
Adopted in July 2004, the declaration reaffirmed African countries’ “commitment to continue, expand, and accelerate efforts to promote gender equality at all levels,” followed by a series of 13 specific pledges on various gender-related matters.
“For women especially, we need to unreservedly accord them their full rights and roles,” said Kagame during the opening ceremony.
African Union officials at the event said that the AU has done well to ensure that its leadership roles see strong representation from women, while calling for more work to be done to address the gender leadership gap both within the organisation and at the national level.
Guterres, for his part, noted in his speech the valuable role that women and young people can play in bringing African countries’ development goals to fruition.
“Women’s full participation makes economies stronger and peace processes more successful,” he said.
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Brazil circulates proposal for WTO Investment Facilitation deal
Brazil submitted an extensive draft proposal for a potential agreement on investment facilitation to the WTO’s General Council last week, in a bid to jumpstart more “structured discussions” on the subject.
The proposal, which was circulated on 1 February, serves as a response to the call made by 70 WTO members in a “Joint Ministerial Statement on Investment Facilitation for Development,” which was released on 13 December on the margins of the WTO’s Eleventh Ministerial Conference (MC11).
The MC11 statement followed the work done by the “Friends of Investment Facilitation for Development” (FIFD) group, which had led to informal discussions on the subject last year. The FIFD group had also helped convene a high-level investment facilitation meeting in Abuja, Nigeria, with the support of regional partners last November.
That same MC11 document had confirmed that this group of members would begin holding “structured discussions with the aim of developing a multilateral framework on investment facilitation,” along with welcoming any other interested members to join the initiative.
This framework, they said, would be “flexible” and “responsive” given members’ respective priorities, while also preserving the right to regulate “in order to meet their policy objectives.”
The group had also confirmed plans to meet early in the new year “to discuss how to organise outreach activities and structured discussions on this important topic,” without setting a concrete date for doing so. The Brazilian proposal is the first formal document to emerge on investment facilitation and the WTO since MC11 drew to a close in mid-December.
Illustrative example of a future deal
In its submission, the Brazilian delegation clarifies that the draft proposal is not intended to serve as a negotiating text, but rather is meant to serve as a “concrete illustration” of what an agreement on investment facilitation could look like. The submission, they say, could help serve as a starting point for a “more focused and text-based discussion” on the subject, along with supporting outreach efforts towards bringing more WTO members on board.
The Brazilian text is more extensive and detailed compared to earlier proposals submitted by various delegations in 2017. The scope and the main elements, however, remain the same. These include articles that aim to improve the transparency, predictability, and efficiency of regulatory and administrative frameworks related to investment policies and measures. Proponents of these measures say that these would then provide a more stable and secure enabling environment for investors to undertake sustainable investments in host economies, thus promoting trade and economic growth.
The Brazilian proposal includes examples of articles that would strengthen institutional or “electronic” governance, such as by setting up a “single electronic window” that would publish relevant documents and help streamline the application and admission procedures for incoming investments.
The proposal also includes an article that would establish a national focal point, in other words a delegated authority which would mediate and facilitate investor concerns with public authorities and would also operate the above-mentioned single electronic window.
In line with previous proposals submitted last year by other delegations, the Brazilian text emphasises that issues such as investment protection, dispute settlement “not foreseen” under current WTO dispute rules, and market access, as well as government procurement, are outside the ambit of an investment facilitation accord.
Brazil has also included a range of other illustrative articles, such as “voluntary principles and standards of corporate social responsibility” for investors to undertake in other countries, along with suggested provisions for special and differential treatment (S&DT) for developing country and least developed country (LDC) members. These provisions include technical assistance, additional time for implementing certain articles, and the exclusion of LDCs from meeting some requirements.
The South American country has also outlined how a potential “WTO Committee on Investment Facilitation” could work, including reviews on implementation, cooperation with other international agencies, and the potential establishment of subsidiary bodies.
Questions remaining
Going forward, it remains to be seen how the proposal will be received among both current participants in the investment facilitation joint statement, as well as the WTO’s wider membership. Earlier attempts to discuss investment facilitation-related issues at the General Council last year and in minister-facilitated meetings during MC11 were strongly opposed by a coalition of countries, which included India and South Africa.
Some sceptics of the investment facilitation initiative have suggested that the subject falls outside the organisation’s mandate, while some have said the issue of investment facilitation is no different than the original “Singapore” issue of investment that had been considered for inclusion in the Doha Round of trade talks, only to be dropped from consideration.
Along with trade and investment, the other “Singapore” issues, so named for the location of the 1996 WTO ministerial which set up working groups to discuss certain subject areas, were trade facilitation, trade and competition policy, and transparency in government procurement. Only trade facilitation advanced to formal WTO negotiations from this working group process.
Another open question is whether and how the process for more “structured discussions” on new issues, such as investment facilitation, would be integrated within the WTO’s structures and formal processes.
The investment facilitation talks are not the only new initiative being pursued by WTO member groups in the wake of MC11. Joint ministerial statements were also released on e-commerce and on micro, small, and medium-sized enterprises (MSMEs), along with a declaration on trade and women’s economic empowerment. All of these drew the backing of several WTO members, who urged others to consider signing on.
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EAC Monetary Union Bills in the offing
Two key Bills critical to the establishment of the East African Community Monetary Union were tabled for the First Reading in Kampala, Uganda on 7 February, 2018.
The EAC Monetary Institute Bill 2017 and EAC Statistics Bureau Bill 2017, tabled by the Chair of the Council of Ministers, Hon Julius Wandera Maganda, sailed through the First Reading and were committed to the respective EALA Committees.
The object of the EAC Monetary Institute Bill, 2017, is to provide for the establishment of the East African Monetary Institute (EAMI) as an institution of the Community responsible for preparatory work for the EAC Monetary Union. In accordance with Article 23 of the Protocol on the EAC Monetary Union, the Bill is expected to provide for the functions, governance and funding for the Institute as well as other related matters.
Closely related to the EAMI Bill is the EAC Statistics Bureau Bill, 2017, which also seeks to establish the Statistics Bureau as an Institution of the Community under Article 9 of the Treaty and Article 21 of the Protocol on Establishment of the EAC Monetary Union.
The Bill provides for the functions, powers, governance and its funding with a view to establishing an institution responsible for statistics in a bid to support the East African Monetary Union.
The EALA Committee on Communications, Trade and Investment is to hold public hearings on the EAC Statistics Bureau while the EAC Monetary Institute Bill will be handled by the General Purpose Committee.
The Speaker, Rt Hon Ngoga Karoli Martin said though the bills were tabled by the Council of Ministers, they were coming to the House close two years late. He therefore urged the Assembly to give both Bills the due attention deserved.
Meanwhile, Hon Amb Dr Augustine Mahiga, Minister for Foreign Affairs and East African Co-operation in the United Republic of Tanzania was sworn in as an ex-officio Member of EALA.
Hon Amb Dr Mahiga was led in to the House by Hon Josephine Lemoyaan, Hon Abdulla Makame and Hon Happiness Elias Lugiko.
In his maiden speech immediately thereafter, the Minister registered appreciation to EALA and congratulated the Speaker and Members for their election. He further congratulated the Members of the Republic of South Sudan for joining the Assembly and noted the region looked forward to ensuring it (South Sudan) maximizes the benefits of integration.
The Minister remarked that EALA had made major contribution and remained a significant player in the process of integration. “You are the custodian of the Treaty and the one that oversights Government – speaking without fear or favour on where we need to improve,” Amb Dr Mahiga said.
“You are the indispensable link to the people of East Africa, he added saying EALA was essential in bringing people behind the integration process,” the Minister added.
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Bill seeking to ease cross-border movement tabled in parliament
A newly proposed law on immigration and emigration in Rwanda would make it easier for people in border communities to cross borders without difficulty, Members of Parliament in the Lower House heard yesterday.
The MPs on Thursday approved the basis of a draft law that seeks to amend the current law on immigration and emigration matters, which has to be reviewed to incorporate penalties on immigration and emigration related offences among other changes.
While presenting the draft law in Parliament yesterday, the Minister in the Office of the President, Judith Uwizeye, said that provisions have been added in the draft law to make it easy for people living in border communities to travel to neighbouring countries.
Under Article 57 of the draft law, the government has proposed that the Directorate General of Immigration and Emigration be allowed to work in consultation with local leaders and other relevant authorities to establish more crossing points to strictly facilitate movements of border communities.
The draft law directs the directorate to put in place instructions governing the management of the crossing points.
“It’s important that we make it easy for Rwandans to travel to neighbouring countries, especially those who live near the borders. Some of them would travel long distances to reach a gazetted border post,” Uwizeye told MPs.
Immigration officials told The New Times that the move aims to close a gap in the law whereby people in some border communities were not explicitly allowed by the law to cross the nearby borders without using designated border posts.
Once it has come into force, the new law will recognise other crossing points other than gazetted borders to ease the movement of border communities.
Many legislators welcomed the move but suggested that the government should devise mechanisms at the proposed crossing points to ensure that they aren’t abused.
“Increasing border posts is a good thing but it should go hand in hand with increasing security equipment such as search equipment for travellers,” said MP Athanasie Nyiragwaneza.
Minister Uwizeye said that control mechanisms will be put in place as different crossing points are opened and she agreed with the lawmaker that some equipment should be procured for use by border posts.
“Yes, we will increase equipment. You also know that Rwanda has opened its borders to foreigners and that’s why we will increase control mechanisms at our borders,” she said.
Apart from easing travel for people in border communities, the draft law also seeks to institute new types of travel documents, redefine what migration crimes are, and provide penalties for such crimes.
Officials said in an explanatory note to the immigration draft law that the opportunity to modify the existing legal framework has come at a time when the law needed to be reviewed to bring on board various changes that occurred in the country in the area of Immigration and Emigration.
They said that the proposed review of Law no. 04/2011 of 21 March 2011 on Immigration and Emigration in Rwanda serves to facilitate the mobility of Rwandans and foreigners in the country by easing entry and exit procedures, but with necessary safeguards to ensure that Rwanda’s openness is not abused by criminals.
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Côte d’Ivoire Economic Update: Skilled labor force and connectivity needed to modernize economy
With a GDP growth rate projected to reach 7 percent in 2018 and 2019, Côte d’Ivoire continues to be one of the most dynamic economies in Africa.
The sixth Economic Update for Côte d’Ivoire, launched on 8 February 2018 by the World Bank notes the undeniable performance of the Ivoirian economy, but also points out the urgent need to encourage greater private sector participation and to improve public finance management, especially in education and health.
The report entitled, At the Gates of Paradise, proposes a strategy based on three complementary pillars:
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Opening the country’s economy to attract foreign investors in order to benefit from transfers of technologies and skills.
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Strengthening local competencies to assimilate, adapt and successfully implement new technological tools.
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Lowering physical and virtual transportation costs, by improving the performance of the Ivoirian ports (and their related connections), but also by reducing the costs associated with the use of mobile telephone and Internet tools.
Additionally, the report focuses on how the country can make up its technological lag. “Economic theory has long demonstrated the key role played by technological innovation in a country’s development process,” said Jacques Morisset, Lead Economist, World Bank.
“To be successful, Côte d’Ivoire must not only open up to the exterior but also enhance the skills of its labor force and the connectivity of its economy. These two factors play an essential role in the dissemination of new imported technologies and their adaptation to the local economic fabric.”
This model for the dissemination of technology has been implemented by numerous countries in Asia and more recently in Africa.
“The strategy behind the success of money transfers by mobile phones that is now spreading all over Africa would help firms operating in Côte d’Ivoire become more competitive and so create productive jobs for the fast-growing labor force,” said Pierre Laporte, World Bank Country Director in Côte d’Ivoire. “It will enhance the excellent performance achieved the country these last few years.”
At the Paradise’s Doors – Key Messages
After analyzing recent developments in the Ivoirien economy and its outlook for the short and medium term, this sixth report on the economic situation in Côte d’Ivoire focuses on how the country can make up its technological lag.
Although Côte d’Ivoire has embarked on a trajectory of strong growth after more than a decade of political instability, its aim of becoming an emerging economy will not be achieved without more productive businesses, as they are the country’s main employers and generate most of its revenues.
State of the Ivorian economy
With a rate of growth that is expected to hold steady at around 7.6 percent in 2017, Côte d’Ivoire continues to be one of the most dynamic economies in Africa, if not the world. As the catch-up effects that prevailed at the exit from the post-electoral crisis of 2011 have dissipated, this solid performance is explained by the rebound of agriculture owing to favorable rainfall and higher prices. It also demonstrates Côte d’Ivoire’s resilience to internal and external shocks.
The political and social climate, which deteriorated in the first half of the year as a result of the demands of some military personnel and civil servants, has calmed, and the sharp drop in cocoa prices has been offset by an excellent harvest.
The main monetary and financial variables stayed on their trend in recent years. Inflation held steady at around 1 percent annually owing to the prudent monetary policy of the BCEAO. Credit to the economy grew around 14 percent, reflecting strong demand in the private sector and the banks’ gradual diversification toward small and medium enterprises. The financial system is stable, respecting regional prudential ratios, and the rate of nonperforming loans stands at around 8 percent.
Although the current account deficit has stabilized at around 1 percent of GDP, this conceals significant developments. The 20 percent increase in exports reflects rising agricultural prices and good harvests. Imports have remained relatively stable, although the increase in purchases of oil has been offset by a decline in purchases of capital and intermediate goods. Inflows of external capital have financed the current account deficit, particularly government borrowing on the international market, with the result that the international reserves have risen significantly.
The Government’s fiscal position remains under control, although its deficit rose from 4 percent of GDP in 2016 to 4.5 percent in 2017. A number of factors explain this deterioration. First, the Government had to undertake additional expenditures to respond to the demands of certain groups in the armed forces and the public sector. As well, the authorities chose to absorb the rising oil prices and the decline in cocoa prices on the international markets by reducing the taxes on these products rather than allowing these fluctuations to flow through to pump prices and producer prices for cocoa beans. The fiscal policy was thus mobilized in support of cocoa producers and transport companies/motorists in 2017 to keep the social peace.
To offset this new spending, the authorities achieved budget savings over the year. Capital expenditures were reduced from the amount in the approved budget, and the authorities were also successful in increasing the collection of some taxes, particularly the corporate income tax.
Two initiatives helped reduce fiscal risks and improve public management in two sectors that are strategic for the country. First, the Government undertook to improve the payment of its electricity bills in the context of a consolidation plan intended to reduce the deficit in this sector. Second, a financial audit of some operations on the cocoa market identified numerous irregularities. Their correction should improve the governance within this market. These two initiatives send a positive signal that should encourage private sector investment.
The fiscal deficit has been financed by concessional aid and nonconcessional borrowing.
While the Government mainly accessed the regional market in 2016, in 2017 it tapped the international markets as it had in 2015. The issuance of euro bonds in June 2017 for a net amount of US$ 1.2 billion was a resounding success, with demand standing at four times this amount and a yield lower than the yield of the previous issuance in 2015. A portion of these bonds was denominated in euros, limiting the exchange risk for the country. However, the level of the public debt increased, from 47 percent of GDP in 2016 to over 50 percent in 2017.
Côte d’Ivoire’s short- and medium-term outlook remains encouraging. The GDP growth rate should reach 7 percent in 2018 and 2019. Modern services such as communications, finance and transport should continue to support the Ivoirien economy, and construction should also continue to grow steadily. All of these sectors should benefit from the country’s rapid urbanization and economic growth. The industrial sector should grow owing to the expansion of the food processing industry. The contribution of agriculture should be comparable to previous years although it remains dependent on weather conditions.
Prices, money and credit should maintain their current trajectory. The current account deficit is expected to stabilize at around 2 percent of GDP, while remaining vulnerable to changes in the terms of trade and weather conditions.
The fiscal adjustment planned for 2018 and 2019 is a key feature of the Government’s economic policy. It is aimed at maintaining debt sustainability and achieving the WAEMU target. The fiscal deficit should decline from 4.5 percent of GDP in 2017 to 3.0 percent of GDP in 2019. This adjustment is based on an increase in revenues (approximately 0.8 percent of GDP) and a reduction in current expenditures, which should return to their 2016 levels as a percentage of GDP (i.e., without the 2017 security spending). This strategy requires improving the efficiency of public spending so that the Government can achieve its ambitious infrastructure and social service objectives without spending more. There seems to be significant room for improvement both in the management of public investment and in the provision of public services in the areas of education and health.
Côte d’Ivoire has thus far benefited from generally favorable terms of trade and weather conditions in recent years, unlike the majority of African countries. However, the Ivoirien economy remains vulnerable to external risks such as fluctuations in the prices of agricultural and mining products, weather conditions, global and regional security risks, and a tightening of the regional and international financial markets.
On the domestic front, the presidential elections planned for 2020 could create uncertainties and even some instability, which could slow private investment. The Government could be tempted to spend more to support economic activity and maintain the social and political peace. The Government must also successfully increase its revenues while controlling its spending in order to avoid further debt, since the sustainability of the public debt has deteriorated, as indicated in the recent joint analysis by the International Monetary Fund (IMF) and World Bank.
As of end-2017, Côte d’Ivoire continues to be classified as a country with a moderate risk of debt overhang. However, it seems more vulnerable to slower economic growth, higher interest rates or a deterioration in its fiscal position owing to the steady increase in its debt in recent years. This risk is even higher if the debt of the public enterprises is taken into account, particularly enterprises in the energy sector. Contingent risks relating to some public banks (currently undergoing restructuring) and the public-private partnership programs should also be taken into account.
How to accelerate the economic transformation of Côte d’Ivoire?
Since the end of the crisis in 2012, the performance of the Ivoirien economy has been remarkable, with a per capita growth rate exceeding 5 percent per year. Despite this upturn, per capita income is today below levels in the early 1980s and has just caught up to the level reached in 1990. Although the political events that rocked Côte d’Ivoire largely explain this relative stagnation of incomes, they are not the entire explanation.
An examination of the economic growth factors during the period 2002 through 2014 shows that although Ivoiriens worked more, they did not necessarily work better. The employment rate did indeed increase significantly (even faster than the population growth rate), but incomes did not follow the same positive trend, for at least two reasons. The first is that labor productivity in the key sectors increased only slightly during this period and even declined in agriculture. The second reason is that while Ivoiriens left unproductive sectors to move to those with higher productivity, this movement was only partial and gradual. By way of comparison, in East Asia intersectoral productivity gains were 3 to 5 times more rapid, while the structural transformation generated by labor mobility contributed to 2 percent of growth each year as against just 0.5 percent in Côte d’Ivoire.
Labor productivity within the Ivoirien economy has risen since 2012, by about 4-5 percent per year, but businesses still lag behind the production frontier achieved by the emerging countries. This lag exists in the productivity of both labor and capital and in almost all sectors of the economy. Only a few productivity niches have appeared, such as mobile telephony and money transfers.
To make up this lag, Côte d’Ivoire must improve its economic and institutional framework. According to economist D. Rodrik, such an improvement in the overall framework within which businesses operate can accelerate a country’s speed of convergence with the economies of the most advanced countries by making the private sector more efficient. This movement is already under way in Côte d’Ivoire as shown by the increase in its score in the Country Policy and Institutional Assessment (CPIA) from 2.7 in 2010 to 3.4 in 2017, the largest increase among the developing countries as measured by the World Bank over the past 10 years. This increase reflects the efforts undertaken by the Ivoirien authorities to improve the country’s macroeconomic, structural, institutional and legal conditions. However, this progress will have an impact only in the medium term, as the effect on the productivity of businesses is generally slow.
The speed of Côte d’Ivoire’s convergence could accelerate if it adopts and adapts new technologies by means of a technological catch-up initiative or an unconditional convergence, i.e., one that is not necessarily linked to the conditions that prevail in the country. Few countries have successfully achieved this catch-up without having prioritized openness to the rest of the world through foreign investment and exports. These two vectors promote the transfer of technology and skills since the vast majority of new technologies, including those that can shape the Africa of tomorrow, are often proprietary developments by companies in advanced countries. Seeking partnerships should therefore be a priority.
A focus of Côte d’Ivoire’s National Development Plan is to increase foreign direct investment (FDI) and exports. Although some specific initiatives have been launched, particularly in the agri-food processing sector, this strategy has not yet taken off. The weight of FDI and exports in GDP has not increased in recent years. According to the World Bank only 3 percent of Ivoirien companies use imported technology licenses as against 15 percent in the rest of Africa. Moreover, Ivoirien companies spend less on research and innovation than their African counterparts.
To be successful, Côte d’Ivoire must not only open up to the exterior but also enhance the skills of its labor force and the connectivity of its economy. These two factors play an essential role in the dissemination of new imported technologies and their adaptation to the local economic fabric. This model for the dissemination of technology has been implemented by numerous countries in Asia and more recently in Africa, including Rwanda and Ethiopia. To use the words of a senior Malaysian official, “the contribution of foreign investment and exports is proportional to their capacity to train local workers and entrepreneurs, who will in turn train other workers and entrepreneurs.” Good connectivity is also essential to the flow of products, services, persons and ideas.
This report proposes a strategy involving three complementary pillars that will help generate a virtuous circle allowing Côte d’Ivoire to make up its technological lag and converge more rapidly with the most advanced countries:
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Pillar one: A policy of openness must be defined on the basis of Côte d’Ivoire’s comparative advantages. An indicative list of potential products is proposed on the basis of the theories of revealed comparative advantages and product space. These industries can potentially attract foreign investors and turn toward exports in order to benefit from transfers of technologies and skills, which are still badly needed in Côte d’Ivoire.
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Pillar two: The capacity to assimilate, adapt and successfully implement a new technological tool will, to a great extent, depend on the skills available in the country. Unfortunately, Côte d’Ivoire’s lag in terms of the development of its human capital is an obstacle. While the reform of the education system is essential, it must be accompanied by training partnerships with private companies, particularly foreign companies, and training of Ivoiriens abroad. Here, the openness will help strengthen local competencies, which will in turn themselves reinforce the country’s openness.
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Pillar three: Good connectivity facilitates trade and increases the size of the market, generating economies of scale that are often essential to the establishment of foreign businesses and development of export activities. This requires lowering physical and virtual transportation costs and also reducing distances, for example through urbanization. The priorities are to improve the performance of the Ivoirien ports (and their related connections), to reduce the costs associated with the use of mobile telephone and Internet tools (1.5 to 3 times more expensive than in Ghana, for example) and to better manage the urbanization process by increasing the economic density of cities while controlling congestion costs.
Understanding the State of the Ivorian Economy in Five Charts
The Sixth Economic Update for Côte d’Ivoire notes the undeniable performance of the Ivoirian economy, but also points out the urgent need to work on certain aspects. The main needs are to encourage greater private sector participation and to improve public finance management, especially in education and health.
Côte d’Ivoire’s economic growth remains among the fastest on the African continent
In 2017, Côte d’Ivoire continued to be one of the most buoyant economies in Africa, with a growth rate expected to hold steady at around 7.6% (Chart 1). This positive performance is due to the recovery in agriculture, and shows Côte d’Ivoire’s resilience to domestic and foreign shocks. The short- and medium-term outlook remains encouraging. The GDP growth rate is forecast at 7% in 2018 and 2019. Nonetheless, the Ivoirian economy remains vulnerable to external risks such as fluctuations in agricultural and extractive commodity prices, climate conditions, global and regional security risks, and tight regional and international financial markets.
Chart 1. Côte d’Ivoire’s economic growth (Source: World Bank).
Growth increasingly driven by the public sector as the private sector’s contribution slows
The private sector’s contribution to Ivoirien growth has decreased since the end of the crisis in 2012 (Chart 2). However, there has been an increase in the foreign and public-sector contributions associated with the Government’s pro-cyclical policy and a positive external environment (in terms of export revenues and foreign investments). The authorities have taken forward an ambitious public investment program to narrow infrastructure and social services gaps, which had widened over more than a decade of political crises.
Chart 2. A downward trend in the private sector’s contribution (Source: World Bank).
Budget deficit and public debt have both grown
The Government’s fiscal situation deteriorated in 2017. The budget deficit grew from 2.9% of GDP in 2015 to 4% of GDP in 2016 and 4.5% in 2017 (Chart 3). The deterioration in the fiscal situation was due to stagnating domestic revenues (around 19.5% of GDP), whereas public expenditure increased more sharply (+0.6% of GDP) owing to security and social contingencies.
Chart 3. Growth in budget deficit and public debt (Source: World Bank and IMF).
Private investment is still relatively low and needs to be encouraged
The rate of private investment jumped between 2011 and 2017, rising from 5.7% to 12.0% of GDP between 2011 and 2012 before stabilizing at approximately 11% of GDP between 2013 and 2017. Yet this rate is still too low, as shown by Chart 4, especially when compared with the emerging countries, where it can top 25% of GDP, and even the stronger-performing Sub-Saharan African countries such as Ghana (19%) and Uganda (18%). Côte d’Ivoire has also failed so far to attract significant inflows of foreign direct investments, which account for just 1.5-2% of GDP, far from the rates observed in Ethiopia and Mozambique. The development of the private sector is decisive if Côte d’Ivoire is to maintain its rapid growth rate and redistribute the fruits of economic growth more equitably across the entire population.
Chart 4. Share of private investment in GDP per African country (Source: World Bank)
Public expenditure efficiency needs to be improved, especially in the social sectors
In addition, the fiscal consolidation planned by the Ivoirien authorities in 2018 and 2019 is creating an urgent need to improve the efficiency of public expenditure. If the central government cannot spend more, it will have to spend better to achieve its ambitious infrastructure and social services goals. It will need to improve both the allocation of public expenditure (“knowing where to spend”) and its financial efficiency (“knowing how to spend”).
The report provides a comparative analysis (Chart 5) of a sample of some 20 countries in the sub-region and countries that could serve as models for central government to improve the efficiency of its education and health expenditures (which account for nearly one-third of the budget). This analysis shows that, despite considerable central government expenditure on education, the results in terms of primary school enrolment remain disappointing. By way of comparison, Benin spends proportionally less than Côte d’Ivoire, but has a higher rate of pupils enrolled in primary education.
The fact that Côte d’Ivoire spends relatively little on the health sector explains its modest maternal mortality outcomes. Only Mali and Guinea Bissau put fewer resources into health than Côte d’Ivoire.
Chart 5. The efficiency of public expenditure in the social sectors (Source: World Bank). Note: Each variable is measured in terms of deviation from the sample’s mean. The blue dots represent the WAEMU member countries.
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Featured tweets: (i) @AdanMohamedCS: The are now 54 Japanese companies in Kenya as of Jan 2018, increasing from 30 companies in December 2014. Some leading investors include Toyata Tshusho, Isuzu Motors, Honda Motors, Nissin Foods, Yamaha Assembling among many others. (ii) @GileadTeri: Tanzania imports 40 million pairs of shoes every year. Domestic production is between 2-4 million.
The Second Ministerial Review Conference of Africa-Turkey Partnership takes place next week in Istanbul
South Africa: Standard Bank launches branch dedicated to Chinese business community (Xinhua)
South Africa’s leading commercial Bank, Standard Bank Group, on Thursday launched its first branch dedicated to service the Chinese business community in Africa. Speaking at the launch, Chinese Consul General in Johannesburg Ruan Ping said the bank’s “first Mandarin Banking Branch in South Africa” bears witness to the vital role the private sector plays towards strengthening China-South Africa relations. George Lo, Executive Head of Africa China Banking at Standard Bank, said establishing the branch is part of the bank’s strategy in recognizing the commercial value of Chinese doing business in South Africa and Africa at large, and facilitating regional trade. The full-service dedicated branch was opened at an event at Crown Mines in Johannesburg. “This is another step in the bank’s ongoing commitment to deepen and grow the Africa-China investment and trade corridor. We chose this area, because it’s where many entrepreneurs and businessmen from neighbouring countries obtain their supplies from Chinese wholesalers,” George Lo added.
Smart phones drive new global tech cycle, but is demand peaking? (IMF)
Over a decade of spectacular growth, demand for smart phones has created a new global tech cycle that last year produced a new smart phone for every fifth person on earth. This has created a complex and evolving supply chain across Asia, changing the export and growth performance of several countries. While our recent analysis of Chinese smart phone exports suggests that the global market may be saturated, demand for other electronics continues to support rising semiconductor production in Asia. Smart phones have become a key metric of global trade. In 2016, global smart phone sales reached almost 1.5 billion units. Smart phones have become the main computing platform for many people around the world, supplanting personal computers. As the figure shows, demand for smart phones has surged while sales of PCs have declined. [The authors: Benjamin Carton, Joannes Mongardini, Yiqun Li]
FDI and supply chains in horticulture: diversifying exports and reducing poverty in Africa, Latin America, and other developing economies (CGD)
Prior research on foreign investment and supply chains in emerging markets has focused almost exclusively on the creation of international networks in manufacturing and assembly. This paper extends that research, looking beyond manufacturing into supply chain creation in horticulture - in particular, vegetables, fruits, and flowers, raw, packaged, processed - in Africa, Latin America, and other developing regions. How have some developing countries managed to break into the ranks of horticultural exporters, while others have not? What are the obstacles to entering international supply chains for horticultural exports? How can emerging market economies maximize positive impacts on rural employment, on gender employment, and on externalities for local communities? The paper concludes with an investigation of policy implications for developing country governments, for the World Bank and regional financial institutions, and for other providers of external assistance. [The author: Theodore H. Moran]
Zimbabwe: 2018 Monetary Policy Statement (BoZ)
Performance and Impact of the Export Incentive Scheme: In order to ensure that Zimbabwean exports are competitive under the auspices of a dollarized economy, the Bank established the $200m and $300m export incentive facilities which are monetised by bond notes. Since its inception in 2016, the export incentive scheme has enhanced competitiveness of Zimbabwe’s exports and this has significantly contributed to the growth of exports which grew by 36% from $2.8bn in 2016 to $3.8bn in 2017. Table 1 shows the cumulative export incentive and bond notes disbursed, and export receipts generated since inception of the export incentive scheme in May 2016.
Regional Payments Developments: The Central Bank is committed to regional payment system initiatives and has encouraged banks and other payment service providers to utilise the SADC Integrated Regional Electronic Settlement System (SIRESS) platform to settle regional cross-border transactions. Since the implementation of SIRESS in July 2013, the number of local banks participating on SIRESS has risen to 15 whilst transactional values have also increased as shown in Figure 5.
Merchandise Trade Developments: Over the period January to November 2017, total merchandise trade (exports and imports) stood at $8,408.5m, representing a 15.8% increase from $7,262.5m recorded over the corresponding period in 2016. The increase was on account of increases in merchandise exports and imports of 36.8% and 4.5%, respectively. Consequently, for the period under review, the country’s trade deficit narrowed from $2,181.6m in 2016 to $1,456.7m in 2017. A narrowed trade deficit reduces pressure on foreign exchange reserves.
Zimbabwe-Mozambique Machipanda border: bureaucracy tests truckers’ patience (Club of Mozambique)
Hundreds of trucks are stuck in queues for days waiting to cross the Machipanda border in Manica on their way to or from neighbouring Zimbabwe, leaving drivers vulnerable to criminal gangs and their nerves stretched to breaking point. Excessive bureaucracy in Zimbabwean customs clearance is allegedly to blame. According to information provided by the Mozambican customs authorities to the Commander-in-Chief of Police, Bernardino Rafael, a truck is processed every five minutes on the Mozambican side of the border, but on the Zimbabwean side the same procedure takes between thirty to forty minutes. Due to this slowness in customs clearance, the line of waiting trucks is four to five kilometres long, threatening the safety of drivers who are forced to wait long hours for clearance.
Kenya: Government defends forced use of SGR (Business Daily)
The government has defended a directive to transport all imports coming in through Mombasa port via standard gauge railway to Nairobi’s inland container depot. Kenya Railways managing director, Atanas Maina, confirmed the order but says it was reached through consultation with other players including Container Freight Terminal owners. He also denied that the move to ferry cargo to Nairobi will interfere with CFS’s work. “All we are doing is shifting a point of cargo handling and not writing off the whole role that CFSs play. There are roles to play in Nairobi. ICD cannot handle the 28 million tonnes. There is still a lot of opportunities for them to do business,” said Mr Maina on Wednesday, adding that there would be no job losses in Mombasa.
Ghana: GUTA cautions government over new levies and taxes (Ghana News Agency)
Dr Joseph Obeng, the National President of the Ghana Union of Traders Associations, has asked government not to introduce any new levies and taxes that would take them out of business. Currently, he said, the trading community was overburdened with 16 levies and taxes, which cumulatively took between 50 and 55% of their importing capital. Dr Obeng expressed the Association’s unhappiness over government’s intention to introduce a Cargo Tracking Note at the country’s entry point as another levy on importers to shore up government’s revenue. Dr Obeng also observed that government had started implementing the African Union levy, which the trading community were already displeased about it, because they expected government to take monies from the ECOWAS levy for that purpose. “We’re not happy with the AU levy because not all the African countries are collecting it and so why should Ghana rush in implementing it. In fact, government should be fair with importers because the Common External Tariffs, which government introduced some years ago has raised the levies importers’ are paying and we’re gradually falling out of the ECOWAS market.”
Global mining firms sue Kenya for $3.2bn compensation (The East African)
Trade Principal Secretary Chris Kiptoo says Kenya is actively involved in about 10 suits before a Dubai-based disputes tribunal. “There are ongoing cases at ICSID with claims amounting to Ksh334 billion. We have seen how vague language in investment treaties can result in massive payouts. Kenya has developed a model investment treaty and an investment agreements policy with clear rules and responsibilities,” said Mr Kiptoo at the 11th Annual Forum of Developing Country Investment Negotiators in Nairobi.
International Centre for Settlement of Investment Disputes: 2017 caseload (ICSID)
The International Centre for Settlement of Investment Disputes registered a record 53 cases in 2017 under its trademark ICSID Convention Rules and Regulations and Additional Facility Rules. The 2017 figure, published in the latest edition of ICSID Caseload – Statistics (pdf), represents a slight uptick from preceding years: 48 cases were registered in 2016 and 52 in 2015. ICSID has registered an average of 39 new cases each year over the last decade. ICSID also provides administrative support for investor-State arbitrations under the UNCITRAL rules and other ad hoc dispute settlement provisions. In 2017, 8 cases were administered under UNCITRAL rules and another 5 under ad hoc provisions.
The largest share of newly registered cases involved States from Eastern Europe and Central Asia (36%), followed by the Middle East and North Africa (15%), Sub-Saharan Africa (15%), and South America (13%). In 2017, 15% of new cases involved the financial sector. Cases involving energy and extractives also remained prominent. Of the arbitrations that concluded in 2017, 78% were decided by a tribunal, and the remainder were settled or otherwise discontinued.
Book review: The political economy of the investment treaty regime
Government regulatory space in the shadow of BITs: the case of Tanzania’s natural resource regulatory reform
Won Kidane: Alternatives to Investor-State Dispute Settlement – an African perspective
Playing with financial fire: a South Perspective on the international financial system
Extra-Ordinary Sectoral Council on Trade, Industry, Finance and Investment starts in Arusha
The three-day meeting started yesterday with the session of senior officials, to be followed today by the session of Permanent/Principal Secretaries/Undersecretaries. The meeting concludes tomorrow with the Session of Ministers or Cabinet Secretaries. Agenda items include: deliberation on the long standing Non-Tariff Barriers to trade; consideration of the two pons of ad valorem of 35% and specific duty rate of tariffs for used clothing under AGOA Out of Cycle Review; consideration of the update on EU-EAC Market Access Upgrade Project; consideration of the EAC Trade and Investment Report 2016, adoption of the One Stop Border Posts Manual. [Related: @Trade_Kenya: Declining intra-trade within EAC block, from $55bn in 2015 to $45bn in 2017, dominated Extra-Ordinary Council on Trade, Industry, Finance and Investment as partner States ponder on resolving long standing Non Tariff Barriers]
EAC organs grapple with acute shortage of skilled staff (The East African)
A shortage of professional staff at the EAC Secretariat and its organs will feature on the agenda of the upcoming summit in Kampala. The registrar of the East African Court of Justice said this week that the EAC’s judicial arm is one of the key organs affected. “The entire spectrum of the EAC is facing a shortage of staff. It is among the matters to be discussed at the summit,” said Yufnalis Okubo, the EACJ registrar. Mr Okubo said Monday that the Arusha-based court has a skeleton staff of only 28 out of nearly 300 professionals needed.
UK pledges additional funding to expand ITC’s SITA project (ITC)
The UK, through DfID, has pledged an additional GBP 2.4m in seed funding to the International Trade Centre’s Supporting Indian Trade and Investment for Africa (SITA) project. The funding will enable new spin-off initiatives and expand some existing activities within the SITA project. ITA enhances South-South trade and investment cooperation between India and five East African countries (Ethiopia, Kenya, Rwanda, Uganda and United Republic of Tanzania), and across several priority sectors: pulses, spices, sunflower oil, coffee, information technology, leather and textiles and apparel.
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Standard Bank launches branch dedicated to Chinese business community
South Africa’s leading commercial Bank, Standard Bank Group, on Thursday launched its first branch dedicated to service the Chinese business community in Africa.
Speaking at the launch, Chinese Consul General in Johannesburg Ruan Ping said the bank’s “first Mandarin Banking Branch in South Africa” bears witness to the vital role the private sector plays towards strengthening China-South Africa relations.
George Lo, Executive Head of Africa China Banking at Standard Bank, said establishing the branch is part of the bank’s strategy in recognizing the commercial value of Chinese doing business in South Africa and Africa at large, and facilitating regional trade.
The full-service dedicated branch was opened at an event at Crown Mines in Johannesburg.
The move unlocks future business and trade potential between the continent and the world’s second largest economy, Lo said.
“This is another step in the bank’s ongoing commitment to deepen and grow the Africa-China investment and trade corridor. We chose this area, because it’s where many entrepreneurs and businessmen from neighbouring countries obtain their supplies from Chinese wholesalers,” he added.
“This model is not just about servicing the Chinese, but, importantly, also Africans looking to trade with China. We expect this to be the first of many opportunities to come,” Lo said.
The branch will have staff fluent in both Chinese and English who can service the Chinese customers and everyone else. Standard already has over 100 Chinese-speaking relationship managers, bankers and advisors, including Chinese-speaking traders on the bank’s trading floors, Sibongiseni Ngundze, Executive Head, Retail and Business Banking at Standard Bank said.
The Crown Mines area has become a regional trade hub for neighbouring countries, with several Chinese markets being established.
The Standard Bank Group has a strong footprint across 20 African countries, and the Crown Mines branch opening follows the successful launch of the world’s first dedicated Africa-China Banking Centre at its Simmonds Street offices in Johannesburg in June last year.
“The development of dedicated branches for Chinese clients in South Africa is one of the tangible practical transactional platforms that cements this relationship. We are actively expanding and will continue to invest across these exciting markets,” Lo said.
China has been the largest contributor to global growth since 2008, and continues to be a key investor in Africa. Meanwhile, the country’s trade with Africa totaled 170 billion US dollars in 2017, up 14.1 percent year on year, according to Chinese customs data.
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Zimbabwe: 2018 Monetary Policy Statement
Enhancing financial stability to promote business confidence
Presented by Dr. J P. Mangudya, Governor of the Reserve Bank of Zimbabwe
The Statement comes at a time when the economy is experiencing renewed hope and confidence ushered in by the new economic dispensation, following the formation of a new leaner cabinet by His Excellency, the President, in November 2017. This renewed hope and confidence would need to be supported by going back to basics to restore business confidence and to foster discipline within the national economy. Accordingly, this Monetary Policy Statement seeks to buttress this confidence trajectory by putting in place measures that gradually liberalise the foreign currency market in order to indicate that the country is ‘open for business’.
The Bank has continued to make concerted efforts to address cash shortages, which are a direct reflection of the tight foreign currency macro-economic environment that is exacerbated by the transmission impact of the persistent fiscal deficit on the financial sector. Addressing this current macro-economic imbalance requires a sharp rise in foreign exchange reserves and an improvement in the fiscal balance. It is against this backdrop that the interventions by the Bank in the foreign exchange market through nostro stabilisation facilities have greatly assisted the economy to meet the ever growing demand for foreign exchange and, in doing so, stabilising parallel market activities and sustaining the financing of critical imports such as fuel, electricity, cash, medicines and essential consumer goods. In addition, policy interventions to promote exports continue to bear fruit as evidenced by the continued narrowing of the current account deficit. In this regard, Zimbabwe’s current account balance is now within the international best practice range and also consistent with macroeconomic convergence targets under the SADC and COMESA guidelines.
This, notwithstanding, the country’s high import dependency continues to exert pressure on foreign exchange earnings, thus fueling parallel market activities for foreign exchange. This economic situation is compounded by the growing fiscal deficit which remains the major driver of increased deposits or money supply in the banking sector, creating foreign currency liquidity shortages in the economy and causing inflationary pressures through domestic monetary emission on the RTGS platform.
Opening up of the economy to business is therefore the most sustainable cure for the major challenges the country is facing. Opening Zimbabwe for business means attracting investment, foreign and domestic, that is required to increase production, jobs, fiscal space, exports and eventually the happiness index for Zimbabweans. It moves the economy beyond stabilisation. Opening up the economy also calls for local business to improve on their efficiencies and competitiveness in order to brace for competition from foreign investors.
The Bank is convinced that by opening up the economy for business, the country has struck the right chord for the sustainable transformation of the economy. It is in this optimistic context that the Bank is coming up with measures to gradually open the foreign currency market in order to restore investor confidence within the economy under the new narrative to open Zimbabwe for business. Specifically the measures presented in this Statement are meant to address the following:
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Further promoting the use of mobile and electronic payment systems (plastic money);
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Enhancing the use of the local generated RTGS funds to generate exports;
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Improving the foreign currency market;
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Enhancing rewards to exporters and reducing cost of doing export business;
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Providing generators of forex assurances of ease of access to foreign currency;
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Enhancing foreign currency retention threshold;
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Enhancing nostro stabilisation facilities to provide assurances to foreign exchange earners of forex availability and to meet the import requirements of essential commodities;
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Improving ease of access to productive facilities;
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Addressing the needs of the diasporans;
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Reinforcing the arrears clearance and re-engagement programme;
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Providing guidance on the continuation of the multi-currency system;
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Providing guidance on the Presidential Amnesty on externalised assets and funds; and
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Providing update on the acceptability of the 99-year land leases as collateral at banks.
Conclusion
The narrative “open for business” means that Zimbabwe is ready and willing to embrace a paradigm shift to attract investors, both local and foreign, for the total transformation of the economy in respect of increased production, jobs, exports, fiscal space, access to capital and foreign finance. Improvement in these economic variables will greatly benefit the monetary environment and, in doing so, enhancing financial stability and confidence within the national economy. A healthy foreign exchange buffer will strengthen the value of RTGS funds and gradually reduce cash shortages.
“Open for business” is not just a narrative. It calls for a dramatic change in the conduct of business from the business as usual approach. We need to walk the talk to re-balance the economy through a tight rein on fiscal deficit – increasing revenue collections and holding expenditures constant – whilst at the same time enhancing Zimbabwe’s access to foreign finance and increasing foreign inflows from exports and international remittances. These measures will be buttressed by accelerating the arrears clearance and re-engagement programme under the Lima, Peru, principles of engagement with the International Financial Institutions and Development Partners.
The policy measures enunciated in this Statement should therefore be seen as the initial move to gradually open the foreign currency market to show that Zimbabwe is open for business. 2018 should therefore be a defining year for Zimbabwe. The future of Zimbabwe is in our hands.
Global and regional economic developments
The global upswing in economic activity, which started in the second half of 2016 is strengthening, supported by robust growth in emerging economies. As a result, global economic activity is projected to improve from a growth of 3.2% registered in 2016 to 3.7% in 2017 and 3.9% in 2018.
Despite this development, growth remains weak in some countries, with inflation below target in most advanced economies. Growth in China, India and other parts of emerging Asia remains strong, while several commodity dependent economies in Latin America and sub-Saharan Africa show some signs of improvement.
In sub-Saharan Africa, growth is estimated at an average of 2.7 percent in 2017, up from 1.4 percent recorded in 2016. Growth is expected to further increase to 3.3 percent in 2018, with sizable differences across countries. This growth remains below the previous growth rates of above 5% recorded in 2014. There are, however, mounting vulnerabilities in the region, notably, rising public debt, financial sector strains and low external buffers. Public debt is high not only in oil exporting countries but in many fast-growing economies as well.
The improved global economic performance in 2018 has spill over effects on demand for Zimbabwean commodities and hence increased economic activity in the domestic economy.
Commodity Price Developments
International commodity prices continued their recovery from the rock-bottom levels registered at the beginning of 2016, although they remained depressed compared to the levels that were attained in 2012. More specifically, energy, base metals, precious metals and agricultural commodity prices showed some resilience in 2017 due to strong demand, particularly from China’s property, infrastructure, and manufacturing sectors and amid various supply bottlenecks globally.
Balance of payments developments
Consistent with developments in the sub-Saharan African economies, the country’s external sector position is showing signs of improvement, on account of policy measures being taken by Government and the Reserve Bank to boost exports and contain the import demand.
Merchandise Trade Developments
Over the period January to November 2017, total merchandise trade (exports and imports) stood at US$8,408.5 million, representing a 15.8% increase from US$7,262.5 million recorded over the corresponding period in 2016. The increase was on account of increases in merchandise exports and imports of 36.8% and 4.5%, respectively. Consequently, for the period under review, the country’s trade deficit narrowed from US$2,181.6 million in 2016 to US$1,456.7 million in 2017. A narrowed trade deficit reduces pressure on foreign exchange reserves.
Merchandise exports for the period January to November 2017 increased by 36.8%, from US$2,540.4 million realized in 2016 to US$3,475.9 million in 2017. The increase in the year on year merchandise exports was mainly on account of increases in exports of nickel (mattes, ores & concentrates), gold, ferrochrome and black tea. Exports composition remained unchanged showing Zimbabwe’s dependence on the export of commodities.
Gold, flue-cured tobacco, nickel (mattes, ores & concentrates) ferrochrome and diamonds dominated the country’s exports, contributing about 80% of total export earnings. The country’s exports were mainly destined for the SADC region with South Africa and Mozambique absorbing 62.8% and 10.5%, respectively. The country’s major exports to South Africa include platinum group of metals (PGMs), gold and nickel. These commodities are further exported to their final destination by South Africa.
Total merchandise imports for the period January to November 2017 amounted to US$4,932.6 million, a 4.5% increase from US$4,722.0 million realized over the corresponding period in 2016. The increase in merchandise imports was mainly attributable to increases in importation of energy (fuel and electricity), maize seed, machinery, fertilizers and medicines. The country sourced its imports mainly from South Africa (40.5%), Singapore (22.4%), China (8.8%), Zambia (2.5%) and Japan (2.5%).
Reflecting the combined effects of positive developments on merchandise trade in 2017 and the need to boost domestic production for both export and local consumption through importation of raw materials and intermediate goods, the current account deficit is estimated to have slightly increased from US$591.3 million in 2016 to US$618.1 million in 2017.
International Money Transfers
For the year 2017, inward international remittances amounted to US$1.4 billion compared to US$1.6 billion received in 2016 representing an 11% decrease. Of the US$1.4 billion, Diaspora remittances amounted to US$698.9 million. The Bank is encouraged by the trend where Authorised Dealers are investing in enabling technologies that broaden financial inclusion, reduce remittances cost and increase remittance access points for the convenience of senders and recipients. These efforts towards formalization of remittances is key in building sufficient capacity for leveraging on the developmental impact of remittances.
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Kenyan government defends forced use of SGR
The government has defended a directive to transport all imports coming in through Mombasa port via standard gauge railway (SGR) to Nairobi’s inland container depot (ICD).
Kenya Railways managing director, Atanas Maina, confirmed the order but says it was reached through consultation with other players including Container Freight Terminal (CFS) owners.
He also denied that the move to ferry cargo to Nairobi will interfere with CFS's work.
“All we are doing is shifting a point of cargo handling and not writing off the whole role that CFSs play. There are roles to play in Nairobi. ICD cannot handle the 28 million tonnes. There is still a lot of opportunities for them to do business,” said Mr Maina on Wednesday, adding that there would be no job losses in Mombasa.
CFS owners and transporters have this week decried looming job losses due to the directive that they say forces importers to ferry cargo directly to the Inland Container Depot (ICD) in Embakasi, Nairobi.
According to the directive, all un-nominated cargo will be transported through the rail.
Mr Maina was speaking in Mombasa while accompanied by Kenya Port Authority managing director Catherine Mturi-Wairi and Nairobi ICD manager Simon Wahome.
“I am certain that they (CFS owners) have identified opportunities and are doing what they need to do to ensure we create the good realignment that makes it possible for us to bring the benefit from the cargo and reduce the cost of transport,” he said.
Ms Wairi said KPA has been engaging all players including shipping lines and cargo owners and employed a marketing strategy to reduce the tariffs for transportation.
“The movement of cargo cannot be done without the cargo owner’s direction on the same. On our part as KPA we have given them a very good tariff that currently for local we are giving 80 dollars for 20 foot container and 120 for a 40 foot container,” she said.
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Underway in Nairobi: 11th Annual Forum of Developing Country Investment Negotiators
Nigeria has made it more difficult for foreigners to work in the country (Quartz Africa)
An executive order signed by Nigeria’s president Buhari on Monday “prohibits the ministry of interior from giving visas to foreign workers whose skills are readily available in Nigeria.” It’s not a blanket ban though. The executive order states that foreigners will be considered for jobs “where it is certified by the appropriate authority that such expertise is not available in Nigeria.” The executive order also tells government agencies to “give preference to Nigerian companies and firms in the award of contracts.” But the restriction on hiring foreigners could be seen to conflict with the government’s recent move to more open visa policies.
Kenya now playing catch-up to Ethiopia on mega projects (The Standard)
Ethiopia is tipped to stretch its lead on Kenya in economic growth, spurred by increased investment in development projects. According to the Africa Construction Trends report 2017 released by audit firm Deloitte yesterday, for every Sh100 that Ethiopia budgeted for, Sh40 went to projects in key sectors of the economy compared to Kenya’s Sh20. This means that Ethiopia – which in 2016 overtook Kenya to become the largest economy in Eastern Africa – is in good stead to stretch its lead over Kenya. According to the report, although Kenya had the largest number of projects between 2016 and 2017, the total value of projects in Ethiopia was almost twice those in Kenya. [Ethiopia, Kenya need to exploit economic opportunities - Ambassador]
Kenya to start exporting oil in 2021/22, says Tullow (The Standard)
Kenya could start exporting oil on commercial scale in the next five years, Africa-focused oil and natural gas producer Tullow Oil said on Wednesday. “The exploration and appraisal campaign in Kenya has confirmed the presence of substantial oil resources in the South Lokichar Basin. After over six years of hard work, we can now move forward to commercialising these low cost resources through a phased development of the basin involving a central processing facility and an export pipeline to the Kenyan coast,” said Mark MacFarlane, Executive Vice President for East Africa. “In 2018, we will focus on taking the project towards Final Investment Decision in 2019 with a prudent and flexible plan of execution that can take advantage of low oil services costs and deliver first oil and cash flow as soon as possible. With good progress being made in Uganda towards FID, East Africa is on the verge of becoming a major oil exporting region.”
Kenya: Maize imports from Uganda rise sharply to top Sh1.47bn (Business Daily)
Maize imports from Uganda rose sharply between October and November last year compared with the same period in 2016, as high prices in Kenya following a shortage of the grain helped spur the trade. Data from the Eastern African Grain Council indicates that cross-border trade between the two countries increased from 1,408 tonnes in the fourth quarter of 2016 to 47,563 tonnes estimated at Sh1.47 billion in the same period last year. EAGC regional manager for marketing and communication Jacinta Mwau said the price differential and improved production in Uganda helped to raise volumes of grain traded between the two neighbouring states.
Kenya: Cheap Chinese, Indian, UAE imports threaten local firms (The Star)
In its fourth-quarter Barometer report, the business lobby said 63% of manufacturers complained cheap imports make local products uncompetitive. The Barometer represents a six-month forecast. The most-affected firms are Sameer Africa, which makes tyres, and Eveready East Africa, which manufactures batteries. Many other products, including textiles, are also hurt by imports. “It’s necessary to fast-track implementation of the Trade Remedies Act 2017 [that] seeks to deal with unfair trade practices such as dumping, subsidising and import surges,” KAM said. To ease the problem, the association wants full enforcement of existing laws to ensure fair trade practices and a level playing field. Last month, South Korean-based electronics giant Samsung announced it had abandoned plans to build an assembly plant in Kenya. It cited failure by the government to put in place mechanisms to protect manufacturers from cheap electronics imports.
Kenya: Govt to zero rate taxes on imported raw materials (KBC)
The government plans to zero rate both the Import Declaration Tax and the Railway Development Levy on all imported raw materials to be used in manufacturing processes locally. The revenue shortfall will then be recovered by increasing tax on imported finished products. This according to Industry and Trade Cabinet Secretary Adan Mohammed will cushion locally produced goods from unfair competition posed by cheap imported goods.
Uganda: Informal trade costs Shs900b in maize revenue (Daily Monitor)
Uganda’s failure to enforce regional standards aimed at eliminating cheap imports and informal trade is depriving the country of Shs900bn export revenue annually. Bank of Uganda statistics indicate that last year, the country formally exported maize worth $70m (Shs254bn) out of the 4 million metric tonnes. However, industrial players are saying the earnings were less than the country’s annual revenue potential of $320m (Shs1.1 trillion) if everybody played their part. In a bid to protect Uganda’s maize from cheap imports outside East Africa and informal traders who distort the market, sector players want government to enforce the regional standards. In an interview with Prosper Magazine, the chairman of the Grain Council of Uganda, Mr Chris Kaijuka, said: “We want government through the ministry of Trade, to enforce the EAC Maize standards so that traders start trading formally.” He said Uganda is being flooded with maize imports from Brazil and the Southern African countries.
Kenya: Smuggling of hides hurts did to grow leather trade (The East African)
While Kenya has identified the leather industry as among those to push its manufacturing sector, it is struggling to stem export and smuggling of raw hides and skins. According to the Tanners Association of Kenya, smuggling of hides and skins to China is costing governments in the EAC about $30m annually in lost tax. “Currently we don’t have a law banning raw exports of hides and skins but the government has increased export tax to 80% from 40% to encourage value addition,” said Kenya Leather Development Authority chief executive Dr Issack Noor. However, the high taxes feed into a smuggling racket, denying governments millions in tax revenue.
Tanzania’s rice exports to Kenya, Rwanda to increase (The East African)
Tanzania hopes to increase its rice exports to Kenya and Rwanda by one-third this year, according to forecast by a trade tracker. According to the East Africa Cross-border Trade, the trade volume will be boosted by supplies from the August harvest and high carry-over stocks, which are likely to lower prices. The low rice prices are due to lower maize flour cost which is a substitute staple food to rice. Amid trade disputes, Kenya is still Tanzania’s main market for rice followed closely by Rwanda. Tanzania projects to export 84,000 tonnes of the locally produced rice to Kenya and 60,000 tonnes to Rwanda.
Tanzania business body calls for Chinese investment (IPPMedia)
Speaking at a business luncheon he hosted in Dar es Salaam in honour of the visiting Chinese Minister of the State Administration for Industry and Commerce, Zhang Mao, Dr Reginald Mengi TPSF chairman, added: “Tanzania has regulatory framework for protecting investments and therefore we in the private sector are comfortable with the measures, the government has undertaken to raise investor confidence. Tanzania has huge potential to attract Chinese investors who intend to relocate industries outside China,” he said, encouraging Chinese investors to come to Tanzania to form partnerships or joint ventures with the private sector to accelerate cooperation between the two countries. The TPSF chairman said the government was also addressing bureaucratic procedures that raise the costs of investments and doing business in key sectors.
Why flying within East Africa is cumbersome (The East African)
According to a report (pdf) by the East African Business Council and the global management consulting firm InterVISTAS, the vast majority of Basas signed between the EAC countries and other African countries are restrictive, with partial or full restrictions on aspects of the Basa. Thanks to these restrictions coupled with higher taxes, only one in 10 passengers flies within the region. “From our research, only 9% of the travellers go to destinations within the region, while 16% travel to other African destinations. More than 46% are always flying to/from international destinations outside of Africa while 29% fly domestically,” the report notes. The open skies treaty signed in Addis last weekend would have offered a glimmer of hope for the region, but it failed to do so, as two of the region’s biggest aviation destinations – Tanzania and Uganda – failed to assent to the SAATM. “They raised issues to do with competition within their markets and how this would curtail their dreams of a national airline. The two countries have in recent times been propping up their national airlines and changing policies to allow for the entry of bigger players to support their national airlines. They are still discussing these issues, which is why they haven’t signed up,” The EastAfrican was told. [Single African Air Transport Market: Domestic flights still protected – Mozambique]
Commentaries: George Omondi: Endless Kenya, TZ trade pacts reveal worrying inertia, George Wachira: Restrict competing imports in quest for food security
Port access in the Lake Tanganyika: key challenges and recommendations (World Bank)
In 2016, the DRC and Tanzania requested World Bank support for the implementation of the Lukuga project, a dam on the sole outlet of Lake Tanganyika, whose purpose was to stabilize the lake’s water level in order to secure ships access to its main ports. Its main objective is to determine the relevance of the Lukuga project by assessing the ships difficulties in accessing the main ports on the Lake, characterizing impact on transport and trade, identifying the main factors hindering access to ports, and presenting a combination of measures to mitigate those factors.
Democratic Republic of Congo: Jobs diagnostic (World Bank)
Extract from Section 3: Firms and jobs (pdf). Most firms are in the commercial sector. Over three-quarters of firms are enterprises operating in the commercial sector (figure 3.1). The second largest sector in terms of number of firms is services, with over 12%. Over 8% of firms are in manufacturing and just over 1% are in the mining, utilities, and construction sector. The typical firm is relatively young. In this sample, 70% of firms have been in the market for fewer than nine years. Those firms constitute almost 60% of non-farming employment. Firms with fewer than five years make up 45% of all firms in the country, and a similar share (41.6%) of non-farming employment (figure 3.2). This is a strikingly young population of firms when compared with those of Afghanistan, Burkina Faso, Kenya, Tanzania, Uganda, and Zambia. The highest share of young firms is no more than 27%, in Afghanistan.
The typical firm is small. In terms of employment, 95% work in micro to small firms of fewer than nine employees. In terms of annual turnover, 95% of firms have sales that are less than the second quartile in the distribution (table 3.2). Only 5% of firms benefit from higher turnover. Firms that enter the market small, stay small (or even shrink) while big firms grow (some). Using cross-sectional data, it may be possible to decipher the possible life cycle of firms, from birth to about year 10, with respect to the number of employees these firms hire and let go. The average micro firm at birth employs, on average, 3 employees. When young, the average firm adds another worker to reach 3.7 workers by age of 10 (figure 3.3). If the firm at birth hired between 6 and 9 employees, that firm shrinks 10 years later. Only firms that start relatively larger - with at least 10 workers - grow substantially over the 10 years.
Record container traffic reported in global trade boost by DP World (Arab News)
DP World, the international ports and logistics business based in the UAE, handled more containers last year than at any time in its history, as the growing world economy boosted global trade. In its annual assessment (pdf) of container traffic through its ports, the company reported that more than 70 million TEUs – 20 foot equivalent units – passed through ports it either owned or had a significant presence in. That outcome was a 10% rise over 2016, beating forecasts of 6% by industry experts Drewry Maritime.
Today’s Quick Links: Second West African petroleum exhibition, conference opens today in Lagos The Kenya Association of Manufacturers launched its 2018 Manufacturing Priority Agenda this morning in Nairobi Egypt looks forward to an investment base for Oman in Africa: trade minister EALA appoints six Standing Committees: the members Mauritius: Workshop to enhance quality and export competitiveness for SMEs Is acceleration the panacea for scaling growth entrepreneurs? Reflections from XL Africa. Rwanda gets Rwf3.5 billion for improved woodlot management, charcoal value chain project President Al-Bashir directs resumption of border trade with all neighbouring countries UK ready to build on new opportunities to grow SA trade ties: commentary by UK trade envoy, Andrew Selous Pakistan to open commercial offices in five more African countries |
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Kenyan government to zero rate taxes on imported raw materials
The government plans to zero rate both the Import Declaration Tax and the Railway Development Levy on all imported raw materials to be used in manufacturing processes locally.
The revenue shortfall will then be recovered by increasing tax on imported finished products.
This according to Industry and Trade Cabinet Secretary Adan Mohammed will cushion locally produced goods from unfair competition posed by cheap imported goods.
Over the last few years, Kenya has made huge strides in creating a conducive business environment by among others cutting government red tape and enhancing the turnaround time in registering of businesses.
However, the contribution of the manufacturing sector to the GDP still remains low at an average of 13 percent.
With imported goods at times cheaper than similar locally produced goods, the government has moved in to correct this and plans to zero rate taxes on imported raw materials while increasing taxes on imported finished commodities.
To further protect local investors, the government is further looking into streamlining and fast-tracking VAT refunds to manufacturers as well as lowering charges at the port.
This is in addition to the on-going random container inspections at the ports and border entry points to curb cheap counterfeit goods.
Among other factors, little innovation in manufacturing has also been blamed for the slowed growth in the sector, with many large-scale industries still engaged in traditional businesses.
To further grow the sector, manufacturers are being urged to build local skills set on potential investment opportunities, diversify products as well as go beyond the local and regional market which is said to be already saturated.
In line with the government’s Big Four Plan where manufacturing is one of the priorities, the Kenya Association of Manufacturers (KAM) has launched the 2018 Manufacturing Priority Agenda which focuses on five pillars.
Manufacturers cite priority areas to spark industrial growth in 2018
Kenya Association of Manufacturers (KAM) has today launched the pdf Manufacturing Priority Agenda (MPA) 2018 (2.35 MB) under the theme Sparking Kenya’s Industrial Transformation for Job Creation.
The agenda highlights the need to create a sector that has a multiplier effect in the economy resulting in job and wealth creation. It outlines immediate action that will yield tangible results in the short term, and work towards reigniting the economic development of the country.
Speaking at the launch, Cabinet Secretary, Ministry of Industry, Trade and Cooperative, Mr. Adan Mohamed noted that the manufacturing sector is a key part of the big four government agenda because of its impact to the economy.
“The Government has prioritised manufacturing as one of its four main pillars in the next 5 years. The manufacturing sector is key as it is a link to the other three (health, housing and food security) pillars. The priority agenda that the manufacturers have put together is commendable. We therefore need to unpack the Agenda in order to transform the manufacturing sector going forward,” added Mr. Mohamed.
KAM Chairlady, Ms Flora Mutahi noted that the manufacturing sector is the muscle behind productive employment and opportunities for wealth generation with direct linkages to all sector of the economy.
“As industry, we applaud the Government’s renewed commitment to the sector. It is thus a year to give the manufacturing sector the much deserved attention in terms of policy direction and investments.
As industry, we aim to contribute 15 percent to the economy with the hope of creating more jobs for our youths. We are keen to see manufacturing centralized in our national vision towards creating an inclusive political economy. The sector should dominate discussions on nation building, equal distribution of resources and poverty alleviation,” added Ms. Mutahi.
Speaking during the launch, KAM Chief Executive, Ms. Phyllis Wakiaga noted that the Agenda is the Association’s contribution in shaping policies and regulatory frameworks that enable local businesses and trade partnerships thrive.
“The Manufacturing Priority Agenda outlines the immediate action that will yield tangible results in the short term, and work towards the aforementioned industry goals. This will catalyze the competitiveness of local industry that will be alluded to as well as enable our local manufacturers to compete on an international platform,” added Ms. Wakiaga.
The priority areas will be driven under five key pillars which, if strengthened, will lead to a more competitive environment and impactful economic gains for Kenya’s industrial sector. These are:
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Competitiveness and level playing field
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Export-driven manufacturing
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Pro-industry policy and institutional framework
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Government-driven SMEs development
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Securing the future of manufacturing industry
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African Continental Free Trade Area: Challenges and opportunities of tariff reductions
In 2012, the 54 Member States of the African Union agreed to establish the Continental Free Trade Area (CFTA) by 2017. The CFTA is widely seen as a crucial driver for economic growth, industrialization and sustainable development in Africa.
Eliminating tariffs can help African countries boost economic growth, transform their economies and achieve the SDGs. Furthermore, the positive impact of the CFTA is expected to be even greater if non-tariff measures are addressed, informal trade is integrated into formal channels and the agreement includes trade in services as well.
Despite the opportunities, challenges need to be addressed. Fears of significant tariff revenue losses and an uneven distribution of costs and benefits are among the main obstacles to the continent’s integration. Countries with large productive capacities in manufacturing may experience significant economic growth and welfare gains while small economies and LDCs may face substantial fiscal revenue losses and threats to local industries. An uneven distribution of benefits and costs among member States may prolong the negotiations and hinder its implementation. Sufficient flanking measures and flexibilities are therefore needed to enable the redistribution of benefits and a fair sharing of costs by member States.
In order to deal with these potential challenges, the AU member States are considering different tariff reduction modalities and other mitigating mechanisms. Fear of significant tariff revenue losses and possible uneven distribution of other costs and benefits are two main challenges ahead of the CFTA.
This paper analyses the potential adjustment costs and potential benefits of the CFTA tariff reductions under different scenarios. In the long-run, trade liberalization in the CFTA lowers trade costs and allows consumers to access a greater variety of products at lower prices. Lower costs for imported raw materials and intermediate inputs increases competitiveness of downstream producers and promotes the generation of regional value chains. Trade liberalization also allows firms to access a large continental market and gain from economies of scale. In the long run, increased competitive pressures may improve firm efficiency.
However, market consolidation may arise when smaller firms are exposed to stiffer competition. While most of the potential benefits of trade liberalization accrue in the long run, short-run structural change through the relocation of labour, capital and other factors of production entails costs of adjustment. Short run and long run effects of trade agreements should therefore be distinguished.
Recommendations
The CFTA is an important step towards integrating economies of African countries, boosting intra-African trade and attaining sustainable development in the continent that is consistent with African Union Agenda 2063 and global goals on sustainable development. Liberalization of trade in goods and services may entail adjustment costs for the African Union member States that are, however, typically outweighed by significantly higher long-term gains.
Two long-term scenarios are discussed in this study. One scenario eliminates all tariffs on intra-African trade, while the other allows the permanent exemption of sensitive products from tariff liberalization.
Long-term gains are estimated at about US$16 billion annually in the ambitious scenario where all tariffs are eliminated. Permanently exempting products from liberalization will reduce overall gains. If each country can exempt one sector, total gains drop to US$11 billion; exempting three sectors already cuts overall gains in half to US$ 8 billion. The lower gains when sensitive sectors are exempt from liberalization result from high concentration of intra-African trade on few products. It is a typical result of scenarios where some tariff lines are exempt as shown in many studies during the WTO Doha round negotiations. There is a risk that product exemptions in some African markets may stifle the growth opportunities of others, particularly vulnerable economies. Therefore, product exemptions should be carefully reviewed by the member States to enable all members to benefit from the CFTA.
In both scenarios employment is increasing, including in agriculture, and the increase in intra-African trade of about 30 per cent contributes to structural transformation as more sophisticated products with a higher technological content are produced and traded. African countries can benefit from expanded markets for African goods and services, free movement of factors of production and more efficient allocation of resources which can promote economic diversification, technological progress and human capital development.
During a transition period, adjustment costs in the form of falling tariff revenues, temporarily rising unemployment and decreasing economic activities in some sub-sectors are likely to occur due to a reallocation of resources. Adjustment costs and the duration of the transition period can vary between countries. Furthermore, the benefits of the free trade area may not be shared equally if the financial and institutional capacity of countries is insufficient in dealing with adverse effects on labour force and small enterprises. In particular, a lack of labour mobility between sectors is a key challenge for many developing countries. Support programmes, such as Aid for Trade and infrastructure investments, could be considered to help the most affected countries, in particular least-developed, landlocked and small economies.
Even though tariff revenues are an important income source for some governments, the estimated loss of below 10 per cent should not be seen as an absolute loss for countries. Lower tariffs will not only allow consumers to have access to cheaper products but also producers to better enter other African markets. In addition, firms will have access to cheaper raw materials and intermediate goods from other African countries which will reduce their cost of production. Therefore, a tariff revenue loss mainly signifies redistribution of income from governments to consumers and producers. The CFTA, moreover, produces welfare gains well beyond tariff losses.
Using quantitative models to assess the effect of trade policy changes has limitations and results derived from them, therefore, should be carefully looked at. Apart from the general limitations of CGE models, here, the selection of the sensitive products was based on assumptions and the GTAP product level.
This study focused on assessing the effects of tariff reductions. However, to achieve the ambitious targets set by the governments, economic integration among African countries needs to go beyond tariff reduction and include, inter alia, improvement of efficiency and connectivity of trade logistics infrastructure, facilitating movement of labour as well as capital, eliminating non-tariff barriers and harmonizing regulatory measures, and promoting the integration of member States to regional and global value chains in Africa.
Trade liberalization can also pose some challenges for governments in promoting competition in local markets as some firms that are taking advantage of economies of scale may grow faster than others and capture dominant positions in markets. In order to ensure a smooth transition during these episodes, complementary policies such as consumer protection and competition policies need to be put in place.
This paper was prepared by Mesut Saygili, Ralf Peters and Christian Knebel from the Division on International Trade in Goods and Services, and Commodities, UNCTAD.
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Nigeria has made it more difficult for foreigners to work in the country
Foreigners looking to work in Nigeria, Africa’s biggest economy, might be out of luck.
An executive order signed by Nigeria’s President Buhari on Monday, 5 February 2018, “prohibits the ministry of interior from giving visas to foreign workers whose skills are readily available in Nigeria.” It’s not a blanket ban though. The executive order states that foreigners will be considered for jobs “where it is certified by the appropriate authority that such expertise is not available in Nigeria.” The executive order also tells government agencies to “give preference to Nigerian companies and firms in the award of contracts.”
In a tweet, president Buhari said the order was in line with his vision of a “Nigeria that produces what it consumes.” As such, the executive order is likely aimed at boosting local production and guaranteeing more patronage for local industries.
Buhari also hopes the order will see “local companies get preference” in “planning, designing and executing” science, technology and engineering-related projects. The hope is a boost to local companies will result in a ripple effect for job creation which is crucial given Nigeria’s high unemployment rate.
But the restriction on hiring foreigners could be seen to conflict with the government’s recent move to more open visa policies. Last year, amid business reforms, the government relaxed visa rules and opened additional immigration offices to make it easier to obtain residence permits.
With elections coming up next year, Buhari’s administration might also be betting that being seen to restrict the number of foreign workers will appeal to voters in a country with millions of unemployed people. But the number of unemployed Nigerians that can take up the mainly specialist roles for which expatriates are typically recruited will only be a tiny fraction of the millions of job-seeking Nigerians.
It’s not the first time president Buhari has pushed nationalist and populist views in office. He has railed against Nigerians importing “luxury” foreign goods. It’s a sentiment that has been evident during his administration as well. In 2016, amid a forex crunch, the central bank limited spending on Nigerians’ debit cards once outside the country.
Indeed, amid Nigeria’s first recession in two decades, highly-placed government officials, including the senate president, backed a social media campaign tagged “buy Naija to grow the naira.” The rationale, as they saw it, was simple. If Nigerians spent their money buying local products rather than foreign goods, the economy and the troubled currency would benefit more.
President Buhari signs Executive Order to improve local content in science, engineering and technology procurement
President Muhammadu Buhari Monday in Abuja signed Executive Order 5 to improve local content in public procurement with science, engineering and technology components.
The Executive Order is expected to promote the application of science, technology and innovation towards achieving the nation’s development goals across all sectors of the economy.
The President, pursuant to the authority vested in him by the Constitution, ordered that all “procuring authorities shall give preference to Nigerian companies and firms in the award of contracts, in line with the Public Procurement Act 2007.”
The Executive Order also prohibits the Ministry of Interior from giving visas to foreign workers whose skills are readily available in Nigeria.
It, however, notes that where expertise is lacking, procuring entities will give preference to foreign companies and firms with a demonstrable and verifiable plan for indigenous development, prior to the award of such contracts.
In the proclamation entitled “Presidential Executive Order 5 for Planning and Execution of Projects, Promotion of Nigerian Content in Contracts and Science, Engineering and Technology”, the President also directed Ministries, Departments and Agencies to engage indigenous professionals in the planning, design and execution of national security projects.
It adds that “consideration shall only be given to a foreign professional, where it is certified by the appropriate authority that such expertise is not available in Nigeria.”
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Why flying within East Africa is cumbersome
If you are a frequent flyer in East Africa, connecting from one flight to another, which is time-consuming and tiresome, plus the eventual cost of travel are likely to be your top concerns, making this travel option unattractive.
For example, a traveller from Uganda or Burundi cannot fly directly to Dar es Salaam, despite the two countries sharing a border with Tanzania. To fly to Dar es Salaam, one is forced to make a connection through Nairobi’s Jomo Kenyatta International Airport (JKIA) or Rwanda’s capital Kigali.
A longer route via Addis Ababa, which has the lowest airfare of $390, will add six hours to the journey to Dar es Salaam.
Similarly, flying from Kigali to Arusha can take longer than anticipated, because direct flights are not always available, forcing the travellers on this route to either go through Nairobi or Dar es Salaam to catch a connecting flight.
This is the sad reality of the aviation market in the region that has over the years been dogged by stringent bilateral air transport agreements which have constricted it, adding to the loss of time and costs in travel.
So sad has the situation been that in many cases, travellers opt for the road or rail to reach cities, adding unnecessary time and inconvenience to their journey.
“Air transport services are hard on traders in Rwanda,” said a Rwandan government source. “It is difficult to keep business appointments within East Africa, because of connectivity issues. This affects investment.”
Single African Air Transport Market
Last weekend, 23 African countries, including Kenya, Rwanda and Ethiopia, adopted the long-awaited Single African Air Transport Market (SAATM), guaranteeing a 25 per cent decrease in airfares, with the benefits set to trickle in mid this year.
Tanzania, Uganda and Burundi did not sign the agreement, meaning that more than 1.7 million travellers who fly from the region to these countries will wait longer to enjoy these benefits.
Only two of 10 bilateral air service agreements (Basas) between countries in the region – Kenya-Uganda and Kenya-Burundi – are fully liberalised, leaving the airfares at an all-time high, and constricting intra-regional travel.
According to a report by the East African Business Council (EABC) and the global management consulting firm InterVISTAS, the vast majority of Basas signed between the EAC countries and other African countries are restrictive, with partial or full restrictions on aspects of the Basa. Thanks to these restrictions coupled with higher taxes, only one in 10 passengers flies within the region.
“From our research, only nine per cent of the travellers go to destinations within the region, while 16 per cent travel to other African destinations. More than 46 per cent are always flying to/from international destinations outside of Africa while 29 per cent fly domestically,” the report notes.
Liberalised markets
That the Kenya-Uganda and Kenya-Burundi routes boast a fully liberalised market means that Kenya’s national carrier, Kenya Airways, enjoys no restrictions on capacity/frequency, pricing or fifth freedoms (the right to carry traffic between two foreign countries with services starting or ending in the airline’s own country).
“These restrictive Basas have implications for the level of service, fare and overall traffic between the countries. When you compare the average annual growth rate of the two liberalised country pairs (Kenya-Burundi and Kenya-Uganda), it is double that of the other country pairs that are yet to be liberalised,” the report says.
Tanzania and Rwanda are the region’s most restrictive markets, while Ethiopia tops in liberalising its market.
Uganda has only liberalised its aviation market for Kenya, while Rwanda and Tanzania have done the same for Ethiopia.
For Dar es Salaam, the Ethiopian liberalisation was done specifically to boost its tourist numbers, with Ethiopian Airlines being the only continental carrier to have international flights from its Arusha hub.
The open skies treaty signed in Addis last weekend would have offered a glimmer of hope for the region, but it failed to do so, as two of the region’s biggest aviation destinations – Tanzania and Uganda – failed to assent to the SAATM.
“They raised issues to do with competition within their markets and how this would curtail their dreams of a national airline.
“The two countries have in recent times been propping up their national airlines and changing policies to allow for the entry of bigger players to support their national airlines. They are still discussing these issues, which is why they haven’t signed up,” The EastAfrican was told.
Open skies treaty
The open skies treaty will see the continent’s big four carriers – Ethiopian Airlines, Kenya Airways, RwandAir and South African Airlines – enjoy unrestricted access and multiple destinations to any city of countries under the arrangement, as part of African Union’s move to improve connectivity and integrate African countries.
This initiative, it is expected, will fully liberalise air transport markets in Africa by offering lower fares, better connectivity and increase demand.
The head of the AU’s transport division David Kajange, who is among the single market architects, said that it was important for the continent’s aviation market to open up so as to reduce the cost of transport and spur investment.
“We want the fares to come down so that it becomes more affordable and easier to travel. We hope to register more than 25 per cent fall in fares as airlines increase frequencies and expand into new territories.
“This market liberalisation will also create a conducive environment for more airlines to come in,” said Mr Kajange.
Routes
According to the EABC-InterVISTAS report, there are only 22 routes between the countries in East Africa. Kenya and Tanzania have services at multiple cities; Burundi, Rwanda and Uganda have services to their capital cities.
Burundi has services to only three points in the region, while Rwanda has seven. Uganda has four, Kenya nine and Tanzania nine.
Uganda, South Sudan and Burundi do not have active national carriers. Until they have been established, the cost of flying from these countries will remain prohibitive
“Just over half the routes (12 out of 22) are operated at less than daily frequency and just over a third (eight out of 22) are operated twice daily or higher. This low frequency makes short-duration trips (departing and returning the same day), which are particularly important for business, difficult.
The situation varies by country – while nearly half the routes from Kenya operate twice daily or higher, no routes from Burundi operate at that frequency, and few do in the other EAC countries,” the report notes.
For Uganda and Tanzania, the fear of opening up their markets to foreign carriers has been the biggest impediment to liberalisation.
Concerns
Tanzania is propping up Air Tanzania, which it revived in 2016 and hopes will take to the regional skies, while Uganda is still mulling reviving Air Uganda and feels this is not the best time to enter into such an agreement.
“Most governments have expressed concern that liberalisation could lead to larger, better-capitalised foreign carriers squeezing out smaller, and less-well-funded local carriers,” the report says.
There have also been concerns that liberalising fifth freedom rights would allow larger, foreign carriers to dominate major routes at the detriment of smaller local carriers and the development of regional air services.
“There is a likelihood that they will lose some market share to international carriers, should the proposed open skies policies be implemented.
“The increased competition has the potential of weakening the viability and profitability of home carriers in some routes but, overall, it will restructure the market by expanding into new markets,” said Ian Kincaid, InterVISTAS senior vice-president for aviation forecasting.
Unfair practices
Some governments in the region have been accused of being more liberal with their Basas with foreign airlines compared with African carriers, thereby creating discriminatory and unfair practices.
For example, 17 foreign airlines currently benefit from fifth freedom rights between African cities, compared with 11 African carriers.
“For us to register any success on the single market front, we need to see more countries join this initiative. We should also see more investments into the aviation infrastructure, including airports and auxiliary services. We should have harmonisation of standards too,” said Nico Bezuidenhout, chief executive of Fastjet, an airline operating in Tanzania to destinations in southern Africa.
EABC chief executive officer Lilian Awinja attributed the slow intra-regional trade growth to restrictive markets and sluggish implementation of open skies.
“As a region, it is important that we adopt the open sky policy as soon as possible. It will be a boost for the region, especially when it comes to the ease of doing business,” said Ms Awinja.
High taxation
Outside of liberalisation, the region’s aviation industry continues to suffer from high costs and high taxation on tickets, which can amount to upwards of 40 per cent of the ticket price, making it least attractive to travellers, who would prefer longer hours on the road instead.
The region has some of the highest taxes in the world, which are not uniform.
For example, departure taxes in Rwanda are $37, $50 in Kenya and $20 in Burundi per passenger. In Tanzania, the domestic and international flights share the same tax rate, which is likely to hamper the growth of regional EAC traffic.
“The taxes/charges mentioned in particular included the 16 per cent VAT on air tickets and on spare parts in Kenya, taxes on jet fuel, high airport departure tax and generally high airport landing fees,” the report says.
The regional countries have over the past 18 years been trying to create a seamless common airspace, with no success due to restrictive bilateral air agreements and protectionism by member countries.
In the proposal for one aviation bloc, the East African Community was to negotiate air service agreements with foreign countries as a bloc, which would have seen the classification of flights between the countries as domestic airlines, thus lowering the costs of airfare.
To date, domestic air transport within the region remains unharmonised, since the regulations on liberalisation of air transport in the EAC has not been adopted.
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Cheap Chinese, Indian, UAE imports threaten local firms in Kenya
Competition from cheap imports from India and China is the biggest barrier to growth of local manufacturing, the Kenya Association of Manufacturers has said.
In its fourth-quarter Barometer report, the business lobby said 63 per cent of manufacturers complained cheap imports make local products uncompetitive. The Barometer represents a six-month forecast. The most-affected firms are Sameer Africa, which makes tyres, and Eveready East Africa, which manufactures batteries. Many other products, including textiles, are also hurt by imports.
In 2017, China accounted for 23.6 per cent of Kenya’s imports, India 14.4 per cent and the United Arab Emirates 6.4 per cent, the National Bureau of Statistics reported. This is the second consecutive quarter in which more than 60 per cent of manufacturers complained about cheap imports impeding their business growth.
In its third quarter, Barometer report in October 2017, the association recorded a similar percentage of manufacturers that said cheap imports represent headwinds to their expansion.
Regulations
“It’s necessary to fast-track implementation of the Trade Remedies Act 2017 [that] seeks to deal with unfair trade practices such as dumping, subsidising and import surges,” KAM said.
To ease the problem, the association wants full enforcement of existing laws to ensure fair trade practices and a level playing field. Last month, South Korean-based electronics giant Samsung announced it had abandoned plans to build an assembly plant in Kenya. It cited failure by the government to put in place mechanisms to protect manufacturers from cheap electronics imports.
Samsung said its locally manufactured products would be overwhelmed by cheap imports. The biggest challenge comes from China.
Apart from cheap imports, 58 per cent of local manufacturers cited the high cost of industrial inputs as a major barrier to growth. Forty-one per cent of manufacturers cited the foreign exchange rate. Manufacturers say other barriers for the next six months include taxation policies, pressure from wage increases and capital constraints, lack of demand and legislative and regulatory pressures.
Despite the challenge from cheap imports, there was a seven per cent improvement in the number of manufactures that say the Kenyan economy is declining. Still the percentage of pessimists stands at 46 per cent. This was an improvement from the 53 per cent in the third quarter Barometer report.
Thirty-three per cent said the economy is growing, while 22 per cent said economic growth will remain steady over six months.
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Niger assumes the G5 Sahel Presidency during this week’s Niamey summit
Mozambique joins the Economic Partnership Agreement between the EU and Southern African states (European Commission)
The Economic Partnership Agreement between the EU and SADC became the first regional EPA in Africa to be fully operational after its implementation by Mozambique. Mozambique was the last piece of the SADC-EPA jigsaw to fall into place. The other five countries – Botswana, Lesotho, Namibia, South Africa, and Swaziland – have been implementing the agreement since October 2016. Implementing the EPA means that Mozambique will not have to pay customs duties on its exports to the EU.
Tanzania: Board tasked to make assessment on meat imports (IPPMedia)
Minister for Livestock and Fisheries, Luhaga Mpina, yesterday tasked the country’s Meat Board and Department of Veterinary Services to assess whether there is any need for the country to continue issuing permits for meat importation. The move is meant to make Tanzania an exporter of meat rather than an importer, taking into account that Tanzania ranks second in Africa on livestock production and in terms of cattle population after Ethiopia. He said that statistics show that Tanzania imports an average of 2,000 tonnes of meat from Kenya, Dubai, South Africa, Britain and Belgium.
Kenya’s duty-free sugar imports rose by 196% last year (Daily Nation)
Sugar imports increased by 196% in 2017 compared with the previous year as traders rushed to ship in duty-free commodity to bridge a local deficit. A market report from the Sugar Directorate indicates the volumes shipped into the country nearly tripled from 334,109 tonnes in 2016 to 989,619 tonnes. The bulk of the sugar imports was brown/mill white type (table sugar 829,871 tonnes), representing 84 per cent of the total consignment, while the balance was industrial sugar used for manufacturing. About 263,990 tonnes of the commodity were imported from COMESA Free Trade Area while 627,756 tonnes was shipped in from non-COMESA region.
Botswana: Government to manage deficit (Daily News/Mmegi)
Minister of Finance and Economic Development, Mr Kenneth Matambo has proposed P67.8bn as total expenditure and net lending for the 2018/19 financial year. Presenting the budget proposals before parliament yesterday, Minister Matambo said 66.5% of the total amount, or P45.14bnn, was earmarked for recurrent budget; 28.4%, or P19.31bn, was for development and the remaining P9.08bn had been proposed as statutory expenditure. The minister said the total revenues and grants for 2018/19 budget were estimated at P64.28bn against an expenditure of P67.8bn resulting with a deficit of P3.59bn, or 1.8% of GDP. Talking about revenues and grants, he said mineral revenue, driven mainly by positive performance of diamond exports, accounted for P24.59bn, or 38.3% of the total amount. He said Customs and Excise revenue was the second largest contributor at P14.3bn, or 23.1%, of the total amount while non-mineral income tax revenue was estimated at P13.36bn or 20.8% of total revenue. The minister said Value Added Tax is estimated at P8.11bn, or 12.6% of the total revenue. [Full text of the budget speech]
Star of Africa in 2018 lenders’ economic forecasts is Ghana (Bloomberg)
Africa’s likely star economic performer this year isn’t in much doubt, according to all three of the international lenders focusing on the continent. Ghana’s post-election upswing now is looking so strong that the country is poised to take the lead as Africa’s fastest-growing economy this year - for the first time in at least three decades. Expansion in West Africa’s second-biggest economy in 2018 should surpass that of recent champions Ethiopia and Ivory Coast, according to forecasts from the World Bank, the African Development Bank - both released in the past month - and the International Monetary Fund.
Experts move to bridge digital standards gaps in Africa (New Times)
Lara Srivastava, the head of International Telecomunication Union’s Bridging the Standardisation Gap Programme, told The New Times that it is critical to have a platform where different stakeholders take part in decisions that benefit them, highlighting that the standardisation forum was yet another moment to remind countries of the importance of setting standards for technologies. “International standards increase competition and reduce costs, they enable companies in developing countries to access the global marketplace, but also enable global players to access emerging markets,” she said. She said that, so far, Africa has 52 written contribution standards, making it one of the ITU regions with a high number of contributions. This means that Africa has in the recent past put in place many standards in regard to ICTs. “Africa is one of the active regions in terms of creating draft texts. For example, we have received many draft recommendations on roaming and over-the-top services, as well as other emerging technologies from Africa,” she noted.
Namibia: Smith takes over to turn around struggling TransNamib (New Era)
After 11 years as Chief Executive Officer of the Walvis Bay Corridor Group, Johnny Smith ended months of speculation when he finally took over the reins of beleaguered state-owned enterprise, TransNamib, on Friday. Smith, who holds a B Comm degree and a Masters in Business Administration, also serves as the chairperson for the Alliance for Corridor Management in Africa, chairperson of Telecom Namibia and commissioner of the National Planning Commission. Chairman of the WBCG Board of Directors, Bisey Uirab, indicated that Smith’s visionary leadership and commitment to seeing results, helped develop the corridor concept not only in Namibia but also in Africa and the world over.
Mozambique: Indian investment aims to reduce logistics cost for coal miners (Club of Mozambique)
India’s Essar Group, which operates Indian ports handling 82 million tons per annum with expansion to 110 mtpa in the near future, will be investing $440m in creating a new coal terminal at Beira, Captain Tej Nargundkar, the CEO of Mozambique, Essar Ports Limited, told the IHS South African Coal Export Conference in Cape Town. Essar signed a 30-year (with possibility of 10 years extension) Concession Contract in February 2017 and the first phase of 10 mpta capacity with a project value of $26m is due for completion in 2020. The second phase will be launched depending on the success of the first phase. Although Beira has a severe limitation in that it can only accept ships with a draft of less than 12 meters, the 50 000 ton limitation on ships is not a limiting factor when exporting to India, where many of the ports are also not deep water ports.
How Ethiopia’s new railway could launch an inclusive urban boom (Next City)
The country’s secondary cities are positioned to emerge as rival centers of productivity and growth. Adama and Dire Dawa are now expanding faster than Addis Ababa and have more space to do so. They have been selected as two of 12 major cities prioritized in federal government plans to promote what, in technocratic verbiage, it calls “clusters” of urban economic hubs along strategic transportation corridors, or “growth poles.” The cities both have two new industrial parks, either completed or under construction. Dire Dawa - at the crossroads that lead to the port in Djibouti to the north and in Somaliland to the south - has been earmarked as a special economic zone with a free-trade area, a dry port and a new asphalt road connecting it to Djibouti. Addis Ababa, like many large cities across Africa, is dominated by services and construction. But, in the secondary cities lies an opportunity for something rarely seen on the continent: urbanization with industrialization. [The author: Tom Gardner] [Note: This week, planners, policymakers and urban practitioners from across the world are gathering in Kuala Lumpur for World Urban Forum 9. Next City’s coverage]
Kenya: Forced ferrying of imports raises fresh queries on viability of SGR (Daily Nation)
The Kenya International Freight and Warehousing Association last Friday wrote a strongly worded letter to the Kenya Ports Authority management, protesting the purported issuance of a directive forcing its members to use the SGR. It has also emerged that the government has also stopped importers from choosing their cargoes’ destinations going forward, meaning some cargo that is not meant for inland transport could end up in Nairobi at the importer’s cost.
Chinese firm lends Kenya Sh25bn to electrify SGR (Business Daily)
Kenya has signed a $240m (Sh24.4bn) loan to electrify the SGR in a move that is expected to push it up to scale with rival lines being built in neighbouring Tanzania and Ethiopia. Money for the upgrade, which has been sourced from a Chinese company, is being funnelled through the Kenya Electricity Transmission Company Limited (Ketraco). Ketraco says in an opinion piece published elsewhere in this newspaper that it signed the financing deal with China Electric Power Equipment and Technology Company Limited, a Chinese government-owned multinational on January 25, paving the way for work to begin. [Fernandes Barasa: Why SGR should ditch diesel for electric trains]
Tax reforms in the United States: implications for international investment (UNCTAD)
The most significant change to the tax regime for multinationals is the shift from a worldwide system (taxing worldwide income) to a territorial system (taxing only income earned at home). Under the old regime, tax liabilities on foreign income became payable only upon repatriation of funds to the United States. As a result, US multinationals kept their earnings outside their home country. Measures in the tax reform include a one-off tax on accumulated foreign earnings, freeing the funds to be repatriated. Retained earnings overseas of US multinationals amount to an estimated $3.2 trillion. The 2005 Homeland Investment Act, the last tax break on funds repatriation, led firms to bring home two thirds of their foreign retained earnings. Funds available for repatriation are today seven times larger than in 2005.
Ultimately, the impact on global investment stocks will depend on the actions of a relatively small number of very large multinationals that, together, hold the bulk of overseas cash. Five high-tech companies alone (Apple, Microsoft, Cisco, Alphabet and Oracle) together hold more than $530bn in cash overseas - one quarter of the total amount of liquid assets that are estimated to be available for repatriation. Repatriations could cause a large drop in the outward FDI stock position of the United States, from the current $6.4 trillion to possibly as low as $4.5 trillion, with inverse consequences for inward FDI stocks in other countries. About one quarter of United States outward stock of FDI is located in developing countries. However, it is likely that a large part of the stock located in developing countries is invested in productive assets and therefore not easily repatriated. [Download: UNCTAD Global Investment Trends Monitor special issue, pdf]
Expert group meeting on macroeconomic policies and women’s economic empowerment (UN Women)
Among the issues to be discussed (5-6 February, Berlin) are: (i) which types of growth and labor market strategies can create more productive employment opportunities for women, (ii) how to maximize fiscal space for women’s economic empowerment, and (iii) how to create political space for advocacy and public policy on macroeconomic policy and women’s economic empowerment. More specifically, the main objectives of the expert group meeting are to: [Stephanie Seguino: Engendering macroeconomic theory and policy, pdf]
IDRC’s GrOW research consortium: Economic growth and gender equality
A research project in Ghana and Côte d’Ivoire compares differences in growth patterns and job creation in the two countries, and how these have affected women’s economic empowerment, particularly around extractive industries. Research led by the universities of Chicago and Stellenbosch is generating evidence on how women’s political participation and representation in Africa influences the connection between economic growth and women’s economic empowerment. [WIEGO: Macroeconomic policy and women’s economic empowerment]
Women in the economy: an untapped resource for growth in the Asia-Africa region (RIS)
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Mozambique joins the Economic Partnership Agreement between the EU and Southern African states
The Economic Partnership Agreement (EPA) between the European Union and the Southern African Development Community (SADC) became the first regional EPA in Africa to be fully operational after its implementation by Mozambique.
Mozambique was the last piece of the SADC-EPA jigsaw to fall into place. The other five countries – Botswana, Lesotho, Namibia, South-Africa, and Swaziland – have been implementing the agreement since October 2016. Implementing the EPA means that Mozambique will not have to pay customs duties on its exports to the EU.
The EU is the largest export market for Africa. Exports to the EU represent 22% of SADC EPA countries' exports. The EU-SADC EPA provides opportunities for SADC countries to create jobs, attract more investment, industrialise, integrate into global value chains. On the EU side, European businesses are increasingly investing in the region. For its part, Mozambique will progressively, over the course of several years, reduce or eliminate customs duties for many of EU exports.
Trade between the EU and Mozambique is currently about €2 billion annually. Mozambican exports to the EU include aluminium and raw cane sugar. For more information see the SADC-EU EPA Resources page.
Background
On 15 July 2014 the EPA negotiations were successfully concluded in South Africa. The agreement was signed by the EU and the SADC EPA group on 10 June 2016 and the European Parliament gave its consent on 14 September 2016.
Pending ratification by all EU Member States, the agreement came provisionally into force as of 10 October 2016. Mozambique ratified the agreement on 28 April 2017.
The first meeting of the joint Trade and Development Committee (TDC) took place on 16-17 February 2017. A second meeting of the TDC took place on 21 October 2017. The third one is scheduled for 22-23 February 2018.
Following provisional application, the Parties are addressing implementation issues including the twin questions of EPA monitoring and civil-society involvement and putting in place the institutional framework for the Agreement.
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Botswana Budget Speech: Matambo pegs 2018/19 hopes on global recovery
Botswana Finance Minister Kenneth Matambo expects the warming global economy and rising commodity prices to underpin the country’s buoyant forecasts for revenues and growth in 2018/19.
According to his budget speech presented yesterday, Matambo expects 2018 growth to reach 5.3 percent from 4.7 percent in 2017, while revenues will jump to P64.3 billion from the revised 2017/18 figure of P57.2 billion.
By comparison, the World Bank in January forecast Botswana’s growth at 4.7 percent in 2018 and 4.5 percent in 2017.
The increase in both growth and revenues is underpinned by Matambo’s projection of a 51 percent leap in mineral revenues in 2018/19 to P24.6 billion.
The stronger forecasts will go some way towards ameliorating the lower projected contribution of customs earnings to revenues, which Matambo said would be under pressure from “weaker–than–expected imports and household consumption in the region”.
“The positive outlook for both the mining sector and non-mining sectors underpins these growth forecasts,” Matambo said.
“Mining sector performance is expected to benefit from the recovery in the global economy, while that of non-mining sectors reflects the impact of government’s interventions in terms of policies and strategies to diversify the country’s sources of growth.”
In January, the IMF upgraded its global growth forecast by 0.2 percentage points to 3.9 percent, citing increased global growth momentum and the expected impact of recently approved U.S. tax policy changes.
Matambo’s forecasts were welcomed by local analysts, with Grant Thornton Botswana partner, Vijay Kalyanaraman saying the firm was looking forward to seeing the effect of the budget’s strategic thrust on key focus areas.
“The improved outlook of economic growth reflects renewed optimism in Botswana,” he said.
2018 Budget Speech: Extracts
Delivered to the National Assembly on February 5, 2018 by Minister of Finance and Economic Development Kenneth Matambo
I. Introduction
The 2018/2019 budget proposals are part of Government’s efforts to achieve the goals and aspirations of the Eleventh National Development Plan (NDP 11) and those of Vision 2036. The strategic thrust for this budget is therefore to promote growth, enhance economic diversification, and create job opportunities, which are necessary to improve the standard of living of Batswana. Such a strategic thrust is pursued against the backdrop of strengthening growth in the global economy, particularly in advanced economies, which are the main sources of our export earnings, particularly from diamonds. Against this background, the growth outlook for the domestic economy is positive in the short to medium term.
Despite the positive outlook in the domestic economy, the fiscal situation remains tight, with a budget deficit projected for the 2018/2019 financial year. Hence, the need to continue to exercise judicious management of our financial resources. My Ministry will be working on; improving the efficiency of revenue collection, and exploring additional sources of revenues, while implementing measures to contain and promote efficiency in the management of our expenditure. I therefore implore all those responsible for collecting Government revenues as well as those accountable for spending them, to assist my Ministry in its pursuit of the objective of fiscal sustainability.
I will now review the global and domestic economic situation, which provides the context for the 2018/2019 budget proposals.
II. Economic Review and Outlook
Global Performance and Outlook
The recovery of the global economy continues to strengthen, mainly driven by accelerated growth in investment, trade and industrial production, as well as improvements in business and consumer confidence. The improvement in global activity further reflects firmer demand growth in advanced economies and large emerging economies, particularly United States and China. In this regard, global output is projected to increase from 3.2 percent in 2016 to reach 3.7 percent in 2017 and 3.9 percent in 2018, according to the International Monetary Fund’s (IMF) World Economic Outlook report of January 2018. Similarly, growth in advanced economies is projected to increase from 1.7 percent in 2016 to 2.3 percent in 2017, and remain at 2.3 percent in 2018, supported by accommodative financial conditions, strong business and consumer confidence in this group of economies.
The IMF also forecasts that the emerging market and developing economies will grow at a rate of 4.4 percent in 2016 and 4.7 percent in 2017, and reach 4.9 percent in 2018. This is attributable to the expected robust economic activities in China and other emerging European countries, especially Turkey and Poland, owing to supply side reforms such as expansionary policy mix. Sub-Saharan Africa economies will benefit from the recovery in the global economy, with growth forecast to increase from 1.4 percent in 2016 to 2.7 percent in 2017, and further to reach 3.3 percent in 2018. This was underpinned by recovery in commodity prices, which resulted in increased oil production in Nigeria and Angola.
Regional Performance and Outlook
Economic growth for the Southern African Development Community (SADC) region is expected to improve and reach 3.3 percent in 2017, against 2.6 percent recorded in 2016. The improved regional activity is a reflection of rising global economic activity. However, this growth rate is still lower than the regional target of 7.0 percent.
The downside risk to the expected improved economic growth of the region is that inflationary pressures increased slightly from 10.3 percent in 2016 to 10.8 percent in 2017, against a regional target range of 3 to 7 percent, partly because of the stronger US dollar, compared to weaker regional currencies. However, the region’s terms of trade improved on account of the recovery in the global economy and higher production in the agriculture sector as a result of favourable weather conditions during 2016/2017.
Domestic Performance and Outlook
The recovery in the global economy is expected to have major impact on the performance of the domestic economy during 2017 and 2018, as it provides a market for our exports.
Economic Growth and Outlook
As reported by His Excellency, the President in the 2017 State of the Nation Address, the domestic economy registered a growth rate of 4.3 percent in 2016, after contracting by 1.7 percent in 2015. This was mainly due to the improved performance of the mining sector because of increased demand for diamonds in the global economy, as well as continued good performance of the non-mining sectors, especially Trade, Hotels & Restaurants; Transport & Communications; and Finance & Business Services.
The domestic economic outlook remains positive, with growth rates of 4.7 percent and 5.3 percent expected in 2017 and 2018, respectively. The positive outlook for both the mining sector and non-mining sectors underpins these growth forecasts. Mining sector performance is expected to benefit from the recovery in the global economy, while that of non-mining sectors reflects the impact of Government’s interventions in terms of policies and strategies to diversify the country’s sources of growth.
Balance of Payments and Foreign Exchange Reserves
Preliminary projections of the current account indicate a lower surplus of P16.6 billion in 2017, compared to the revised estimate of P19.9 billion for 2016. The lower surplus in 2017 was largely a result of the anticipated decrease of 4.2 percent in total exports of goods. On the other hand, imports were expected to increase by around 5.0 percent in 2017, mainly due to larger imports of food, fuel, chemicals, rubber products, as well as of diamonds for aggregation purposes.
The overall balance of payments is forecast to be a surplus of P297 million in 2017 based on November data, compared to a provisional surplus of P2.8 billion for 2016. Meanwhile, the level of foreign exchange reserves decreased by 4.0 percent from P76.8 billion in December 2016 to P73.7 billion in December 2017. At this level, the foreign exchange reserves were equivalent to 16.1 months of imports of goods and services. Measured in terms of the US dollars and the IMF’s Special Drawing Rights (SDR), the foreign reserves stood at USD7.5 billion or SDR5.3 billion in December 2017.
Exchange Rate Developments
Exchange rate developments in the domestic economy continue to show stability, with the real effective exchange rate (REER) registering a marginal appreciation of 0.1 percent over the twelve months to October 2017. In the 12 months to December 2017, the Pula depreciated against the South African rand by 1.8 percent, while appreciating by 2.0 percent against the SDR.
III. Strategic Thurst for 2018/2019 Financial Year
2018/2019 is the second financial year in the implementation of NDP 11. As such, the proposed policies and strategies for implementation during the year, as well as the corresponding resource allocations, continue to be aligned to the national priorities of: Developing Diversified Sources of Economic Growth; Human Capital Development; Social Development; Sustainable Use of Natural Resources; Consolidation of Good Governance and Strengthening of National Security; and Implementation of an Effective Monitoring and Evaluation System.
To align annual budget allocations with national priorities, the 2018/2019 financial year focuses on the broad strategic intervention areas of: promoting growth and economic diversification; investing in human capital for building an inclusive society; and maintaining a sustainable fiscal policy. Addressing these areas through the 2018/2019 Government budget is expected to contribute to improved domestic environment for private sector investment, resulting in economic growth and creation of employment opportunities.
Promoting Growth and Economic Diversification
In an effort to create a conducive environment for promoting growth and economic diversification, Government will continue to focus on, among others, the ease of doing business, and the development, and maintenance of economic infrastructure.
With regard to the ease of doing business, Government remains committed to improving the country’s ranking as it affects its ability to attract foreign direct investment, which is necessary for growth and economic diversification. In this regard, Government has embarked on several policy and regulatory reforms aimed improving Doing Business in the country. Among the major milestones achieved in 2017 was the adoption of Regulatory Impact Assessment Strategy, whose aim, among others, is to reduce the cost of doing business in the economy. The objectives of the Regulatory Impact Assessment Strategy are to improve the regulatory environment, reduce administrative burden imposed by regulations, and build investor confidence in the legislation process. Other reforms implemented under the Doing Business Reforms Roadmap include improving electronic filing and payment of taxes and the online customs management system. These initiatives are expected to result in improvement of service delivery, reducing paper work and overall reduction in the cost and time of doing business, thereby enhancing overall competitiveness.
Additionally, policy reforms are currently underway in different areas of the economy such as procurement, land management and public finance management, all aimed at improving environment for doing business in the country. This is in recognition of the fact that supportive policies and efficient regulations are pre-requisites for investment, which is a necessary condition for economic growth and employment creation. Going forward in 2018/2019, Government will continue to pursue policies aimed at deregulation of the economy to create space for the private sector to play its role of being the engine of growth in a meaningful way.
Government recognises the critical need for the development and maintenance of economic infrastructure in promoting development in general, and economic growth in particular. Hence, a significant amount of the 2018/2019 budget is proposed for allocation to energy, water, roads, information and communication technology infrastructure. In the area of energy, Government will continue to invest in power generation, transmission and distribution. This is because, adequate power supply is a critical enabler for investment, as well as for improving the standard of living of Batswana. In this regard, an amount of approximately P2.0 billion has been proposed for allocation to the energy sector. Furthermore, Government has established an independent energy regulator, namely the Botswana Energy Regulatory Authority, which will ensure orderly development of the energy sector by encouraging participation of independent power producers in the generation of power, as well as promoting the goal of energy supply mix as espoused in NDP 11. These continued reforms and investment initiatives in the energy sector are aimed at stabilising the power supply in the economy and promoting economic growth and job creation.
With regards to the development of water infrastructure, Government will continue to prioritise investment in this area given the critical role of water supply as an input for economic growth and development. In this regard, an amount of P2.53 billion has been proposed for water development programmes and projects in the 2018/2019 budget to cover investment in the improvement of water supply networks, in particular, the pipelines to transfer water from dams and well-fields in the northern part of the country to the south to support economic activity. Allow me, Madam Speaker, to thank this House once again for approving the Emergency Water Security and Efficiency Project Loan Authorisation Bill in March 2017, to raise P1.5 billion from the World Bank to finance the funding gap in the water sector.
Development of the country’s road network remains critical in the promotion of growth and economic diversification particularly in accessing high potential production areas and markets. A well-developed and maintained road network can contribute to efficiency in the distribution of goods and services within and outside the country, which is necessary for maintaining competitiveness of domestic entities in the global market. An amount of nearly P2 billion is proposed for improvement of the country’s road network during 2018/2019. In addition, an amount of P1.5 billion from the Road Levy Collections Fund will be spent on road maintenance.
As Botswana moves to the next level of a knowledge-based economy, investment in information and communications technology (ICT) becomes critical. The development of an ICT backbone infrastructure is necessary for equitable and affordable access to broadband connectivity. It also provides an opportunity for reliable high-speed networks, which support e-government service and innovation among businesses. In recognition of the importance of the ICT in promoting growth and economic diversification, an amount of P461.35 million is proposed for allocation in the 2018/2019 budget to improve on the Government ICT infrastructure, including expansion of the Government Data Network and installing of ICT Infrastructure in Secondary Schools.
While it is critical to invest in new infrastructure projects to create a conducive environment for growth and economic diversification, it is equally important to ensure that the existing infrastructure is maintained in good condition in order to derive maximum benefits. A well-maintained road network, for example, can contribute to the efficient delivery of public services within the country, which, in turn, improves the standard of living of Batswana. In this regard, an amount of P2.23 billion, comprising Development Budget of P1.24 billion and Recurrent Budget of P987.71 million is proposed for allocation during 2018/2019 to cover maintenance of government facilities throughout the country, including urgent repairs to schools and health facilities.
Investing in Human Capital for Building an Inclusive Society
Government remains committed to building an inclusive society, in recognition of the fact that this is necessary for peace and prosperity of the nation. Hence, the focus on building an inclusive society is one of the broad-based strategic intervention areas for the 2018/2019 budget. This can be achieved through investment in human capital and empowerment of citizens by developing strategies and initiatives that provide them with opportunities to live dignified lives.
A critical component of human capital development is investment in education, as it develops the human capabilities of individuals and prepares them to take advantage of opportunities created in the economy. In view of the nexus between human capital development and employment, Government has invested significantly in education and skills development over the past decades, with more than 25 percent of the total annual budget allocated to education and training. To this end, an amount of over P15 billion is proposed for education and training in the 2018/2019 budget. However, challenges related to the quality and relevance of education and training continue to affect the education sector.
To address some of these challenges, Government through the Botswana Qualification Authority (BQA) will be enforcing quality assurance measures as part of the strict implementation of its regulations in the education sector. Furthermore, the transformation of the Botswana College of Open and Distance Learning into the Botswana Open University in 2017 has increased access to tertiary education and training, which enhances inclusivity of the society. The expanded scope of the programmes offered by the Open University will cater for the diverse training needs of the economy.
Maintaining a Sustainable Fiscal Policy
The country’s medium term budget outlook remained uncertain, following the global financial crisis of 2008/2009, which affected the major markets for our exports, especially diamonds. Despite the recent signs of recovery in both the global and domestic economies, growth in Government revenues continues to be slow compared to the pressure on expenditure arising from unlimited societal needs. This scenario calls for a continued judicious management of our public resources in order to maintain fiscal sustainability as one of the objectives to achieve the goal of macroeconomic stability.
To achieve the objective of fiscal sustainability in the medium to long-term, Government is committed to continue implementing measures aimed at improving its revenue and expenditure management. On the revenue side, efforts are underway to increase efficiency of collection from existing sources, as well as expanding the revenue base by identifying additional potential alternative sources.
With respect to expenditure management, Government is committed to prudent management of its expenditure to ensure value-for-money from the limited financial resources. Thus, in the context of budget preparation and management, more emphasis will continue to be placed on: expenditure targeting; prioritising spending; aligning annual budgetary allocation to existing implementation capacity of executing Ministries, Departments and Agencies (MDAs); assessing the readiness of projects for implementation as part of the budgeting to avoid over provision under the development budget; and engaging the MDAs during implementation to ensure the quality of delivery of programmes and projects. These measures are aimed at ensuring that Government achieves the fiscal rules as stated in NDP 11. One of the main components of the fiscal rule is that, annual government expenditure as a percentage of the gross domestic product (GDP) should be restricted to 30 percent. The other is that total public debt as a percentage of GDP should be restricted to 40 percent. While in the proposed budget for 2018/2019, the Government expenditure’s ratio to GDP is slightly above target (34 percent), the debt to GDP ratio is well below the target at 15.1 percent. This demonstrates Government’s continued commitment to maintaining fiscal sustainability in the medium term.
IV. Budget Reviews and Proposals
2016/2017 Budget Outturn
The overall fiscal balance for the 2016/2017 financial year was a surplus of P1.12 billion, which was attributed to the improved performance of total revenues and grants and the slight underperformance of total expenditures. Total revenues and grants increased by P1.47 billion or 2.63 percent from P55.93 billion in the revised budget to the actual outturn of P57.40 billion. This was attributable to the better performance of mineral revenue and Bank of Botswana revenue.
Total expenditure and net lending for 2016/2017 amounted to P56.27 billion, or 1.3 percent lower than the revised budget estimate. Of the total amount, recurrent expenditure amounted to P41.17 billion compared to P39.66 billion in the revised budget, representing an increase of 3.8 percent. Development expenditure on the other hand underperformed by 6.9 percent to reach P15.16 billion at the end of the financial year, compared to the P16.28 billion figure in the revised budget.
2017/2018 Revised Budget Estimates
The revised total revenues and grants for 2017/2018 are estimated at P57.19 billion; of which, Customs and Excise contributes P17.06 billion, or 29.8 percent of the total; Mineral revenue accounts for P16.33 billion or 28.6 percent; Non-mineral income tax contributes P12.33 billion, or 21.6 percent; while the Value Added Tax (VAT) accounts for P8.11 billion, or 14.2 percent. The remaining 5.8 percent of total revenue will be contributed by other revenues, especially Bank of Botswana revenue.
The revised total expenditure and net lending for the 2017/2018 stand at P59.61 billion, representing a small increase of P61.92 million from the original budget of P59.54 billion. This is due to supplementary funding of P20.32 million and P41.60 million under the recurrent and development budgets, respectively, to improve on the capacity of the Ministry of Environment, Natural Resources Conservation and Tourism to address increased cases of human-elephant conflict. As a result, the revised budget balance for the financial year 2017/2018 is a deficit of P2.42 billion, or 1.3 percent of GDP.
2018/2019 Budget Proposals
I now present the budget proposals for the 2018/2019 financial year. I wish to preface my presentation by reiterating that, despite the positive domestic economic outlook for the year, the fiscal situation remains uncertain, hence the need to exercise prudence in determining the level and type of expenditure planned for next financial year. To this end, as stated earlier, efforts have been made to align the budget allocations for 2018/2019 to the chosen strategic thrust for the year, thereby contributing to the NDP 11 theme of “Inclusive Growth for the Realisation of Sustainable Employment and Poverty Reduction”.
Total Revenues and Grants
Total revenues and grants for 2018/2019 are estimated at P64.28 billion. Mineral revenue is the largest contributor to revenues at P24.59 billion, or 38.3 percent of the total. This represents a significant increase of 50.5 percent over the revised 2017/2018 budget figure, due to expected positive performance of diamond exports, underpinned by recovery of the global economy. Customs and Excise revenue is the second largest contributor at P14.83 billion, or 23.1 percent of the total. Compared to the 2017/2018 revised budget, this figure represents a significant decrease of 13.1 percent, due to the weaker-than-expected imports and household consumption in the region.
The Non-mineral income tax revenue is estimated at P13.36 billion, or 20.8 percent of total revenue. This amount represents an increase of 8.1 percent over the 2017/2018 revised budget figure of P12.35 billion, reflecting the projected growth in the value addition of non-mining sector. On the other hand, the Value Added Tax is estimated at P8.11 billion, or 12.6 percent of the total revenue.
Total Expenditure and Net Lending
Total expenditure and net lending for 2018/2019 is estimated at P67.87 billion. Of this amount, 66.5 percent is earmarked for the Ministerial Recurrent Budget, 28.4 percent for Development Budget, while the remaining 5.1 percent is for Statutory Expenditure.
Development Budget
The proposed Development Budget for 2018/2019 financial year is P19.31 billion. In implementing this budget, Government will continue to insist on quality in all projects. In that regard, Government will ensure consolidation of projects component to include all supporting infrastructure in order that facilities operate efficiently after completion. Other forms of project delivery such as Public Private Partnerships (PPPs) shall be pursued where appropriate, to take advantage of private sector capital and technology.
A significant portion of the proposed Development Budget of P3.29 billion or 17.0 percent, being the largest share, is proposed for the Ministry of Land Management, Water and Sanitation Services to support initiatives aimed at improving availability of water supply, as well as wastewater and sludge management. The water projects account for P2.51 billion or 77 percent of the Ministry’s allocation. The remaining 23 percent of the Ministry budget goes towards land projects, particularly land servicing countrywide.
The second largest share at P2.78 billion or 14.4 percent is allocated to the Ministry of Defence, Justice and Security. This allocation is mainly to cater for provision of infrastructure and procurement of air assets, vehicles as well as defence and communication equipment for Botswana Defence Force; refurbishment of Botswana Police Service’s facilities and construction of Police Stations at Mmathubudukwane, Maitengwe, Semolale and Block 10 in Gaborone; and rehabilitation of facilities for Department of Prisons and Rehabilitation.
The third largest share of P2.66 billion or 13.8 percent, is proposed for allocation to the Ministry of Transport and Communications, mainly to cover the construction and maintenance of transport related infrastructure such as roads, rail, and airports. A substantial provision is proposed for mega road and bridge projects including Kazungula and Mohembo bridges; construction of three intersections along the KT Motsete Drive in Gaborone; Mogoditshane-Gabane-Mmankgodi road; Gaborone-Boatle dualling; Mulambakwena-Tshesebe road; Dibete-Mookane-Machaneng road, as well as the Modernised and Centralised Traffic Control System for the Greater Gaborone area.
The fourth largest share is proposed for the Ministry of Mineral Resources, Green Technology and Energy Security at P2.52 billion or 13.1 percent, in order to promote efficient and optimal utilization of energy resources. Out of this amount, a total of P863.34 million or 34 percent of the budget is proposed for implementation of the North West Electricity Transmission Grid, which is now under implementation, after initial delays. The budget also caters for completion of Morupule A Power Station rehabilitation. In addition, Botswana Power Corporation has been allocated a total of P1.10 billion to cover its operational expenses and also to meet its debt service obligation for the Morupule B Power Station project.
An amount of P2.25 billion or 11.7 percent which is the fifth largest share, is recommended for the Ministry of Local Government and Rural Development, in order to continue implementation of the social protection programme and village infrastructure projects.
The rest of the Ministries and Independent Departments take the balance of the proposed development budget at P5.80 billion or 30.1 percent. Major projects covered by this amount include: construction of staff houses, as well as expansion and maintenance of public facilities; Integrated Support Programme for Arable Agriculture Development (ISPAAD) and Livestock Management and Infrastructure Development (LIMID); upgrading of health facilities; housing schemes such as Self Help Housing Agency (SHHA); and, poverty eradication scheme and destitute housing for the low income groups.
Overall Balance
Given the estimated total revenues and grants of P64.28 billion and proposed total expenditure and net lending of P67.87 billion, the net result is a budget deficit of P3.59 billion or 1.8 percent of GDP for the financial year 2018/2019. Despite this budget deficit, Government continues to rein in on expenditure so that the country returns to a sustainable fiscal position in the medium to long-term. To finance the expected budget deficits, Government will be guided by the Medium Term Debt Management Strategy (2017/2018 – 2019/2020), which provides options on the financing of a budget deficit depending on underlying causes of such a deficit. For example, a temporary budget deficit can be financed through a mix of borrowing and drawing down on Government cash balances at the Bank of Botswana, while a deficit arising from adverse changes in the country’s terms of trade or significant shock in one of the domestic revenue sources would require structural adjustment measures to restore stability in the economy. In our assessment of the causes of the projected budget deficit for 2018/2019, the deficit is temporary; hence, Government will finance it through a combination of drawing down on existing loans, as well as on Government cash balances.
V. Fiscal Legislation
As indicated in the 2017 Budget Speech, my Ministry continues to work on the simplification of the country’s tax administration by developing a Tax Administration Act to improve on the efficiency of tax revenue collection. Progress in drafting this legislation has been slow, but it is expected to be completed during the next financial year. Meanwhile, my Ministry is also working on the review of the Income Tax Act to introduce Transfer Pricing Rules. Review of the layman’s drafts of the Bills is ongoing and the plan is to have the laws approved by Parliament in 2018.
In an effort to comply with international standards, Government is undertaking a review of the Botswana International Financial Services Centre tax regime in order to remove any perception that Botswana is a tax haven. The review will be undertaken as part of the Income Tax (Amendment) Bill scheduled for presentation to Parliament during 2018. Another ongoing review of the fiscal legislation relates to the Financial Intelligence Act and Regulations to address the shortcomings identified by the Mutual Evaluation Review for Botswana by the Eastern and Southern Africa Anti-Money Laundering Group in May 2017. Our intention is to have all the proposed amendments approved by Parliament during the course of 2018.
VI. Conclusion
In conclusion, I wish to reiterate that, despite the positive domestic economic outlook, the country’s fiscal position remains tight. This calls for continued efforts to mobilize domestic revenues and judicious management of our expenditure in order to achieve the objective of fiscal sustainability. Failure to improve on collections of existing revenues, coupled with continued pressure on expenditure, may result in my Ministry resorting to other options in order to avoid the country running budget deficits for extended period, which is not sustainable. In this regard, I would like to once again appeal to all those responsible for public finance; whether as revenue collecting agencies, or spending ministries, departments and agencies, to exercise utmost due care in line with the requirements of the country’s financial legislations and the Constitution of Botswana. Going forward, Government shall be stepping-up the enforcement of the financial rules and regulations to ensure accountability in the use of the public financial resources.
I wish to take this opportunity once again to express my sincere thanks to His Excellency the President, Lieutenant General Dr. Seretse Khama Ian Khama, for the support accorded to my Ministry in general and to me personally. I was fortunate to have a supportive Head of State who understood that prudent economic management was part of good governance. Without his support, some of the achievements in the area of economic development that I enumerated at the beginning of my speech would not have been possible. We have no doubt that his successor, His Honour the Vice President, will continue to support our Ministry in the delivery of its mandate, especially the need to ensure fiscal sustainability as the basis for good governance in general, and macroeconomic stability in particular.
As I end my address, I would like to extend our thanks to our development partners, both bilateral and multilateral, who continue to support us in the development of this country. We remain indebted to their support to our development endeavours.
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Experts move to bridge digital standards gaps in Africa
Different experts from across Africa are pushing for more standards that would see countries benefit fairly from the growth of information and communication technologies (ICTs).
This was one of the issues that transpired at a one-day conference held in Kigali yesterday that tackled bridging the standardisation gap on the African continent and beyond.
Experts who attended the meeting indicated that there was need to engage several players from different countries across the world in setting international standards which would accomodate all new technologies that are being developed.
Lara Srivastava, the head of International Telecomunication Union (ITU’s) ‘Bridging the Standardisation Gap (BSG) Programme’, told The New Times that it is critical to have a platform where different stakeholders take part in decisions that benefit them, highlighting that the standardisation forum was yet another moment to remind countries of the importance of setting standards for technologies.
“International standards increase competition and reduce costs, they enable companies in developing countries to access the global marketplace, but also enable global players to access emerging markets,” she said.
She said that, so far, Africa has 52 written contribution standards, making it one of the ITU regions with a high number of contributions. This means that Africa has in the recent past put in place many standards in regard to ICTs.
“Africa is one of the active regions in terms of creating draft texts. For example, we have received many draft recommendations on roaming and over-the-top (OTT) services, as well as other emerging technologies from Africa,” she noted.
OTT services standards which Srivastava cited are one of the ICT services that many African telecommunication firms have been pushing for. Statistics show that OTT Services like WhatsApp and Facebook messenger have been eating into revenues of telecoms.
Last year, the Mobile Economy report by GSMA had indicated that mobile revenue growth in sub-Saharan Africa was diminishing, attributing it to the growing popularity of OTT services.
Djibrilla Ballo of the African Telecommunications Union (ATU) said that it is such technologies that need to be standardised so that all players benefit equitably. He noted that standardisation also means balancing the needs and desires of all of the players throughout the ecosystem.
Other standards that experts were pushing for include those that relate to the reduction of roaming costs and charges on mobile financial services, and privacy in big data, among others.
“If you are someone who makes less than 2 dollars a day, how can you afford to pay very high transaction costs using mobile financial services? Members are pushing for international standards on costs and charging for mobile money,” Srivastava said.
Patrick Nyirishema, the director general of Rwanda Utilities Regulatory Authority (RURA), one of the organisers of the forum, emphasised the importance of international standards, saying African countries have to jointly work together to make their contribution to inform decisions happening at the global stage.
“What we are trying to do is to bridge Africa’s engagement and ability in shaping the global standards. In the past, we had literally all standards being developed in the developed world and Africa would just adopt. But this is increasingly changing, and we want to continue the momentum,” he noted.
Addressing the media on the sidelines of the conference, Jean de Dieu Rurangirwa, the minister for information technology and communications, said that the forum was an ideal platform for players to address the standardisation needs and draft recommendations that align with countries’ priorities.
“This forum is also an opportunity for everyone to take part in creating and adopting standards that would drive the fast changing digital world,” he said.
The forum also discussed economic and policy matters all of which were aimed at propelling Africa into the future. The forum is part of the ITU-T Study Group 3 which ends on Thursday.
The Study Groups of ITU’s Telecommunication Standardisation Sector (ITU-T) draws experts from around the world to develop international standards known as ITU-T Recommendations which act as defining elements in the global infrastructure of information and communication technologies (ICTs).
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Expert group meeting: Macroeconomic policies and women’s economic empowerment
The expert group meeting on “Macroeconomic policies and women’s economic empowerment” took place on 5-6 February 2018 in Berlin, Germany.
The event brought together more than thirty world-renowned feminist economists to identify a forward-looking research and policy advocacy agenda in the areas of macroeconomic policy and women’s economic empowerment.
The main objectives of the expert group meeting were to:
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take stock of conceptual frameworks and empirical evidence examining the relationship between macroeconomic policy and women’s economic empowerment,
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identify critical gaps in the literature for policy research/analysis, and
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identify ways to strengthen advocacy and partnerships in these areas.
Sessions were structured around 4 key questions: 1) How do we create productive employment and decent work for women?, 2) How do we value care work?, 3) How do we maximize fiscal resources for women’s economic empowerment?, and 4) How do we create political space for advocacy and public policy on macroeconomic policy and women’s economic empowerment?
Among the particular issues discussed were:
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which types of growth and labor market strategies can create more productive employment opportunities for women,
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how to maximize fiscal space for women’s economic empowerment, and
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how to create political space for advocacy and public policy on macroeconomic policy and women’s economic empowerment.