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More mega-ships are a big problem for cargo carriers
Container shipping companies are bracing for a challenging year – they will have more space available for carrying goods than the amount of cargo that’s out there.
Corrine Png, chief executive officer of research firm Crucial Perspective, estimates freight-carrying capacity on container ships will rise 5.9 percent this year, outstripping demand growth for the first time since 2015.
That’s largely because more than 40 huge container vessels ordered at least two years ago are ready to be delivered for service, creating an abundance of ship stowage. With some of the space expected to be left empty, container lines could be forced to charge lower fees for shipping goods, even as they try to overcome years of accumulated losses in an industry downturn that has seen at least one company collapse.
More than 90 percent of global trade is transported by sea. The five charts below show what’s in store for shipping companies.
1. More space to carry goods
As more large vessels are delivered and put into service in 2018, ships’ cargo-carrying capacity is expected to expand the most in three years.
2. There could be more ships and even more stowage
Some container lines could take advantage of currently low shipbuilding prices to order more vessels, Png says. As history has shown, sea-freight fees tend to be squeezed when the ship orderbook expands, due to concern there will be an excess of space.
3. Asian and European buyers spend the most
Companies need to raise a combined $144 billion to take delivery of all vessels this year. Of that amount, 73 percent will come from buyers in Asia and Europe.
4. Bigger vessels will be in demand
Container ships are estimated to account for 98 of this year’s orders across vessel types and 120 for next year. Overall, the number of ships on order is expected to rise 54 percent to 662 this year and to 820 in 2019, said Park Moo-hyun, an analyst at Hana Financial Investment Co. in Seoul.
5. Most are crude oil and dry bulk ships
Crude tankers and dry bulk carriers make up more than 60 percent of total deliveries scheduled for this year, and container ships account for 19 percent. Hana Financial’s Park sees a “steady increase” in demand for large container vessels that can each carry more than 15,000 boxes.
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Global economy to edge up to 3.1 percent in 2018 but future potential growth a concern
Current slack in global economy expected to fade
The World Bank forecasts global economic growth to edge up to 3.1 percent in 2018 after a much stronger-than-expected 2017, as the recovery in investment, manufacturing, and trade continues, and as commodity-exporting developing economies benefit from firming commodity prices.
However, this is largely seen as a short-term upswing. Over the longer term, slowing potential growth – a measure of how fast an economy can expand when labor and capital are fully employed – puts at risk gains in improving living standards and reducing poverty around the world, the World Bank warns in its January 2018 Global Economic Prospects.
Growth in advanced economies is expected to moderate slightly to 2.2 percent in 2018, as central banks gradually remove their post-crisis accommodation and as an upturn in investment levels off. Growth in emerging market and developing economies as a whole is projected to strengthen to 4.5 percent in 2018, as activity in commodity exporters continues to recover.
“The broad-based recovery in global growth is encouraging, but this is no time for complacency,” World Bank Group President Jim Yong Kim said. “This is a great opportunity to invest in human and physical capital. If policy makers around the world focus on these key investments, they can increase their countries’ productivity, boost workforce participation, and move closer to the goals of ending extreme poverty and boosting shared prosperity.”
2018 is on track to be the first year since the financial crisis that the global economy will be operating at or near full capacity. With slack in the economy expected to dissipate, policymakers will need to look beyond monetary and fiscal policy tools to stimulate short-term growth and consider initiatives more likely to boost long-term potential.
The slowdown in potential growth is the result of years of softening productivity growth, weak investment, and the aging of the global labor force. The deceleration is widespread, affecting economies that account for more than 65 percent of global GDP. Without efforts to revitalize potential growth, the decline may extend into the next decade, and could slow average global growth by a quarter percentage point and average growth in emerging market and developing economies by half a percentage point over that period.
“An analysis of the drivers of the slowdown in potential growth underscores the point that we are not helpless in the face of it,” said World Bank Senior Director for Development Economics, Shantayanan Devarajan. “Reforms that promote quality education and health, as well as improve infrastructure services could substantially bolster potential growth, especially among emerging market and developing economies. Yet, some of these reforms will be resisted by politically powerful groups, which is why making this information about their development benefits transparent and publicly available is so important.”
Risks to the outlook remain tilted to the downside. An abrupt tightening of global financing conditions could derail the expansion. Escalating trade restrictions and rising geopolitical tensions could dampen confidence and activity. On the other hand, stronger-than-anticipated growth could also materialize in several large economies, further extending the global upturn.
“With unemployment rates returning to pre-crisis levels and the economic picture brighter in advanced economies and the developing world alike, policymakers will need to consider new approaches to sustain the growth momentum,” said World Bank Development Economics Prospects Director Ayhan Kose. “Specifically, productivity-enhancing reforms have become urgent as the pressures on potential growth from aging populations intensify.”
In addition to exploring developments at the global and regional levels, the January 2018 Global Economic Prospects takes a close look at the outlook for potential growth in each of the six global regions; lessons from the 2014-2016 oil price collapse; and the connection between higher levels of skill and education and lower levels of inequality in emerging market and developing economies.
Global Economic Prospects: Sub-Saharan Africa
Recent developments
Growth in Sub-Saharan Africa is estimated to have rebounded to 2.4 percent in 2017, after slowing sharply to 1.3 percent in 2016. The rise reflects a modest recovery in Angola, Nigeria, and South Africa – the region’s largest economies – supported by an improvement in commodity prices, favorable global financing conditions, and slowing inflation that helped to lift household demand. However, growth was slightly weaker than expected, as the region is still experiencing negative per capita income growth, weak investment, and a decline in productivity growth.
Although oil producers in the region continue to deal with the effects of the earlier oil price collapse, growth rebounded moderately in metals-exporting countries, reflecting an uptick in mining output amid rising metals prices, while growth in non-resource-intensive countries – largely agricultural exporters – was broadly stable, supported by infrastructure investment and crop production.
Fiscal deficits narrowed slightly in 2017, the result of large spending cuts in some oil exporters. However, government debt continued to rise across the region compared to 2016, as countries borrowed to finance public investment.
Outlook
Growth in the region is projected to continue to rise to 3.2 percent in 2018 and to 3.5 in 2019, on the back of firming commodity prices and gradually strengthening domestic demand. However, growth will remain below pre-crisis averages, partly reflecting a struggle in larger economies to boost private investment.
South Africa is forecast to tick up to 1.1 percent growth in 2018 from 0.8 percent in 2017. The recovery is expected to solidify, as improving business sentiment supports a modest rise in investment. However, policy uncertainty is likely to remain and could slow needed structural reforms. Nigeria is anticipated to accelerate to a 2.5 percent rate this year from 1 percent growth in the year just ended. An upward revision to Nigeria’s forecast is based on expectation that oil production will continue to recover and that reforms will lift non-oil sector growth. Growth in Angola is expected to increase to 1.6 percent in 2018, as a successful political transition improves the possibility of reforms that ameliorate the business environment.
Non-resource intensive countries are expected to expand at a solid pace, helped by robust investment growth. Côte d’Ivoire is forecast to expand by 7.2 percent in 2018; Senegal by 6.9 percent; Ethiopia by 8.2 percent; Tanzania by 6.8 percent; and Kenya by 5.5 percent as inflation eases.
However, given demographic and investment trends across the region over the longer term, structural reforms would be needed to boost potential growth over the next decade.
Risks
The regional outlook is subject to external and domestic risks, and is tilted to the downside. Although stronger-than-expected activity in the United States and Euro Area could push regional growth up due to greater exports and increased mining and infrastructure investment, an abrupt slowdown in China could generate adverse spillovers to the region through lower-than-expected commodity prices.
On the domestic front, excessive external borrowing without forward-looking budget management could worsen debt dynamics and hurt growth in many countries. A steeper-than-anticipated tightening of global financing conditions could also lead to a reversal in capital flows to the region. Protracted political and policy uncertainty could further hurt confidence and deter investment in some countries.
Rising government debt levels highlight the importance of fiscal adjustment to contain fiscal deficits and maintain financial stability. Structural policies – including education, health, labor market, governance, and business climate reforms – could help bolster potential growth.
Regional Summaries
East Asia and Pacific: Growth in the region is forecast to slip to 6.2 percent in 2018 from an estimated 6.4 percent in 2017. A structural slowdown in China is seen offsetting a modest cyclical pickup in the rest of the region. Risks to the outlook have become more balanced. Stronger-than-expected growth among advanced economies could lead to faster-than-anticipated growth in the region. On the downside, rising geopolitical tension, increased global protectionism, an unexpectedly abrupt tightening of global financial conditions, and steeper-than-expected slowdown in major economies, including China, pose downside risks to the regional outlook. Growth in China is forecast to moderate to 6.4 percent in 2018 from 6.8 percent in 2017. Indonesia is forecast to accelerate to 5.3 percent in 2018 from 5.1 percent in 2017.
Europe and Central Asia: Growth in the region is anticipated to ease to 2.9 percent in 2018 from an estimated 3.7 percent in 2017. Recovery is expected to continue in the east of the region, driven by commodity exporting economies, counterbalanced by a gradual slowdown in the western part as a result of moderating economic activity in the Euro Area. Increased policy uncertainty and a renewed decline in oil prices present risks of lower-than-anticipated growth. Russia is expected to expand by 1.7 percent in 2018, unchanged from its estimated growth rate in 2017. Turkey is projected to moderate to 3.5 percent this year from 6.7 percent in the year just ended.
Latin America and the Caribbean: Growth in the region is projected to advance to 2 percent in 2018, from an estimated 0.9 percent in 2017. Growth momentum is expected to gather as private consumption and investment strengthen, particularly among commodity-exporting economies. Additional policy uncertainty, natural disasters, a rise in trade protectionism in the United States, or further deterioration of domestic fiscal conditions could throw growth off course. Brazil is expected to pick up to 2 percent in 2018, from an estimated 1 percent in 2017. Mexico is anticipated to accelerate to 2.1 percent this year, from an estimated 1.9 percent last year.
Middle East and North Africa: Growth in the region is expected to jump to 3 percent in 2018 from 1.8 percent in 2017. Reforms across the region are expected to gain momentum, fiscal constraints are expected to ease as oil prices stay firm, and improved tourism is anticipated to support growth among economies that are not dependent on oil exports. Continued geopolitical conflicts and oil price weakness could set back economic growth. Growth in Saudi Arabia is forecast to accelerate to 1.2 percent in 2018 from 0.3 percent in 2017, while growth is anticipated to pick up to 4.5 percent in the Arab Republic of Egypt in FY 2018 from 4.2 percent last year.
South Asia: Growth in the region is forecast to accelerate to 6.9 percent in 2018 from an estimated 6.5 percent in 2017. Consumption is expected to stay strong, exports are anticipated to recover, and investment is on track to revive as a result of policy reforms and infrastructure upgrades. Setbacks to reform efforts, natural disasters, or an upswing in global financial volatility could slow growth. India is expected to pick up to a 7.3 percent rate in fiscal year 2018/19, which begins April 1, from 6.7 percent in FY 2017/18. Pakistan is anticipated to accelerate to 5.8 percent in FY 2018/19, which begins July 1, from 5.5 percent in FY 2017/18.
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Mozambique Economic Update: Making the most of demographic change
Mozambique is shifting to a period of slowing growth and increasing concentration. A stronger fiscal policy response and increased transparency are key for recovery, says a new World Bank report.
The second half of 2017 indicates the slowdown in Mozambique’s economic performance may be taking hold and shifting this once fast-growing economy to a more modest pace of growth, bringing economic growth down to a level barely above that of population growth.
GDP growth is expected to dip to 3.1 percent in 2017, despite increases in coal and aluminum exports. Whilst these exports boomed, small and medium enterprises (SMEs) have fallen back even more, especially in the manufacturing sector, which contracted for this first time since 1994.
The World Bank’s new Mozambique Economic Update (MEU) notes that small and medium enterprises (SMEs) are crowded out, and that not even the sizable growth of commodity exports is sufficient to counteract the effects this is having on the economy.
The level of concentration has also increased in 2017: Just a few commodities dominate exports, representing a larger share of foreign currency inflows, which heightens the country’s exposure to external shocks.
The concentration of output in the extractive and minerals sector keeps Mozambique on the path of a two-speed economy, one less capable of generating enough jobs to absorb a net inflow of the almost 500,000 people entering the labor force each year.
Trends observed in 2017 make it clear that Mozambique needs to double its efforts to support small and medium enterprises and look beyond the extractive sector for more balanced growth.
The scale of the shocks faced by Mozambique’s economy over the past two years has been immense. However, as commodity prices and conditions for agriculture improve, and external factors become less of an impediment, the economy turns to the policy response to pursue recovery. Decisive monetary policy measures and strong commodity export performances have helped to stabilize the Metical and bring inflation down in 2017. Fiscal policy also began responding, but at a slower pace.
Making the most of demographic change
In order to examine future demands on Mozambique’s economy, the special focus of December’s Economic Update discusses the challenge of transforming Mozambique’s growing and youthful population into a demographic dividend. This is ever more urgent given the drift towards a natural resource extraction based economy with low employment generation.
Mozambique lags behind other sub-Saharan African countries in kicking off its demographic transition. By 2011, its total fertility rate was estimated at an average of 5.9 children per woman, one of the highest in the world. The World Bank estimates that reducing fertility rates would represent an enormous boost to prosperity: an estimated increase in real per capita GDP of 31 percent by 2050.
“Transforming Mozambique’s population trends into a demographic dividend is an immense challenge, but so are the potential gains,” said Peter Holland, World Bank Program Leader for Human Development.
Mozambique could actively promote policies to trigger the transition, with jobs for women and better family planning services. A sharper focus is also needed on building skills for youth and an economy that grows.
The Update also calls for a sharper focus on building skills for youth, with particular emphasis again on women and an economy that grows whilst generating productive jobs for the next generation of Mozambicans.
Monetary policy
This report emphasizes that more needs to be done to stabilize the macroeconomic outlook and rebalance the policy mix with definitive fiscal policy measures. And, though monetary policy has been decisive, and contributed to stabilizing the currency at a critical time, it has also heightened the cost of credit.
Space is now opening for the monetary policy cycle to begin easing as inflation continues to fall, which would improve the private sector’s access to financing. This requires a tighter fiscal policy response and more sustainable levels of debt.
It would also require a more proactive approach to tackling the fiscal risks coming from weak state-owned enterprises, as well as necessitating increased transparency in the handling of the investigation into Mozambique’s hidden debts to restore both investor and donor confidence.
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China’s impacts on SSA through the lens of growth and exports
The International Monetary Fund (IMF) points out three identified spillover channels through which China may influence the world economy: trade, external financing and commodity prices. This paper specifically quantifies China’s impacts on 44 sub-Saharan African (SSA) countries in an effort to identify the potential transmission channels.
The analysis reveals that (i) after joining the WTO in 2001, China has started to impact significantly on SSA growth: one-percent increase in China’s GDP per capita leads to 0.02 percent increase on the SSA’s GDP per capita; (ii) oil and investment-goods exporters benefit more from China’s growth; (iii) compared to China’s consumption, its investment growth acts as a more important channel in influencing SSA; (iv) exports to China, highly linked to China’s growth, is an important indicator for SSA’s exports.
Given the growing influence of China’s economy on SSA countries, it is urgent for SSA countries to be well prepared to better take advantage of China’s rebalancing, proactively search a sustainable way to continuously enhance productivity, and successfully integrate into the world value chain for industrial upgrading.
Introduction
China’s economic performance, since early 1980s, is phenomenal by various criteria, characterized by long-duration, high growth rate and world-wide spillover effects. The 36-year average growth rate of China’s GDP per capita is as high as 8.8 percent while the global economy experienced an average growth rate of 2.4 percent. The rapid economic expansion has made China’s economy more influential in the global economy and thus attracted more researchers’ attention.
Numerous papers have studied the growing economic power China has exerted at different economic aspects, on various regions or countries, and via various channels. Most of them assume that China’s spillover has increased proportionately with its economic output (or trade) without experiencing any structural break, but this may not be underpinned by observations especially when we consider a series of economic reforms and initiatives accompanying China’s growth which have amplified the magnitude of China’s global influence in an exponential way.
Exports from Sub-Sahara Africa (SSA) to China has increased dramatically in the past two decades, particularly after 2001 when China joined the WTO. Surpassing the US in 2012, China has become the second largest exporting partner of SSA only after EU. Is it possible that the magnitude of China’s impacts on SSA is significantly different before and after a certain time point around the year of 2002? While the paper does not infer any conclusion from the simple correlations of growth of GDP per capita, it notes that advanced economies, emerging markets, and the rest of the world have also experienced jumps in correlations with SSA.
Guided by these observations, the paper does not take for granted that China’s impacts on SSA remain structurally stable since 1980. Instead, the authors run regressions with different sample periods to check the existence of a structural break in China’s impacts. The regression results and economic intuition jointly direct the study to focus on the period of 2003 to 2015 due to the implied structural break stemming from China joining the WTO.
Given vast variation in economic characteristics among 44 SSA countries, it is meaningful to explore the implications of country heterogeneity on the degree of economic dependence on China. For example, iron-ore-exporting countries may heavily rely on China’s construction industry while SSA countries exporting cotton are likely to be sensitive to China’s domestic consumption. Accordingly, this paper divides SSA countries into groups following well-accepted criteria and investigates common features for each group.
Another interesting angle to gauge China’s impacts is to disaggregate China’s growth into consumption and investment to quantify the exact effects of China’s GDP components. This growth disaggregation also contributes to the study of what role SSA country heterogeneity play for China’s impacts just as mentioned in the paragraph above.
If China’s impacts on SSA are well quantified, a following question would be what the potential transmission channels are? how China influences SSA? In this context, the paper seeks to assess the traditional channels of trade and FDI by examining whether China-related variables are among the determinates of SSA’s total exports and exports to China.
In summary, the paper seeks to answer the following questions:
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Is China’s economic growth significant for SSA growth? Does it evolve over time?
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Does country heterogeneity play a role?
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Which component of China’s GDP is more important: consumption or investment?
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What role does Chinese economy play in SSA’s exports?
For China’s impacts on SSA’s GDP growth, the paper follows the setup of classic growth literature and adopt the difference GMM approach to address regressor endogeneity. This method can provide more reliable empirical results on China’s spillover to SSA, which is instrumental in policymakers’ understanding the potential economic implications of China’s rebalancing, namely lower growth rates accompanied by a shift from investment-driven to consumption-driven economic model.
The views expressed in this IMF Working Paper are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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The role of trade policies in building regional value chains – some preliminary evidence from Africa
Regional value chains (RVCs) are considered as an important step towards greater integration into global value chains (GVCs), but African countries trade very little value added with each other. Trade in value added within the region is still by far the lowest in comparison with Asia and Latin America, but the recent increase allows for an optimistic outlook with respect to the evolution of regional production networks.
Based on the UNCTAD-Eora GVC database,[1] this paper estimates a panel model from 2006 to 2012 for 37 African countries and sheds light on the role of trade costs in building RVCs in Africa.
First evidence is provided on the effect of (i) charged and faced tariff rates on capital goods, raw materials and intermediates and (ii) additional trade costs capturing border inefficiencies and poor infrastructure. Results indicate a significantly negative effect on foreign value added of charged tariffs on capital goods and higher time to trade. In addition, higher regulatory quality and a stronger telecommunication infrastructure seem to be positively correlated with a country’s ability to participate in RVCs.
Introduction
International trade is increasingly shaped by the existence of value chains, regionally and globally. Decreasing transaction costs have encouraged multinational corporations to outsource stages of production, retaining the most profitable phases along the supply chain. More complex products and a greater division of labor allow more countries to participate in global trade by specializing in specific tasks without the need to produce the entire product. Developing countries can leverage participation in value chains as a stepping stone towards greater integration into the global economy which promises a rise in labor productivity and total factor productivity through knowledge spillovers and technology transfer.
African countries are highly under-represented in global value chains (GVCs) although their participation has significantly increased over the course of the last decade. The example of the great world factories in Europe, North America and Asia shows that building regional value chains (RVCs) is an important step towards participation in GVCs by increasing the market for exports and imports. However, the share of intra-African trade in value added is low at nine percent, compared to 45 percent in Asia and 18 percent in Latin America. Although it is essential to understand the dynamics and characteristics of RVCs in order to implement efficient policy instruments for facilitating regional trade in value added, the literature on RVCs in Africa is sparse.
To the best of the author’s knowledge there is no study which empirically explores determinants of RVCs in Africa. The study at hand attempts to close this gap in the literature. By doing this, the analysis builds on empirical literature on African global value chain participation on the one hand. Kowalski et al. (2015) and IMF (2016) are the only two publications that empirically address the determinants of African countries’ trade in value added with the world. On the other hand, sector- and country-specific literature on African regional value chains is discussed to show that a reduction of regional transaction and trade costs is even more crucial to increasing RVC integration than gross trade since products have to cross the border twice. This is theoretically underlined by the two-dimensional fragmentation model by Kimura (2007) which centralizes service link costs as a major constraint to the fragmentation of production processes. Service link costs arise by connecting production blocks and include trade and transportation costs, as well as economic transaction costs (e.g. telecommunication costs and deficiencies in legal systems and economic institutions).
This paper purely focuses on the role of trade policies in regional trade in value added within Africa. Policy makers are usually confronted with a set of trade policy instruments in the form of different tariff rates. High tariffs on important inputs such as production equipment might be more restrictive than tariffs on raw materials, especially for resource abundant countries. Despite recent integration efforts among African countries, intraregionally applied tariffs are still high compared to cases in Asia and Latin America. In addition, time delays caused by poor infrastructure and border inefficiencies restrict intra-regional trade. For trade in parts and components, delays in arrival are even more prevalent than for trade in finished goods since the full production process could be interrupted. In light of the potential Continental Free Trade Area (CFTA) which is currently negotiated, the aim of this study in identifying the impact of these constraints becomes highly relevant.
This study uses newly published international input-output tables, obtained from the UNCTAD Eora GVC database, to quantify trade in value added between African countries and to evaluate each country’s position in the RVC. The empirical analysis concentrates on the backward integration perspective, defined as imported foreign value added (FVA) from the region embedded in a country’s exports to the region. On average, 6.0 percent (in 2012) of the value added exports to African countries are also sourced from within the region.
Southern African countries such as Namibia, Botswana and Swaziland are considered to be the most integrated countries, mainly attributed to their proximity to the regional hub, South Africa. Moreover, all African countries, except South Africa, presently import more inputs from within region than they did in 2006. Between 2006 to 2012, real imported FVA increased by 114 percent while total value added trade increased by 53 percent. The stronger increase in FVA indicates a strengthening of regional production networks. The research question that naturally arises is why some African countries have experienced a stronger increase in value added trade and have managed to integrate into RVCs to a greater extent than other countries. Given the fact that imported foreign value added from the rest of the world is approximately zero, an analysis of trade diversion from third countries towards the region is not essential and allows a pure concentration on regional preferential trade liberalization.
An extensive literature review provides a theoretical framework for the empirical analysis. Qualitative literature on Africa, as well as examples from Asia and Latin America are particularly instructive in understanding the role of trade facilitation and structural factors in building RVCs. A panel of 37 African countries from 2006 to 2012 is estimated using a fixed-effects (FE) estimator, controlling for auto-correlation and cross-sectional correlation among standard errors. The results suggest that trade barriers are significant determinants of a country’s ability to join and upgrade within RVCs. Among different tariff rates, the charged tariff on capital goods is most restrictive to imported FVA. The proxies for non-tariff barriers (NTBs) also indicate a negative effect on RVC participation. In addition, higher regulatory quality and a stronger telecommunication infrastructure are positively correlated with the evolution of RVCs.
This paper was completed during an internship in the Division for Africa, Least Developed Countries and Special Programmes at UNCTAD.
[1] Environmental Accounting Framework Using Externality Data and Input-Output Tools for Policy Analysis
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IMF Executive Board 2017 Article IV Consultation with Benin
On December 1, 2017, the Executive Board of the International Monetary Fund concluded the Article IV Consultation with Benin.
Benin showed mixed macroeconomic performance in 2016, with the economy weathering negative spillover stemming from a difficult external environment. Growth was about 4 percent, but a recovery is expected in 2017-18, owing to strong agricultural production, an increase in public investment, and a buoyant tertiary sector. Economic growth is accelerating and inflation remained negative in 2016 and through end-August 2017 but is forecasted to average 0.6 percent in 2017.
The medium-term outlook continues to show favorable signs, with high economic growth and low inflation. Cuts in recurrent spending have contributed to a smaller than programmed budget deficit of 6.0 percent of GDP in 2016 from 8.0 percent in 2015. The fiscal consolidation path foresees a further reduction of the deficit to 1.8 percent of GDP in 2019, below the West African Economic and Monetary Union convergence criterion of 3 percent of GDP.
Despite the favorable medium-term economic outlook, some challenges remain that need to be addressed going forward. These include prioritizing public expenditures to foster inclusive growth and to reduce poverty; accelerating the tax and customs administration reforms to mobilize more domestic resources; making public investment more efficient to sustain the expected growth over the medium term, addressing the rising burden of domestic debt service, and strengthening debt management to preserve public debt sustainability.
Staff Report
Strengthening the Pillars for a Structural Transformation of the Economy
Inclusive growth has been elusive. Following a decade of mediocre economic performance, growth over the last 3 years (2013-15) averaged 5.2 percent, closing the gap with the sub-Saharan Africa (SSA) average in per capita GDP growth However, this solid macroeconomic performance did not translate in a meaningful reduction in poverty, which remains a major challenge calling for a higher and more inclusive growth over the medium term. Low and stagnant productivity in the agriculture sector is the primary cause of the limited poverty reduction in rural areas.
The government is committed to structurally transform Benin’s economy by scaling up investment and diversifying the economy. On April 7, the Board approved the authorities’ request for a three-year arrangement under the ECF. Executive Directors underscored the importance of adhering to policies that preserve macroeconomic stability and public debt sustainability. At the time of the 2017 IMF/World Bank Annual Meetings, Benin became a full participant in the G20 Compact with Africa (CWA) Initiative in the hope of bolstering private sector financing of the Government’s Action Program (GAP), 2016-21.
The government’s reform agenda suffered some setback but the authorities remained committed to it. In April, a revision of the Constitution aimed at fostering transparency and accountability by public office holders did not pass. Also, little progress is being made with reforms of audit institutions. Nonetheless, the authorities are developing strategies to ensure that the reform program will continue unabated, reiterating their commitment to improve governance and transparency and strengthened accountability for public office holders.
Recent Developments
GDP growth is recovering based on agriculture. Benin achieved an economic growth rate of 4.0 percent in 2016; up from 2.1 percent in 2015. Strong GDP growth in 2016 is mainly due to favorable weather conditions and better access to agricultural inputs. By contrast, the depreciation of the naira, coupled with the decline in 2016 of the activities related to cotton ginning, negatively impacted the secondary sector (2.6 percent growth in 2016 vs. 10.1 percent in 2015). Despite a difficult sub-regional context, the tertiary sector showed a 3.4 percent increase in value added compared to an initial forecast of 2.7 percent.
The current account deficit (including grants) is expected to remain elevated in 2017. After a brief improvement in 2016, it is projected to reach 9.1 percent of GDP, reflecting the investment scaling up in 2017 with imports of goods and services increasing by about 19 percent.
Policy Discussions
Discussions focused on how to: (i) accelerate reforms to create fiscal space; (ii) preserve debt sustainability; (iii) diversify the economy and promote inclusive growth, and (iv) promote good governance and transparency.
Promoting Diversification, Inclusive Growth, and Financial Deepening
Economic diversification and development of the financial sector are essential to enhance the inclusiveness of growth. Despite the agricultural sector’s strong contribution to economic growth over recent years, Benin faces critical challenges regarding export diversification and domestic production. Based on cross-country experiences, the Selected Issue Paper (SIP) prepared by staff on: Growth, Structural Transformation, and Export Diversification shows the type of structural reforms and economic diversification that could contribute to boost and sustain growth in Benin. These reforms should:
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aim at improving infrastructure and trade networks, reducing barriers to entry for new products, deepening financial markets, fostering more efficient financial intermediation and access to markets, and investing in human capital (Box 4);
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reinforce Benin’s relative good standing regarding the extent of foreign value added in its exports – traditionally referred to as backward integration, and
- focus more on sectoral policies such as developing high value added agro-commodity crops, promoting agro-processing, and developing the tourism sector – efforts to improve education outcomes, bolster governance and transparency in regulation should complement these sectoral policies.
Box 4. Stages of Transformation and Diversification
Benin’s economy remains poorly diversified and there has been some de-industrialization with the output share of manufacturing falling from 22 percent in 2000 to 12 percent in 2012. Today, agriculture employs around 70 percent of Benin’s workforce and contributes approximately to 22 percent to its GDP. Benin is addressing de-industrialization with policies to boost value-added in agriculture and tourism. One of the pillars of the GAP is the structural transformation of the economy to create more value added in agriculture and tourism, both identified as key drivers of future growth. Specifically:
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Cross-cutting policies aimed at achieving efficiency gains in public investment, boosting private investment in energy and transport and strengthening education, skills, and human capital. Initiatives have been implemented to improve the business environment, although further progress in increasing access to electricity, facilitating paying taxes, and obtaining credit are needed.
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In the agricultural sector, the government has developed policies aimed at: (i) creating seven regional poles for agricultural development and promoting high value added sectors such as pineapples, cashew nuts, cotton, maize, cassava, and rice, (ii) evolving the processing industry through technological innovations, and (iii) boosting continental aquaculture.
- In the tourism sector, investment projects seek to: (i) build a tourist pole around Voodoo art, and (ii) recreate the historic city of Ouidah to make it the flagship destination of memorial tourism in Africa.
Staff underscored the need to address weaknesses of the financial infrastructure and business environment to spur banks’ lending to the private sector. Although macroeconomic conditions in recent years have been favorable for financial stability, Benin’s financial sector remains under-developed and vulnerable, limiting its ability to support credit to the private sector and, ultimately, economic growth. The large number of unauthorized microfinance institutions (MFIs) raises stability risks. An SIP reviewed the financial sector’s contribution to sustainable economic growth, outlined stability concerns, and explored how to further improve financial inclusion.
Strengthening the Business Environment by Promoting Good Governance
A favorable business environment is critical for private sector-led growth. The authorities initiated several reforms aimed at improving the business and investment climate to support the process of economic diversification and improve the still weakly inclusive character of growth (MEFP ¶6). Heavy reliance on private investment to help address the infrastructure gap and Benin’s participation in the G20 CWA have heightened the importance of these reforms (MEFP ¶9). However, little progress is being made in: (i) strengthening audit institutions; (ii) addressing weaknesses in the doing business indicators; and (iii) addressing corruption and improving governance and transparency.
Ongoing reforms are expected to improve the business climate. Although Benin has continued to implement reforms, their ranking in the World Bank Doing Business Indicators has declined two positions in 2017. Benin ranks at 155 in 2017, with slight improvements on indicators covering the difficulty of starting a business, getting credit and protecting minority investors. The authorities plan to make progress regarding access to electricity, paying taxes, and enforcing contracts. Corruption has been identified in the 2017-2018 Global Competitiveness Index as one of the most problematic factor for doing business and some other third-party indicators suggest continued challenges for Benin. Additional steps should be taken to decisively tackle corruption, including through continued efforts towards establishing an effective AML/CFT regime to help deter, detect and prosecute the laundering of acts of corruption.
The authorities are committed to strengthen the AML/CFT and anticorruption frameworks. On November 2, 2017, the authorities approved for submission to the National Assembly a bill on AML/CFT, which coalesce existing legislation on the fight against money laundering with that on combating the financing of terrorism (MEFP ¶16). The authorities will further strengthen the framework for combating corruption, improve transparency, and proceed with a coherent implementation of the legislative and regulatory framework for AML/CFT.
Annex III. External Sector Assessment
The external sector assessment does not raise immediate concerns, but highlights the need to boost competitiveness. It found that the real effective exchange rate is broadly consistent with fundamentals although competitiveness remains weak. Benin’s current account deficit has improved in 2016 indicating significant export growth. However, this latter is projected to widen in 2017, reflecting scaling-up of investment. A gradual improvement of the current account deficit is expected from 2018 as investment and import growth stabilize.
Recent Developments of the Balance of Payments
The current account deficit excluding grants has improved in 2016. However, a widening of the current account is expected in 2017 due to the investment scaling up. From 2015 to 2016, the deficit of the current account narrowed from 8.2 percent of GDP to 7.5 percent of GDP. However, in 2017 the deficit is expected to widen and reach 9.4 percent of GDP. This evolution is mainly explained by higher imports of capital goods related to new investments. A gradual improvement of the current account deficit is expected from 2018 onwards as investment and import growth stabilize. By 2021, when the scaling-up of investment comes to an end, the current account deficit would narrow to 6.9 percent of GDP.
The external financing is mainly comprised of concessional financing and foreign direct investment (FDI). External financing of the current account deficit remained relatively stable over recent years. Short-term capital flows and medium- and long-term private loans were equivalent to 1 percent of GDP. Foreign direct investment inflows were equivalent to 1.5 of GDP in 2016 and are expected to reach 1.9 percent of GDP during 2017-21. Other capital flows, such as project loans, remained on average at 2.3 percent of GDP over the period 2014-2016 and are expected at 3 percent, on average during 2017-21.
Gross international reserve coverage in the WAEMU dropped sharply in 2016 and debt risks remain contained despite an increase in public debt led by high fiscal deficits. Gross international reserves coverage in WAEMU system declined substantially since 2010 when it stood at 6.6 month of imports, reserve coverage stabilized at around 4½ months of imports in 2013-14. In 2016, regional reserves in the WAEMU declined significantly by CFAF 1000 billion (about $2 billion) to stabilize at 3.7 months of imports. At end 2016, gross reserves covered about 55 percent of narrow money and 74 percent of short-term debt. International reserves increased by $2.7 billion in 2017, reaching 4.2 months of imports at end-September. Benin’s gross external debt is at 22.5 percent of GDP in 2016 (below the average WEAMU countries).
Selected Issues Paper
This Selected Issues paper on Benin was prepared by a staff team of the IMF as background documentation for the periodic Article IV consultation with the member country. The following topics were covered: a) Growth, structural transformation, and export diversification; b) Financial inclusion and development; c) Efficiency of public investment in Benin: an empirical assessment; d) Macro-structural policies and inequality; and e) Fiscal incidence and inequality.
Growth, Structural Transformation, and Export Diversification
While Benin has delivered high economic growth over recent years, it faces critical challenges regarding export diversification and domestic production. Based on cross-country experiences, this note evaluates the type of structural reforms and economic diversification that could contribute to boost and sustain diversified growth in Benin, underscoring the need for improving infrastructure, trade networks, and market access, reducing barriers to entry for new products, deepening financial markets, and investing in human capital.
The Structure of the Beninese Economy
During the last decade, growth in Benin has been comparatively highly volatile. Per capita GDP growth however has been stagnating. Real economic growth rebounded to 4 percent in 2016 compared to 2015, where the growth rate slowed significantly to 2.1 percent due to weak agriculture output generated by unfavorable weather and negative spillovers from Nigeria. From 2006 to 2016, real GDP growth averaged 4.2 percent (with a maximum of 7.2 percent in 2013 and a minimum of 2.1 percent in 2010 and 2015), driven mainly by the services. Growth remains volatile, despite having strengthened in recent years. Per capita GDP growth has been stagnating and Benin has been lagging six fastest growing non-resource intensive SSA-economies. Inflation turned negative in 2016 after a moderate increase in 2015. The fiscal deficit grew from -0.4 percent of GDP in 2012 to -6.2 percent of GDP in 2016, with a maximum of -8.0 percent of GDP in 2015. The fiscal deficit growth was essentially driven by a net increase in current transfers, especially subsidies to the cotton and electricity sectors, as well as a higher wage bill, while tax revenues weakened. The external current account deficit dropped by 1.5 percentage points of GDP in 2016 compared to 2015 mainly due to continued strong export performance.
In addition, economic growth was not inclusive. Notwithstanding recent progress, Benin remains a low-income country with 11 million people and a per capita income of US$790 in 2015. Agriculture accounts for a quarter of GDP and 51 percent of the country's employment with cotton as its primary export commodity. The informal sector, including subsistence agriculture, contributes up to almost 60 percent of GDP and engages over 80 percent of the labor force. Re-export to Nigeria contributes up to a quarter of the government’s revenue. Nonetheless, rapid population growth – averaging 3.5 percent per year – led to a modest and unequal increase in household consumption. Poverty levels grew from 36.2 percent in 2011 to 40.1 percent in 2015. Due to its low productivity, growth was modest in agriculture, which employs almost half of the labor force. The economy remains poorly diversified and vulnerable to external shocks, underscoring the urgency to promote economic diversification. In particular:
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Poverty remains spread and it is characterized by significant regional disparities. Female-headed households have typically experienced lower poverty levels, divested of economic opportunities.
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There is a dichotomy between economic growth and poverty reduction. During the last five years, higher growth was mainly driven by more capital-intensive sectors like banking, telecommunications and maritime activities at the port of Cotonou. In contrast, agriculture, which is a main driver of poverty reduction, have grown, mostly, from expansion of cultivated land and the associated labor rather than increase in productivity.
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Rapid population growth further limited the growth in per capita income and its impact on poverty reduction. Furthermore, regional trade had a negative spillover from the Nigeria’s economic slowdown and policy changes. There were diminished opportunities in both goods and services between Benin and Nigeria affecting the broader sector of informal trade, where gas flows informally from Nigeria to Benin, and in the broader consumer goods sector, where rice, chicken, edible oil, used cars, used clothing etc., flow from Benin to Nigeria.
Diversification slowly advances led by the agriculture and service sectors. There has been relatively little evidence of structural change in Benin over time. The sectoral composition of output has remained remarkably stable and the level of diversification low. During the period 2010-2016, the primary sector contributed by 0.5 percent to the real GDP growth while the secondary and tertiary sectors agriculture accounted for around 1 percent and 2.2 percent respectively, shares that have changed little since 1990 for when data are first available. The level of output diversification – based on a Theil Index measure – is also low and has remained stagnant, in contrast to faster growing benchmark countries, which have witnessed sharp increases in diversification over time.
The agricultural sector in Benin is highly dependent on rainfall patterns and, mostly, on one major commodity (cotton). Despite its low productivity, agriculture remains one of the main sources of growth and employment in Benin. Nonetheless, to further contribute to economic growth and poverty reduction, the agriculture sector needs to buttress its productivity considerably. Specifically, agricultural production systems heavily rely on increases in cropped areas and family labor, with limited use of improved inputs, production methods, and farm equipment. Agricultural exports are concentrated on three groups of products: cotton, fruits (pineapple), and nuts (cashews) and oilseeds (soy and cottonseed). Nonetheless,
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to address the needs of a growing urban population, the country continues to import a large share of horticultural products from neighboring countries (mostly, Burkina Faso and Nigeria), rice from Asia, wheat, frozen meat and milk from Europe, and frozen poultry products from Brazil.
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the agricultural sector faces the triple challenges of diversifying exports (consolidating cotton exports and increasing export volume for pineapple and cashew nut), increasing food production, and sustainably increasing farm and post-harvest productivity – these challenges must be addressed by improving the structural vulnerability of the country’s agricultural production system to floods and occasional droughts; and
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access to financing is limited outside the cotton system. The country’s agricultural trade performance is generally weak, with a persistently negative agricultural trade balance.
Benin has experienced a modest de-industrialization, contrasting with a sharp industrial expansion in this sector among benchmark countries. The share of the manufacturing sector in output fell from 22 percent to 12 percent in Benin during the period going from 2000 to 2012 but increased from 10 percent to 16 percent in the Asian peer group between 1990 and 2012. Conversely, the share of the agricultural sector has declined across low-income countries over time but has remained elevated in Benin. During the decade 2000-2009, the share of the agricultural sector was estimated on average at 24 percent. It remained constant and has been valued at 22 percent during the period 2010-2016.
Benin has exhibited good performance regarding integration into value chains recently. The Regional Economic Study (2015) showed that integration into global value chains had indeed been accompanied by a pickup in income levels. To measure the depth of this integration, the REO relied on the extent of foreign value added in a country’s exports – traditionally referred to as backward integration. By this measure, rising depth of integration has been associated with rising income over time for developing and emerging market economies higher share of its exports enter as inputs for other countries’ exports, reflecting the still-predominant role of commodities in many countries’ exports in the region. By this metric, Benin is aligned with the rest of SSA.
Growth and Factor Inputs
Low human capital accumulation and total factor productivity appear to have driven volatile growth. A growth decomposition exercise suggests that two thirds of growth over the past two decades can be attributed to labor accumulation, while capital accumulation accounts for almost a third. In contrast, human capital and productivity appear to have been the main drivers of the mediocre growth performance, and are the factors in Benin lags most relative to other countries. These factor ‘gaps’ suggest that policies should target access and quality of education, public financial management (PFM) reforms to improve the efficiency of public investment, and key areas of the business environment, such as contract enforcement, access to credit and efficient electricity provision.
Benin’s competitiveness is impaired by structural bottlenecks and a challenging business climate. The 2016 Doing Business Indicators (DBI) report ranks Benin 155th (out of 189 countries), worse than most peer countries in the region. Indicators related to education, health, access to water, and infant mortality have improved in recent years but at a slow pace. Growth has been accompanied by a low level of job creation with widespread underemployment affecting especially women and the youth in urban areas. However, the participation of women in services has shown an improvement in the last decade. FDI is keeping its pace with SSA but more investment is needed.
Benin has maintained a steady sectoral share in the last decade. Notwithstanding the increase in overall participation recently, Benin was lagging almost half of the SSA countries in terms of its manufacturing and services as a share of GDP. Structural changes that followed the country after 2004 gradually brought the country to a much more favorable position today. Comparing Benin to SSA countries presently, the share of manufacturing and services is ahead of most of the SSA countries, reaching 75 percent of GDP. While its exports per capita remain lower than for most SSA countries, they improved a lot during this ten-year period.
Export Diversification
Export diversification has not taken place. African benchmark countries diversified quite strongly after 1990 and have caught up to Asian benchmark countries whose diversification levels were already comparatively high before that time. The number of export partners has increased on average, but the shares of the main export partners remain dominant. Cross-country experiences show that policies need to build on a country’s endowments and existing strengths and be tailored to tackle specific challenges to yield successful diversification.
Product diversification could yield growth gains. Further increasing product variety similar to diversification could yield further growth gains. Based on the estimates in IMF (2014a), a one standard deviation increase in LIC’s export diversification raises the growth rate by about 0.8 percentage points. For Benin, this translates into estimated growth gains of 0.2 percentage point if export diversification was raised to levels observed in comparators like Vietnam.
Conclusions
Benin’s competitiveness is impaired by structural bottlenecks. A challenging business climate, low productivity, and weak human capital. Low and stagnant productivity in the agriculture sector is perhaps a primary cause of the limited poverty reduction in rural areas.
Policies to promote structural transformation and diversification should focus on addressing weaknesses that hinder entry into new lines of economic activity. Further progress on strengthening the business climate, addressing electricity shortages, and increasing human capital could provide significant benefits.
In particular, measures that could help improve productivity in the short run includes:
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the support the promotion of large-scale adoption of improved technologies (production, postharvest, processing and storage), including climate-smart production systems, reduce vulnerability of farming activities to climate change and weather vagaries of farming activities;
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development of production and market infrastructure to enhance productivity through efficient water management, reduction of post-harvest losses and better access to market through warehouses and other facilities;
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support to value chain coordination and access to finance through sustainable use of the financial management instruments set up under the original project;
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institutional support to the Ministry of Agriculture and other stakeholders in the sector (civil society and producers’ organizations) with a particular focus on capacity building. Furthermore, measures to improve education and productivity could render significant impacts on the informal economy, which is estimated to be at more than half of GDP. Product diversification could yield higher growth rates.
Financial Inclusion and Development
While access to finance is improving, relatively to other sub-Saharan countries, a number of reforms could foster financial deepening and financial inclusion and complement efforts to promote the expansion of the private sector and employment creation.
Background
Benin’s financial sector is shallow, segmented, and with limited financial inclusion. Benin has a small and segmented financial sector in which 3 categories operate: the banking sectors, the microfinance institutions and other nonbank financial institutions. As of end-2016, there were 15 commercial banks, with 4 banks holding about 80 percent of credits to the banking system.
Banks’ capital adequacy has increased from 8.8 percent (end-June 2015) to 10.6 percent, above the 8 percent minimum but still below the WAEMU and SSA averages. The ratio of non-performing loans (NPLs) remains high when compared against peer countries in the WAEMU region. Other indicators are also lagging behind WAEMU averages, including the provisioning ratio for NPLs (12 percent of risk-weighted assets in 2014-15), the liquidity ratio, and profitability indicators.
Although the banking system remains stable, its depth has not improved. The banking sector is broadly sound but plays a limited role in financial inclusion. According to the BCEAO estimations (2010), there is a low level of access to banking service. More precisely, the number of deposit accounts in commercial banks relative to the active population is around 5 percent. In Benin, the banking services are targeting the high income urban population, the low population density and the large size of the informal sector limited the access to the banking services. In addition, the interbank market is no existent.
Financial Access and Development
The authorities are striving to enhance financial services delivery by addressing hindrances to financial inclusion and deepening, covering access, depth, and efficiency.
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Although the number of bank branches has been recently increasing, in particular in rural areas, there is room to further expand financial inclusion by strengthening the regulatory framework of agency banking. High documentation requirements to open, maintain, and close accounts and for loan applications could impede access to finance (participation costs).
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To further enhance credit culture and cover all, the authorities could consider setting a credit reporting bill to unify the collateral registration system, avoiding any potential fragmentation across registries. It could also be useful to strengthen the insolvency/bankruptcy procedure, and improve land titling, which can ease collaterals demanded by lenders. Further, improving contract enforcement in the judiciary sector could contribute to relax collateral constraints and addressing gaps in financial market infrastructure.
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Intermediation efficiency. Efficiency is generally associated with the state of competition and is reflected in interest spreads and banks’ overhead costs. Intermediation costs (i.e., high interest rates and fees) reflect asymmetries of information between borrowers and banks. Access to an account in Benin compares poorly with averages from low income countries.
Financial development has modestly improved in Benin over the past ten years. The composite index of financial development suggests that financial development in Benin has been lackluster over the past three decades. Relative to middle-income countries (Mauritius, Namibia, Seychelles, and South Africa), Benin shows a modest improvement in achieving higher rates of financial development and lacks behind the average for SSA countries and other regions.
Lastly, Benin is performing relatively well regarding access to finance and use of mobile banking but there is scope for further progress. Benin holds around 5 percent of the total volume of mobile transactions in the WAEMU region with a total number of subscription of 12 percent.
The benefits from developing financial institutions in Benin are large. Thus, an appropriate sequencing would emphasize developing institutions at early stages, with increasing attention to developing markets as income per capita rises. Benin could adapt regulation and infrastructure to make investment by private sector participants easier while allowing them to hedge risks and enabling capital to be efficiently channeled into investment projects.
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2018 New Year Message of the Chairperson of the African Union Commission, Moussa Faki Mahamat
2017 has been a particularly eventful year, with the assumption of duty of a new Commission. I have had the privilege of serving with a diverse group of individuals over the past nine months, and the results have been encouraging.
Youth has been at the center of our agenda, as the African Union works to open up opportunities for them in every field. 2017 was the year of Harnessing the Demographic Dividend through Investment in Youth. This made it possible to renew our commitments, as African States and institutions, to achieve our targets for young people, including through reducing the proportion of youth unemployment by at least 2% annually. In adopting the African Union Demographic Dividend Roadmap, Member States have pledged to open up financial services for young people, promote entrepreneurship, increase investments in health, education, and create spaces for youth civic engagement and political participation. They further pledged to mobilize investments in sectors with the potential for high employment multiplier effects and to engage the corporate sector to encourage on-the-job training and philanthropic programmes.
Member States also renewed their commitments to empowering the youth through the ratification, domestication and full implementation of all African Union Shared Values instruments, including the African Youth Charter and the African Charter on Democracy, Elections and Governance.
I am pleased that several African Union Member States have launched the Continental Demographic Dividend Roadmap and committed to report annually on progress made. The vast majority of Member States completed the development of their Demographic Dividend profiles. This now gives us a clearer picture of the high-impact areas that require strategic investments in order to harness the demographic dividend. I call upon the Member States that have not yet done so to complete these profiles.
Reports of African migrants being auctioned as slaves in Libya by international criminal networks were received with shock across the continent and beyond. In response, the Commission took a number of steps, including working with the Libyan authorities, as well as the United Nations, the European Union, the International Organization for Migration and the High Commissioner for Refugees, as part of an African Union-led task force, to facilitate and accelerate the voluntary repatriation of migrants. I requested the African Commission on Human and People’s Rights to carry out an investigation into the situation and to report as soon as possible. Alongside this, the Commission will also take additional steps to address the underlying drivers of irregular migration.
In November, we celebrated the 30th anniversary of the African Commission on Human and People’s Rights, which was established to further the advancement of our people. While the task of making these aspirations into reality is a long one, we are confident that it will be achieved.
This year, the Commission reevaluated the effectiveness of its previous policies and strategies with respect to gender equality and women’s empowerment on the continent. On this basis, a new gender equality and empowerment strategy has been developed, which ensures better alignment with agenda 2063, places stronger emphasis on tangible results and accountability, and promotes innovative practices.
Regional integration remained a priority for the African Union. Significant progress has been made regarding the negotiations over the Continental Free Trade Area (CFTA). Following the 4th meeting of the African Ministers of Trade, held in Niamey in December 2017, it is envisaged that the CFTA agreement and other related documents would be adopted in March 2018. The CFTA, which is a flagship project of Agenda 2063, will create a market of over 1.2 billion people. Its establishment will significantly increase intra-African trade, create economies of scale and regional value chains, and augment job opportunities. In parallel, a legal framework for the management of migration and mobility – the Protocol to the Treaty Estabilishing the African Economic Community Relating to the Free Movement of Persons, Right of Residence and Right of Establishment has been elaborated. It is due for adoption by the African Union Summit of January 2018.
The Commission will also accelerate the implementation of a number of continental policies, including in the area of infrastructure, with the Programme for Infrastructure Development in Africa (PIDA), and agriculture, with the Comprehensive Africa Agriculture Development Programme (CAADP). In this respect, greater emphasis will be placed on food security and safety.
Another Agenda 2063 flagship project is the Single African Air Transport Market. This initiative is a follow-up to the Yamoussoukro Declaration of 1999, and will be launched in January 2018, on the margins of the African Union Summit. Twenty-three Member States have pledged their solemn commitment to the Single Air Market, the implementation of which will increase the number of routes, reduce the cost of air travel and contribute to the expansion of intra-African trade and tourism. I call on all Member States that have not yet done so to join this important initiative.
On the institutional building front, the Assembly of Heads of State and Government took an important decision to transform our Union into an effective and efficient institution capable of accelerating progress towards economic integration, peace, security and overall prosperity for African citizens. In line with this decision, I have established a Reform Implementation Unit to co-ordinate the implementation process. I am particularly pleased with the progress we are making on the “Financing the Union” agenda. In 2018, Member States will be funding almost 40% of the African Union programme budget, compared to less than 5% in 2015 when the initiative was launched. A number of measures will be taken to strengthen overall finance and budget management accountability. In January 2018, I will be submitting a progress report, setting out a number of reform implementation proposals and recommendations, for discussion by the Summit.
Several successful elections were held in Member States. I note, in particular, the peaceful conduct of presidential and representative elections in Liberia. This bears testimony to the commitment of the Liberian people and leaders to sustain peace in their country. I congratulate the peoples and Governments of the countries that held elections for their commitment to ensuring smooth electoral processes, moving us closer to realizing the spirit and letter of the African Charter on Elections, Governance and Democracy. I urge all concerned to respect the will of the people, abide by their national and international obligations, and to use non-violent and legal means in resolving electoral disputes.
As we work towards building stronger institutions and promoting prosperity, the fight against corruption assumes even greater importance and urgency. It is a well-recognized fact that corruption hinders efforts aimed at promoting democratic governance, socio-economic transformation and peace and security. It creates inequality in our societies and erodes the rule of law. While empirical evidence shows that Africa has made some encouraging steps in the last five years, huge challenges remain. In recognition of these, the African Union Assembly declared 2018 as the African Anti-Corruption Year (Project 2018), with the theme “Winning the Fight Against Corruption: A Sustainable Path to Africa’s Transformation.”
The African Union remains committed to working with the Member States to deliver on the ambitious Agenda 2063 flagship project of Silencing the Guns by 2020. We all need to rededicate ourselves to ending violence and sustaining peace in our continent, including by bringing to a successful conclusion the ongoing peace processes in Mali and the Central African Republic, ensuring that the elections planned in the Democratic Republic of Congo in December 2018 take place on time and in a conducive environment, consolidating progress made in Somalia, and ending the threat posed by terrorism in the Sahel, the Lake Chad Basin, and in Horn of Africa.
It is my earnest hope that the south Sudanese stakeholders will deliver on the commitments made in the Agreement on Cessation of Hostilities, Protection of Civilians and Humanitarian Access signed as part of the IGAD-led Revitalization Forum that took place in Addis Ababa in December 2017. The people of South Sudan, who have endured so much pain and suffering, desperately need and deserve peace.
We have had several key engagements with our strategic partners. We started the year with a high-level African Union Commission-United Nations Secretariat meeting. We renewed our commitments to work together on Africa’s peace, security and governance challenges. In November, the African Union-European Union Summit took place. The outcomes of these meetings stand to significantly enhance the quality, effectiveness and impact of these partnerships.
As we enter 2018, we should remember all those who lost their lives not because they lost the will to live, but because of the deadly cloud of conflict, intolerance and disregard for human life and endeavor. We ought to do more and better in 2018 to ensure a future for ourselves, our children, our continent and our world, where the right to life, peace, opportunity and protection should be the basic barometer of our shared humanity.
We should not also forget the women and men serving in African Union or United Nations peace operations in Africa. In 2017, many of them were killed in the line of duty. Their sacrifices should not be in vain.
I wish you all, fellow Africans, a prosperous and peaceful 2018 for our Continent and its people.
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The task at hand as Kagame takes over African Union Chair
The 29th Ordinary Session of the Assembly of the African Union (AU) held in Addis Ababa, Ethiopia in July 2017, elected Rwanda to lead the Union for a period of one year, in 2018.
The 30th Ordinary Session of the Assembly of the Heads of State and Government, that convenes in Addis Ababa, Ethiopia, from January 28 to 29, will therefore be chaired by President Paul Kagame in his capacity as Chairman of the Union.
He takes over from his Guinean counterpart, President Alpha Condé.
It will be the very first time that Rwanda will lead the Union since the latter was launched in 2002.
At the 27th AU summit in Kigali in July 2016, African leaders tasked President Kagame to lead a new effort to reform the AU Commission and the Union to make them more efficient.
The AU Chair is the ceremonial head of the Union elected by the Assembly of Heads of State and Government for a one-year term.
Accelerate reforms
The Minister of State in the Ministry of Foreign Affairs, Cooperation and East African Community Affairs, Amb. Olivier Nduhungirehe said the Chairmanship of President Kagame will accelerate the AU reforms programme which will allow his successors to continue on the same path, thus allowing Africa to reach its goal of self-sustenance and having its voice heard on the international scene.
Uduak Amimo, a broadcaster based in Kenya who covered Ethiopia and the AU for the BBC from 2009 to 2011, said President Kagame will bring a plain-speaking, hands-on, action-packed style to the continent that emphasises focused, responsible leadership and ownership of Africa’s development.
She said his style will have some African leaders uncomfortable because he will call them out, as he did “when they trooped to Europe for a security Summit on Africa.”
“He will lead from the front as he did in offering to resettle African migrants stranded in Libya and at risk of being enslaved,” Amimo said.
“In driving the reforms agenda at the AU, he will demand that attitude and mindsets change both at the commission itself and in how African leaders engage with and support the AU.
“Those reforms will not gather dust on shelves as many of our African decisions and initiatives have done. Under his leadership and direction, a critical mass of African countries will implement the reforms and we will see a more autonomous AU.”
According to Dr. Marco Jowell, the Director of Africa Research Group and research fellow at the School of Oriental and African Studies (SOAS), University of London, there is an opportunity for pragmatic and realistic strategic direction of Pan-African ideals which Kagame is very well placed to provide.
“Kagame is clearly highly respected by the AU having been tasked with leading its reform which bodes well for chairmanship of the continental body. He has also steered Rwanda to be leading peacekeeping contributor and is a champion of economic development and African trade, core elements of the AU’s agenda,” Dr. Jowell said.
“The ideas are there, but pragmatism, consensus and the implementation of feasible activities is required for the AU to effectively meet some of its expectations.”
Peace and security
Africa faces insecurity though leaders have set 2020 as the year by which conflicts on the continent will have been resolved.
Nduhungirehe said that Kagame, as AU Chairman, will work closely with his counterparts around the continent on strengthening the pillars for the Agenda 2063, a strategic framework for the socio-economic transformation of the continent over the next 50 years.
“The Agenda 2063 entails the end of conflicts on the continent by 2020. This means that President Kagame will have to work closely with regional organisations and other heads of state to find sustainable solutions to conflicts and prevent their causes,” Nduhungirehe said.
“Most of the conflicts we have on the continent could have been avoided if countries could talk peace,” he added.
Besides the vulnerability associated with climate change and other factors there are hot spots of insecurity associated with war and conflict that require the AU’s attention. These range from the Boko Haram insurgency in Nigeria; a never ending armed conflict in the Darfur region of Sudan, the Central African Republic conflict; violence in South Sudan; repeated attacks by Somalia-based Al-Shabab terrorist group on Kenya with far-reaching effects; and Islamist militant and terrorist activity in the Maghreb and Sahel regions of North Africa.
Nduhungirehe noted that the AU has a panel of wise personalities mostly composed of former Heads of State and Government that are usually sent on missions around the continent to prop up peace talks between governments and the opposition on pertinent issues. The AU maintains peacekeepers in different African countries.
During Kagame’s Chairmanship, the Union is set to start implementing reforms under the oversight of a steering committee, the minister added.
“Africa is the poorest continent with over a billion people, but it has good weather with a lot of natural resources that could help it prosper. This means that we have a hard task of making good use of our people, land and other resources,” Nduhungirehe noted.
Donor dependence
Nduhungirehe said that it’s sad that 80 per cent of AU programmes are funded by donors though Africa could do it by itself.
Under the Kagame-led reform plan, each country will deduct 0.2 per cent of its tax income from taxable imports and contribute it to the AU commission to help the Union achieve self-reliance.
So far, 20 countries (out of 54) started remitting the contribution. It is hoped that all will have come onboard by year end.
Navigating complex continental diplomatic relations, lack of capacity
Dr. Jowell said Kagame is clearly highly respected by the AU having been tasked with leading its reform but noted that there are a number of AU internal challenges, external challenges and many expectations which he may not be able to deliver on.
“The AU, like most multi-lateral organisations, is only as strong and able as its member states. Navigating the complex continental diplomatic relations in developing accepted and implementable policy is perhaps the greatest challenge facing the AU, not least with regional hegemons,” he said.
Dr. Jowell who is former strategic adviser to the Rwanda Peace Academy said a further internal challenge is the lack of capacity.
“That is, the AU secretariat, commission and subsidiary departments and organs are significantly understaffed. At the same time an ever expanding remit of business and a plethora of meetings, strategizing and planning dominate officials’ time,” he said.
Related to this, Dr. Jowell as well pointed to the issue of over reliance on foreign aid for operating costs and the obligation to cater to external demands.
“Member states must meet their pledged contributions and the AU must secure independent streams of funding. These issues result in a final but crucial challenge. Strategizing and planning is often well developed, coherent and undertaken by experienced and quality officials. However, the implementation of these plans is wrought with difficulties, not least those outlined above,” he said.
Contradicting national interests
Despite the positives Kagame brings, Amimo too is not unmindful of the challenges Kagame faces at the helm of the AU and, she pointed out a few particularly in the angles of self-determination and dignity; and free movement of people.
Under self-determination and dignity, she said, President Kagame has to get more than 50 countries aligned and acting together as one.
Unfortunately, Amimo added, African countries have or perceive themselves to have different and sometimes contradicting national interests.
She said: “Economies and budgetary priorities are at different levels, some countries even have their entire national budgets funded by donors. Several countries have not paid their membership dues in years, others are chronic defaulters. Some are more loyal to their colonial masters and their interests, than to the interests of their African neighbours.”
“Some countries are reliant on Western countries for their defence and security. So it will be difficult for him to change the mindset and attitudes of such countries to one that embraces ownership of and responsibility for Africa. This in turn means that there will be countries that actively and passively undermine the continent’s ambitions for self-determination and dignity.”
How about free movement of people?
Amimo observes that free movement of people across borders, something high on the regional integration agenda for many countries because of the prospective trade gains associated with it, is also fraught with hurdles.
“The AU has rolled out the African Union passport; several African countries have announced that African passport holders will no longer require visas to enter their countries. However, young Africans are still risking their lives in the thousands to leave Africa and access Europe,” she explained.
“A key challenge will be defining how the free movement of people relates to Africans in search of employment opportunities and refuge.”
Nduhungirehe said that Rwanda is looking forward to share her experience with and to learn from the rest of Africa.
“African countries have different histories but we can learn from each other,” he said.
Asked about the view that some African countries are still under the control of their former colonial masters even as they officially gained independence, he said the most important thing is for all countries to be in position to chart an honourable future of their own and for the continent to work together on advancing African interests on the global stage.
“In many cases, we face common challenges and threats and there is need for us to unite and confront them and to pursue shared aspirations as a continent,” Nduhungirehe said.
Africa’s first digital free trade area for rollout in 2018
Businesses within the Common Market for Eastern and Southern Africa (Comesa) could save up to $450 million in clearance documentation once the bloc adopts blockchain technology for clearing imports.
Comesa is looking to roll out a digital free trade area – the first in Africa – modelled along the Malaysian Free Trade Zone, where parties to a transaction are connected in real time through a web of ledgers that are secure.
The application also supports generation of an electronic certificate of origin whose authenticity can be verified using national information technology systems.
This will be a marked break from the current practice which involves manual applications and physical presentation of documents to tax bodies and other government agencies that cause businesses delays.
Trade financiers could be the biggest losers once the system is in place.
“We are rolling out the Digital FTA in 2018, beginning with willing member states on the basis of the principle of variable geometry,” said Comesa spokesman Mwangi Gakunga.
Last month, Comesa completed the design and action plan of the Digital Free Trade Area, the Electronic Certificate of Origin (e-CO) and their draft regulations.
Ending border queues
Piloting of the digital FTA is expected to start in 15 of its 19 member states, enabling large and small enterprises alike to trade using their smartphones and tablets.
“The e-certificate of origin is a good practice around the world but Comesa will be the first regional economic bloc in Africa to have it as a regional FTA instrument,” he added.
According to Comesa Secretary-General Sindiso Ngwenya, the digital economic integration will do away with long queues at border posts for goods and people moving across borders.
“We have developed a mobile application for cross-border traders which shall be launched in the countries that are involved in the simplified trade regime. We shall integrate them to Customs and other agencies and also to the Comesa centre,” he said.
The participating countries are Kenya, Uganda, Rwanda, Burundi, Democratic Republic of Congo, Sudan, Ethiopia, Egypt, Seychelles, Malawi, Mauritius, Madagascar, Swaziland, Zambia and Zimbabwe, which are all part of Comesa’s Simplified Trade Regime that allows traders with goods valued at $1,000 or less to access cross-border markets duty free.
Breakthrough
Exporters from Uganda say this is a breakthrough in regional and international trade, even though it comes with new risks and challenges, especially member states that have not yet provided for e-CO laws.
“The risks are there but they can be mitigated. There must be software to prove that the electronic certificate of origin is authentic so that tax authorities can read it,” says Chris Kaijuka, the managing director of grain exporting company AfroKai Ltd.
Mr Kaijuka welcomes the innovation but adds that he is keen to test the effectiveness of the electronic certificate of origin in solving some of the import-export hitches that traders face in the market.
“But I welcome it. We wanted the e-certificate of origin which helps me on taxation,” he says. “Someone brings in goods from outside Comesa but declares them as of Comesa origin, which they are not,” Mr Kaijuka adds.
Diminished role for banks?
The financial services sector for counterparties makes easy money in international trade deals – globally totaling to $100 trillion – because the importing party in most cases does not know or trust the exporting company.
Within the Comesa region alone, some $450 million is paid to commercial banks annually to confirm letters of credit.
But the bloc’s chief executive argues that soon this will be a thing of the past because the Comesa digital FTA has “applications that can connect Customs, commercial banks, ministries of finance and central banks in real time, even when it comes to remittances.”
“Let’s say you are an exporter from Zambia and you are exporting to Egypt, it will be accounted for because all these parties will be able to access that information simultaneously and this is through the block chain application,” says Mr Ngwenya.
But a source at KCB Bank Uganda – one of the largest providers of trade finance – told The EastAfrican that it is too early for these innovations to reduce the role of commercial banks to the periphery in international trade.
“Customers still rely so much on banks to ensure payment,” he said.
Enabling laws
In 2014, the Comesa Council of Ministers decided that member states that were ready to accept and use the e-CO should do so by July 31 of that year.
The Council further directed member states whose legal systems did not provide for e-COs to enact enabling laws as soon as possible with the view to replace the manual certificates of origin with the electronic certificates in a bid to speed up the process of certification and facilitate trade in real time.
The Council also wanted the designed digital applications to ensure that they integrate small and medium enterprises – which make up over 90 per cent of the employment base in Comesa for its 492 million citizens, according to the bloc’s data.
In March this year, Malaysia launched its digital free trade zone (DFTZ) – a global first – that is expected to increase SMEs contribution to the country’s GDP, which currently stands at 37 per cent, despite 97 per cent of businesses in Malaysia being micro or small and micro enterprises.
According to its website, the Malaysian DFTZ has the potential to increase the SME goods export to $38 million, create over 60,000 jobs and support $65 billion worth of goods moving through the DFTZ by 2025.
Observers say, over this period the DFTZ will double the growth rate of Malaysia’s SMEs goods export.
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Developing countries should continue trade-easing reforms in wake of WTO deal
The Trade Facilitation Agreement (TFA) commits World Trade Organization (WTO) members to streamlining cross-border trade, but reforms can go further, an UNCTAD report says.
New UNCTAD research reveals how nearly 60 countries have prepared the ground to cut red tape and streamline revenue collection in the year since the World Trade Organization’s Trade Facilitation Agreement (TFA) entered into force in February 2017, but says such reforms should go beyond TFA compliance.
The TFA obligates most of the world’s trading nations to recognize trade-easing measures in international law and so reduce the loss to developing countries of billions of dollars that lengthy waiting times, ungathered income and spoiled goods can cause.
UNCTAD estimates that the cost of cross-border trade for developing countries is on average 1.8 times higher than for developed countries.
“Article 23.2 of the TFA stipulates the obligation for countries to set up or maintain a coordination mechanism that will support the implementation of the trade facilitation provisions included in the agreement,” UNCTAD trade facilitation specialist and main author of the study Arántzazu Sánchez said.
“The inclusion of this article represents an official acknowledgement of the importance of coordination and cooperation among relevant stakeholders, including customs authorities and businesses trading across borders, in making trade facilitation reforms happen,” she added.
Beyond compliance
While the inclusion of trade facilitation committees in a WTO agreement is a novelty, in reality these kinds of bodies have existed for more than six decades, Ms. Sánchez said.
Using updated information about 59 countries covered by UNCTAD’s online repository of National Trade Facilitation Committees (NTFCs), the new report offers in-depth analysis of the operation of NTFCs and how they interpret and apply Article 23.2.
Among other findings, the report concludes that NTFCs should work beyond compliance with the TFA, and that reforms should not end once its provisions are in place.
“By defining a broad scope of action from the beginning, NTFCs will remain flexible to promptly adapt to changes that new regional and international agreements and priorities might bring in the future,” Ms. Sánchez said.
Providing quantitative and qualitative analysis of existing NTFCs, the report also presents, for the first-time, data on women’s participation in National Trade Facilitation Committees as part of UNCTAD’s ongoing work on trade and gender mainstreaming.
In addition, the report includes a discussion on the basic structure of the NTFCs around the world such as their composition, level of institutionalization, sources of finance, frequency of meetings and modes of communication. It also discusses the factors that can ensure the successful functioning of NTFCs, and the obstacles that they face in their work.
Empowerment programme
The report complements UNCTAD’s recent research work, especially its report on National Trade Facilitation Bodies in the World, published in 2015.
This made 10 recommendations:
-
Be smart when setting up the objectives and scope of a national trade facilitation body
-
Make it official – give the national trade facilitation body a strong legal backing
-
Set clear rules – define terms of reference in a comprehensive and inclusive way
-
Provide the national trade facilitation body with a permanent secretariat
-
Meet regularly
-
Be inclusive – trade facilitation is a cross-divisional and cross-sectoral endeavour
-
Take every opportunity to raise awareness about trade facilitation
-
Provide the national trade facilitation body with the necessary resources
-
Establish monitoring and evaluating mechanisms to measure results
-
Always involve the private sector
Since 2015, UNCTAD has been able to validate these recommendations as part of its trade facilitation capacity building and technical assistance programmes, in particular the Empowerment Programme for National Trade Facilitation Committees, which, at the end of 2017, had been deployed in around 20 countries.
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Sound domestic policies are key to unlocking the benefits of international banking
Ten years ago, the worst financial crisis in decades roiled developing economies across the globe, temporarily halting their progress in the fight against extreme poverty. As the world economy slowly recovered, a backlash against globalization led many developing countries to clamp down on the activities of international banks.
However, according to the new World Bank report Global Financial Development Report 2017/2018: Bankers without Borders, policy makers should carefully consider their stance toward international banks, as these institutions can inject the capital, expertise, and technologies needed to stimulate a vibrant private sector.
“Openness to international banking is no guarantee of financial development or stability,” said World Bank Research Director Asli Demirguc-Kunt at a recent event to share the findings of the report. “But a wealth of research shows how the right policies and institutions can ensure that openness leads to greater competitiveness, smoothing of local economic shocks, and increased access to the scarce capital needed to spur growth.”
The report outlines policy measures developing countries can take to reap the benefits of international banking, including vigorously enforcing property and contractual rights, guaranteeing strong supervision of banks, and upgrading their credit registries to enhance information sharing.
Three Trends Shaping the Future of International Banking
In the run-up to the global financial crisis, international banks expanded rapidly, quadrupling in size in the decade prior to the crisis. But the hurried pace of globalization proved too quick for governments to maintain stability.
“A new consensus has been emerging that in areas like international trade and finance, globalization proceeded too quickly and easily,” said Ted Chu, Chief Economist of IFC. “Instead, governments need to take a measured pace, and consider the unintended consequences of the shock. Certain labor market conditions and education systems must be in place to generate shared benefits from greater openness to global markets."
Countries intent on opening their doors to international banks will have to grapple with three trends shaping the future of international banking: the rise of fintech, a growth in alternative sources of funding like stocks and bonds, and a rise in South-South banking.
Fintech – tech-savvy methods of providing financial services outside the traditional financial sector – has grown rapidly over the last decade, and not only in advanced economies. In China, mobile payment platforms processed $4 trillion in 2015.
“Fintech companies working in areas like mobile money have opened up entirely new avenues to bring previously excluded segments of the population into the financial system,” said Mahmoud Mohieldin. “For fintech to be successful in the long run, countries need a legal framework that builds trust and confidence, and ensures that contractual arrangements are honored.”
The report also highlights a rise in alternative finance since the global financial crisis. Faced with a contraction in bank financing, firms with access to capital markets turned to stocks and bonds to finance their operations. Governments that develop their financial sectors holistically will be able to better shield their economies from future economic shocks.
Nevertheless, banks will continue to remain important in developing countries. Smaller firms are rarely able to tap into capital markets, so a competitive banking system remains critical to supporting growth and employment.
A third trend – a rise in South-South banking – may also bring new life to the private sector. Banking activities between developing countries grew more than 2.5 times between 1995 and 2013. Brazil, China, India, and South Africa are all becoming bigger players in their respective regions of the world. The trend may be particularly beneficial for small and medium-sized firms, which are often overlooked by globally active banks.
As these regional players expand their turf, the regulatory challenges are also growing. More lax regulation in home countries can amplify credit booms, while less diversification may make countries more vulnerable to regional economic shocks.
These three trends present a complex challenge, but financial sector policy makers in developing countries recognize the benefits of an open financial sector. According to the latest Global Financial Development Barometer, a poll covering 42 developing countries, over 70 percent of policy makers agreed that global banks play an important role in providing financial services to firms.
Achieving the level of economic growth needed to end extreme poverty may hinge on whether developing countries can tackle these challenges successfully.
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South Africa Merchandise Trade Statistics for November 2017
South Africa records largest trade surplus in 18 months in November 2017
South Africa’s trade surplus increased to R13.02 billion in November of 2017 from a downwardly revised R4.34 billion in October, and well above market expectations of a R1.3 billion surplus. It is the highest trade surplus since May of 2016, as exports increased 11.5 percent and imports went up 3.3 percent.
Considering the January to November 2017 period, exports increased 7.6 percent and imports remained unchanged, shifting the country’s trade balance into a R64.74 billion surplus from a R11.2 billion gap in the same period of 2016.
Compared with the previous month, exports increased to R116.1 billion. Main export partners were China (11% of total exports); the United States (9.2%); Germany (6.7%); Japan (4.8%) and India (4.6%). Imports advanced to R103.1 billion. The most important import partners were China (18.8% of total imports); Germany (11.3%); the US (5.8%); India (4.5%) and Saudi Arabia (4.5%).
Excluding trade with neighbouring Botswana, Lesotho, Namibia and Swaziland, the country posted a trade surplus of R3.8 billion in November, swinging from a R4.3 billion deficit in October.
The South African Revenue Service (SARS) on 28 December released trade statistics for November 2017 recording a trade balance surplus of R13.02 billion. These statistics include trade data with Botswana, Lesotho, Namibia and Swaziland (BLNS).
The year-to-date (01 January to 30 November 2017) trade balance surplus of R64.75 billion is an improvement on the deficit for the comparable period in 2016 of R11.22 billion. Exports for the year-to-date grew by 7.6% whilst imports for the same period showed an increase of 0.04%.
Including trade data with Botswana, Lesotho, Namibia and Swaziland (BLNS)
The R13.02 billion trade balance surplus for November 2017 is attributable to exports of R116.16 billion and imports of R103.14 billion. Exports increased from October 2017 to November 2017 by R11.99 billion (11.5%) and imports increased from October 2017 to November 2017 by R3.30 billion (3.3%).
Exports for the year-to-date (01 January to 30 November 2017) grew by 7.6% from R1 006.79 billion in 2016 to R1 083.12 billion in 2017. Imports for the year-to-date of R1 018.37 billion are 0.04% more than the imports recorded in January to November 2016 of R1 018.02 billion, leaving a cumulative trade balance surplus of R64.75 billion for 2017.
On a year-on-year basis, the R13.02 billion trade balance surplus for November 2017 is an improvement from the deficit recorded in November 2016 of R1.24 billion. Exports of R116.16 billion are 16.8% more than the exports recorded in November 2016 of R99.50 billion. Imports of R103.14 billion are 2.4% more than the imports recorded in November 2016 of R100.73 billion.
October 2017’s trade balance surplus was revised downwards by R0.22 billion from the previous month’s preliminary surplus of R4.56 billion to a revised surplus of R4.34 billion as a result of ongoing Vouchers of Correction (VOC’s).
Trade highlights by category
The main month-on-month export movements: R’ million |
||
Section:
|
Including BLNS:
|
|
Precious Metals & Stones
|
+R3 265
|
+21%
|
Base Metals
|
+R2 197
|
+19%
|
Mineral Products
|
+R2 073
|
+ 7%
|
Vehicles & Transport Equipment
|
+R1 990
|
+16%
|
Machinery & Electronics
|
+R1 059
|
+12%
|
Total
|
+R10 584
|
88%
|
Total Movement |
+R11 990 |
100% |
The main month-on-month import movements: R’ million |
||
Section:
|
Including BLNS:
|
|
Machinery & Electronics
|
+R1 809
|
+ 7%
|
Mineral Products
|
+R 956
|
+ 7%
|
Wood Pulp & Paper
|
+R 663
|
+31%
|
Animal & Vegetable Fats
|
+R 492
|
+66%
|
Vehicles & Transport Equipment
|
+R 465
|
+ 5%
|
Precious Metals & Stones
|
-R 297
|
-17%
|
Footwear and Accessories
|
-R 356
|
-26%
|
Original Equipment Components
|
-R 716
|
- 8%
|
Total
|
+R3 016
|
91%
|
Total Movement |
+R3 304 |
100% |
Trade highlights by world zone
The world zone results from October 2017 (revised) to November 2017 are given below.
Africa:
Trade Balance surplus: R20 754 million – this is an improvement of R2 439 million in comparison to the R18 315 million surplus recorded in October 2017.
America:
Trade Balance surplus: R3 101 million – this is an improvement of R3 458 million in comparison to the R 357 million deficit recorded in October 2017.
Asia:
Trade Balance deficit: R7 593 million – this is an improvement of R4 158 million in comparison to the R11 751 million deficit recorded in October 2017.
Europe:
Trade Balance deficit: R11 169 million – this is a deterioration of R2 596 million in comparison to the R8 573 million deficit recorded in October 2017.
Oceania:
Trade Balance deficit: R 611 million – this is a deterioration of R 254 million in comparison to the R 357 million deficit recorded in October 2017.
Excluding trade data with Botswana, Lesotho, Namibia and Swaziland (BLNS)
The trade data excluding BLNS for November 2017 recorded a trade balance surplus of R3.87 billion. This was a result of exports of R102.76 billion and imports of R98.89 billion.
Exports increased from October 2017 to November 2017 by R11.31 billion (12.4%) and imports increased from October 2017 to November 2017 by R3.06 billion (3.2%).
The cumulative deficit for 2017 is R21.91 billion compared to R109.66 billion deficit in 2016.
Trade highlights by category
The main month-on-month export movements: R’ million |
||
Section:
|
Excluding BLNS:
|
|
Precious Metals & Stones
|
+R3 311
|
+22%
|
Base Metals
|
+R2 144
|
+20%
|
Vehicles & Transport Equipment
|
+R2 012
|
+18%
|
Mineral Products
|
+R1 943
|
+ 7%
|
Machinery & Electronics
|
+R 967
|
+14%
|
Total
|
+R10 377
|
92%
|
Total Movement |
+R11 315 |
100% |
The main month-on-month import movements: R’ million |
||
Section:
|
Excluding BLNS:
|
|
Machinery & Electronics
|
+R1 763
|
+ 7%
|
Mineral Products
|
+R 953
|
+ 7%
|
Wood Pulp & Paper
|
+R 664
|
+31%
|
Animal & Vegetable Fats
|
+R 496
|
+67%
|
Precious Metals & Stones
|
-R 531
|
-47%
|
Original Equipment Components
|
-R 716
|
- 8%
|
Total
|
+R2 629
|
86%
|
Total Movement |
+R3 056 |
100% |
Trade highlights by world zone
The world zone results for Africa excluding BLNS from October 2017 (Revised) to November 2017 are given below.
Africa:
Trade Balance surplus: R11 596 million – this is an improvement of R2 013 million in comparison to the R9 583 million surplus recorded in October 2017.
Botswana, Lesotho, Namibia and Swaziland (Only)
Trade statistics with the BLNS for November 2017 recorded a trade balance surplus of R9.16 billion. This was a result of exports of R13.40 billion and imports of R4.24 billion.
Exports increased from October 2017 to November 2017 by R0.67 billion (5.3%) and imports increased from October 2017 to November 2017 by R0.25 billion (6.2%).
The cumulative surplus for 2017 is R86.66 billion compared to R98.43 billion in 2016.
Trade Highlights by Category
The main month-on-month export movements: R’ million |
||
Section:
|
BLNS:
|
|
Prepared Foodstuff
|
+R 189
|
+13%
|
Mineral Products
|
+R 130
|
+ 7%
|
Machinery & Electronics
|
+R 92
|
+ 5%
|
Miscellaneous Manufactured Articles
|
+R 59
|
+16%
|
Vegetable Products
|
+R 56
|
+11%
|
Base Metals
|
+R 52
|
+ 6%
|
Total
|
+R 578
|
86%
|
Total Movement |
+R 675 |
100% |
The main month-on-month import movements: R’ million |
||
Section:
|
BLNS:
|
|
Precious Metals & Stones
|
+R 234
|
+36%
|
Machinery & Electronics
|
+R 46
|
+15%
|
Prepared Foodstuff
|
+R 43
|
+ 9%
|
Vehicles & Transport Equipment
|
+R 25
|
+96%
|
Textiles
|
+R 23
|
+ 3%
|
Live Animals
|
-R 39
|
-11%
|
Chemical Products
|
-R 112
|
-12%
|
Total
|
+R 220
|
89%
|
Total Movement |
+R 248 |
100% |
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tralac’s Daily News Selection
Featured infographic, @TradeNewsCentre: Which 70 members have formed e-commerce group at WTO? Related: Too early to regulate e-commerce: Jack Ma
Project Syndicate commentary by UNIDO’s Li Yong: Africa’s must-do decade
Recommendations from the 2nd EA Business and Entrepreneurship Conference (EABC)
Arising issues from the deliberations include: (i) Lack of viable strategies, policies and systems of coherent laws and regulations to stir up industrialization; (ii) Failure to fully implement the EAC Customs Union and Common Market Protocols, (iii) Different investment incentives across the region leading to competition instead of cooperation; (iv) Lack of a regional local content policy. Highlighted recommendations (pdf): Creating an enabling environment for business to foster industrialization, innovation and investment in the EAC: (i) Diversifying the manufacturing base and raising local value add from existing rate of below 10% to at least 40%. This can be achieved through promoting the development and investment in strategic regional industries with sectors in which EAC has potential comparative advantage, (ii) Partner States should accelerate promotion of cross border investment and double their efforts to encourage East Africans to take advantage of regional opportunities to grow their businesses instead of over-depending on FDI outside the region, (iii) Create a credible, rules-based regional investment regime that enhance predictability for investment policies and laws with mechanism to resolve trade disputes and enhance awareness about and promotion the EAC region as a single investment destination, (iv) Transforming micro, small and medium enterprises capable of contributing up to 50% of manufacturing GDP from 20%. Towards a single EAC investment destination: (i) Implement fully the EAC Customs and Common Market Protocols, (ii) formulate an EAC Investment Policy and Strategy.
Namibia: Third Quarter Trade Statistics Bulletin (pdf, NSA)
Chart 1 depicts that from q4-2012 to q3-2017, the country experienced continuous trade deficits that averaged N$6,857m. The highest deficit of N$12,084m was recorded in q2-2015, while the lowest of N$1,002m was registered in q1-2016. The chart also shows an unsteady growth trend with the most significant growth of 773.8% recorded in q2-2016. On average, over a period of 20 quarters, the trade deficit grew by 54.6%. The persistent deficits are mostly driven by Namibia’s high demand for high-valued manufactured commodities and machinery from the rest of the world as opposed to exporting mainly primary commodities that are of low value. Namibia’s exports [in Q3] were mostly absorbed by African regional groupings and the EU, with SACU absorbing 43.8%, the EU with 18.7%, EFTA with 13.4%, and SADC-Non-SACU with 8.9% and BRIC with 7.9%. Equally, imports were also sourced from the same economic regions with SACU accounting for the largest share of 60.3% of total imports, EU with 22%, BRIC with 9.4%, COMESA with 4.2% and SADC-Non-SACU with 3.9%. .
South Africa Economic Overview: recent developments in the global and South African economies (IDC)
The Low Road scenario for the South African economy outlined in this report brings to the fore some of the potential consequences if politico-economic developments result in a more unfavourable growth trajectory than that presented in the IDC’s baseline forecasts. All sectors of the economy would face increased strain in such an adverse scenario. Many business enterprises would likely face serious financial difficulties, which could compromise their sustainability and employment. [Related: SARB Q3 Bulletin and tables; TIPS Real Economy Bulletin: Third Quarter 2017]
South Africa: Measuring shadow banking activities and exploring its interconnectedness with banks in South Africa (SARB)
Shadow banking entities or activities and its interconnectedness with financial intermediaries raise important policy concerns. However, research in this area in South Africa remains limited. Accordingly this paper maps the financial landscape in South Africa, focusing on non-bank financial intermediaries as well as the narrower ‘shadow banking’ measure for South Africa, measured in line with guidance provided by the Financial Stability Board. The interconnectedness between financial intermediaries in South Africa is also explored and key financial stability risks in the South African financial system are highlighted. One of the most notable risks currently is the lack of data. Whilst the shadow banking system in South Africa remains relatively small when compared to global peers, its assets under management are growing at a faster pace than those of banks. Furthermore, banks in South Africa obtain a relatively large portion of their funding from non-bank financial intermediaries and generally interconnectedness among financial intermediaries in South Africa is relatively high.
China-Africa Industrial Capacity Cooperation Exhibition: updates
(i) Kenya to China: Open your markets for our goods. Kenya has asked China to open up its market for Kenyan commodities in order to mitigate the widening trade imbalance in favor of the second largest economy in the world. Speaking while opening the three day China-Africa Expo on Wednesday at the Kenyatta International Conference Centre, Industry Trade and Cooperatives Cabinet Secretary Adan Mohamed welcomed Chinese investors to visit the country and sample Kenyan products needed in their markets. “China is a leading economic partner to Kenya, financing and overseeing landmark infrastructural transformation in the country. We have created a conducive investment environment for Chinese investors in the country and we hope that China will reciprocate and open its over 1.3 billion people market for Kenyan products,” said Mohamed. He asked Chinese firms to explore opportunities and invest in President Uhuru Kenyatta’s big four economic areas of food security, affordable housing, health and manufacturing. [China-Africa Development Fund, ITC, CCPIT roundtable: Africa eyes enhanced China ties to boost industrial growth]
(ii) Kenyan special economic zone to launch Chinese industrial park. A Kenyan special economic zone Tatu City is set to launch a Chinese industrial park to accommodate firms from the Asian nation, officials said Wednesday. Nick Langford, Country Head of Tatu City, told Xinhua that the city, located 15 km northeast of Nairobi, has so far attracted three Chinese firms into its industrial park. “Due to increasing interest by Chinese investors, we are seeking to set aside 50 acres out of the 900 acres of industrial park to Chinese firms,” Langford said. Tatu city is a 5,000-acre mixed-use city that will house over 150,000 residents when fully developed. [Chinese battery firm, Ritar Power and Kenya’s Chloride Exide sign MoU to promote renewable energy in East Africa]
At MC11, new research shows convergence on rules of origin is happening (UNCTAD)
Although deliberations on rules of origin weren’t on the agenda at MC11, the WTO has been dealing with the issue since the General Agreement on Tariffs and Trade was signed in 1947. “Despite multilateral attempts within the WCO, UNCTAD and, most recently, the WTO, it has proven impossible to reach consensus on a multilateral discipline on rules of origin for the last half a century,” Mr Inama said. Although progress towards convergence hasn’t been possible though formal negotiations at the WTO, the study shows that for some products it has “naturally” happened between the rules of origin contained in different free trade agreements. “We have to take this information to the public – that such progress exists and that we can build upon it. We have to break the kind of ‘curse’ that exists on rules of origin.” [Download: Rules of origin as non-tariff measures: towards greater regulatory convergence]
Global e-commerce policy work to continue despite no deal at WTO’s MC11 meeting (UNCTAD)
“The lack of progress on the digital economy negotiation at the WTO has been disappointing but we must not give up,” Sweden’s trade minister Ann Linde said. With the world on the cusp of a new digital economy in which e-commerce and automation will transform production, trade, investment patterns – as well as helping meet the Sustainable Development Goals – the need for new policies to be adopted is clear. “The gains of digitalization are not automatic and there will be major challenges for countries, enterprises and people to adapt, but we must start somewhere,” UNCTAD Secretary-General Mukhisa Kituyi said. “UNCTAD’seTrade for All offers an important platform to support policymaking in developing countries and to champion successful initiatives,” said Torbjörn Fredriksson, chief of UNCTAD’s Information and Communication Technology Analysis Section. “Increasingly, the contribution of digitalization to sustainable development will require a concerted, holistic, cross-sectoral and multi-stakeholder approach,” he said.
The global costs of protectionism (World Bank)
This paper quantifies the wide-ranging costs of potential increases in worldwide barriers to trade in two scenarios. First, a coordinated global withdrawal of tariff commitments from all existing bilateral/regional trade agreements, as well as from unilateral preferential schemes coupled with an increase in the cost of traded services, is estimated to result in annual worldwide real income losses of 0.3%, or $211bn, relative to the baseline after three years. An important share of these losses is likely to be concentrated in regions such as East Asia and Pacific and Latin America and the Caribbean which together account for close to one-third of the global decline in welfare. Highlighting the importance of preferences, the impact on global trade is estimated to be more pronounced, with an annual decline of 2.1%, or more than $606bn, relative to the baseline if these barriers stay in place for three years. Second, a worldwide increase in tariffs up to legally allowed bound rates coupled with an increase in the cost of traded services would translate into annual global real income losses of 0.8%, or more than $634bn, relative to the baseline after three years. The distortion to the global trading system would be significant and result in an annual decline of global trade of 9%, or more than $2.6 trillion, relative to the baseline in 2020.
ECOWAS Commission President pleads for prompt payment of community levy
Making the appeal on Wednesday at the opening of the 79th Ordinary Session of the ECOWAS Council of Ministers in Abuja, Mr de Souza indicated that the non-payment or delay of the Community Levy by member states remains a major challenge. He urged the Ministers to continue to plead with their respective governments to respect their primary obligation for the survival of ECOWAS. Marcel de Souza also provided update on the institutional reform in ECOWAS, noting that the collective commitment and resolve of the entire Commission would be required to successfully complete the reform within the shortest possible time, despite the opposition and challenges encountered at various stages of its implementation. [ECOWAS to delay discussion of Morocco’s admission until early 2018 at extraordinary summit]
Africa 2017 Forum sets strong development agenda (African Business)
Intra-African trade was on the agenda in almost every session at Africa 2017. A continent-wide trading zone has the potential to enhance export competitiveness, create employment, contribute to economic diversification and reduce vulnerability to global shocks. China-Africa discussions also featured heavily throughout the forum. With other Asian players entering the African market, it is clear China-Africa relations are changing and African nations and businesses are querying how to get the most out of Chinese investment and the One Belt One Road initiative. [African presidents draw strong consensus for inclusive growth at Africa 2017]
Egypt launches its first locally-built smartphone with China’s help
Last week, in a lavish ceremony President Abdel Fattah El Sisi was handed the first locally made smartphone called Nile X, which is designed for the Egyptian consumer. In his push for investment in the technology sector, Sisi’s administration has supported an Egyptian Silicon Valley in Assiut, deep in the country’s impoverished southern region, to jump start local manufacturing. SICO, the Egyptian firm behind the 4G enabled smartphone, has been eyeing a growing consumer base of tech savvy Egyptians. With a population of over 95 million, mobile phone subscriptions topped 99 million. Only 32% of Egyptians though have smartphone making it a burgeoning market that the firm would like capitalize on through affordable handsets. SICO is looking to expand in Africa with plans to build an East African regional hub in Nairobi and to expand to Mozambique, Nigeria and South Africa.
Mozambique: IMF Completes 2017 Article IV Mission
On the structural front, the mission urges the authorities to take decisive steps to strengthen the business environment and to restructure financially-weak SOEs that pose significant fiscal and financial sector risks. The mission commends the authorities for submitting to Parliament the SOE law and for approving a decree providing a regulatory framework to the issuance of public debt and guarantees. In this context, the mission encourages the authorities to continue developing their action plan to strengthen governance, transparency, and accountability. Regarding the follow up to the audit of Ematum, Proindicus and MAM companies, the mission reiterates the need to fill the information gaps in the audit report and takes note of the Government’s recommendation to wait for the outcome of the ongoing investigations by the Prosecutor General Office.
International commodity prices and domestic bank lending in developing countries (IMF)
We study the role of the bank-lending channel in propagating fluctuations in commodity prices to credit aggregates and economic activity in developing countries. We use data on more than 1,600 banks from 78 developing countries to analyze the transmission of changes in international commodity prices to domestic bank lending. Our results also show that there is no significant difference in the behavior of foreign and domestic banks in the transmission process, reflecting the regional footprint of foreign banks in developing countries.
Today’s Quick Links: Could dropping of visas boost intra-continental trade? Egypt-Mercosur free trade agreement meeting kicks off in Argentina Domestic IPO by African issuers rises 19.5%, to $1.4b in 2017 Food trade and investment in South Africa: improving coherence between economic policy, nutrition and food security Mombasa’s Green Port policy: ships to switch off diesel engines Three reasons why maritime transport must act on climate change Pathways to resilience in pastoralist areas: a synthesis of research in the Horn of Africa Strengthening post-Ebola health systems: from response to resilience in Guinea, Liberia, Sierra Leone |
Please note: This is the final Daily News Selection for 2017. Updates will resume in early 2018. Wishing our readers a wonderful festive season and a Happy New Year.
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At MC11, new research shows convergence on rules of origin is happening
A new study presented at the World Trade Organisation’s (WTO) 11th Ministerial says countries’ rules for determining a product’s origin are increasingly similar, which is good news for the global trading system.
The thousands of rules of origin used by countries and trade blocs to determine if an imported product is eligible for preferential treatment or subject to a trade restriction have in the past been widely divergent. But a new study by UNCTAD and the European University Institute researchers shows a growing trend toward convergence.
Such a finding may breathe fresh air into multilateral negotiations on rules of origin, which have been sidelined by the perceived inability to find common ground.
UNCTAD economist Stefano Inama, one of the authors, presented the study, titled Rules of Origin as Non-Tariff Measures: Towards Greater Regulatory Convergence, at an event held in Buenos Aires on the sidelines of the World Trade Organization’s Eleventh Ministerial Conference (MC11).
Although deliberations on rules of origin weren’t on the agenda at MC11, the WTO has been dealing with the issue since the General Agreement on Tariffs and Trade was signed in 1947.
“Despite multilateral attempts within the World Customs Organization, UNCTAD and, most recently, the WTO, it has proven impossible to reach consensus on a multilateral discipline on rules of origin for the last half a century,” Mr. Inama said.
Although progress towards convergence hasn’t been possible though formal negotiations at the WTO, the study shows that for some products it has “naturally” happened between the rules of origin contained in different free trade agreements.
“We have to take this information to the public – that such progress exists and that we can build upon it,” Mr. Inama said.
“We have to break the kind of ‘curse’ that exists on rules of origin.”
200 free trade agreements
In a completely open global trading system, in which all goods are treated equally, rules of origin would be unnecessary, Mr. Inama said. But the reality is that countries treat products differently based on where they are made.
Governments may use discriminatory trade policies to favour products from the same region, for example, or to promote certain sectors in specific economies, such as manufacturing in the 47 structurally disadvantaged least developed countries (LDCs).
A government may also wish to enforce trade “remedies” to sanction products from a country it believes is playing unfairly. Such remedies often take the form of anti-dumping custom duties.
“The problem is that there are more than 200 free trade agreements, each with its own rules. And this has a cost for businesses that must try to comply with tens of thousands of different rules,” Mr. Inama said.
60 pages of technical codes
When goods are mostly produced in one country, determining where they come from is easy, Mr. Inama said. But in today’s global production systems, which often cross many borders and seas, most of what we buy is built from components that are first made in various countries around the globe.
“Take the iPhone for example,” Mr. Inama said. “It may say made in China on the cover because that’s where the final product is assembled. But it was designed in California, the camera was made somewhere else, maybe India, and the glass screen was probably manufactured in South Korea.”
“This is why rules of origin have become more complex over the years,” he said. “The average set of rules of origin for a trade agreement is about 60 pages of technical codes.”
There are different ways to determine whether a product “originates” in a specific country. But often the requirement is that a certain percentage of the good’s final value is added in that nation, or that the good has undergone a change of customs classification, or a new manufacturing method or process before leaving the country.
“Everyone is negotiating their own rules of origin, but when you look more in detail across the various texts you see that though the rules are not identical they are similar,” Mr. Inama said.
A compromise between two models
The study by UNCTAD and the European University Institute examined five specific rules of origin: the WTO’s draft harmonized non-preferential rules of origin and those included in the Trans-Pacific-Partnership, the Canada-European Union Comprehensive Economic and Trade Agreement (CETA), the EU-South Korea free trade agreement, and the US-South Korea free trade agreement.
“The WTO’s draft harmonized non-preferential rules of origin was selected because it’s the only multilateral draft that exists on the issue,” Mr. Inama said.
The Trans-Pacific-Partnership was included because of its size, even if its entry into force as originally envisaged is unlikely following the withdrawal of the United States of America. And researchers decided to examine the free trade deal between Canada and the European Union because it’s the first agreement that brings together the North American and European models for rules of origin.
“The negotiated rules of origin can be seen as a kind of compromised text between the two models,” Mr. Inama said.
Finally, the US-South Korea and EU-South Korea agreements were chosen because they are two of the latest free trade area agreements signed by the US and the European Union with the same country, with which both have substantial trade flows across different sectors.
A ray of light
The preliminary results of the study show that there is indeed convergence in “non-sensitive” sectors such as chemicals, though the rules continue to diverge in sectors that countries consider to be strategic, such as textiles and clothing for the US, and fisheries for the EU.
“How to build on these similarities remains to be seen, but the important thing is that we have identified convergence,” Mr. Inama said. “That’s because people are starting to give up, as if negotiations on rules of origin are doomed to fail.”
“The message has to go out that there is convergence; there is a ray of light,” he said.
Based on the ongoing research, UNCTAD and the European University Institute plan to publish next year a model protocol on rules of origin to show at a product-specific level where there is convergence or divergence, and to provide options for drafting the rules.
This “pinnacle” of best practices, Mr. Inama said, could be useful during international negotiations, or serve as a guide for governments and businesses during their rules of origin talks when establishing new free trade agreements.
“The overall objective is to build on the convergence and provide guidance in the unchartered territories of rules of origin,” Mr. Inama said. “Such an analysis and tool has so far been lacking as an input into the multilateral deliberations at the WTO and World Customs Organization.”
Download: Rules of Origin as Non-Tariff Measures: Towards Greater Regulatory Convergence
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Global e-commerce policy work to continue despite no deal at WTO’s MC11 meeting
UNCTAD Secretary-General Mukhisa Kituyi says talk of inclusive e-commerce and development must go beyond words if developing countries are to reap the benefits.
Hopes that World Trade Organization members would fix an all-party deal on e-commerce during its Eleventh Ministerial Conference (MC11) in Buenos Aires, Argentina, were dashed as the meeting closed on Wednesday, but trade envoys said work to find agreements in other ways would continue.
“The lack of progress on the digital economy negotiation at the WTO has been disappointing but we must not give up,” Sweden’s trade minister Ann Linde said.
With the world on the cusp of a new digital economy in which e-commerce and automation will transform production, trade, investment patterns – as well as helping meet the Sustainable Development Goals (SDGs) – the need for new policies to be adopted is clear.
“The gains of digitalization are not automatic and there will be major challenges for countries, enterprises and people to adapt, but we must start somewhere,” UNCTAD Secretary-General Mukhisa Kituyi said.
“Absence from electronic visibility means absence from the trading market – which is not good for developing countries and least developed countries,” he said.
For developing countries, digitalization is creating new ways for small businesses and women entrepreneurs to reach new markets and connect with domestic as well as global value chains.
Nigeria’s chief trade negotiator, Ambassador Chiedu Osakwe, said: “We must put in place policy systems that enable and reward innovation; economic systems that allow raw materials, components and finished goods to flow across borders; financial systems that secure investments and payments; regulatory and legal systems protecting workers and consumers.”
The stakes are high – to honour commitments to the 2030 Agenda for Sustainable Development, innovation and partnerships must be forged in unprecedented ways.
“We must ensure that the talk of inclusive e-commerce and inclusive development goes beyond words. This will require much more collaboration and scaled-up resources,” Dr. Kituyi said.
The speed at which digitalization is unfolding, and the significant gaps that exist in terms of the ability and readiness of countries, enterprises and individuals to engage in it, underline the urgency of scaling up global support to developing countries, particularly the least developed countries (LDCs).
In these 47 most disadvantaged countries, from Afghanistan to Zambia, only one in six people have internet access. And although the number of online shoppers in the world surged from 600 million in 2010 to 1.2 billion in 2016, more than 98% of people in the LDCs are not buying any goods and services online.
But policy solutions are on hand: automating customs declarations has been shown to bring clearance times down and to reduce the period that goods stay in transit.
Access to platforms and devices enables a seller in a developing country to reach more potential customers in domestic as well as foreign markets, in a more targeted way, and often at lower cost than through traditional channels.
Suppliers that increase their reliance on e-commerce can see reduced delivery costs, especially for electronically-provided content. This has an impact on global value chains, as more of the things businesses and consumers need to boost economic activity can be digitally delivered, which in turn helps manage fragmented production networks.
Against this backdrop, UNCTAD is helping policymakers to face the complex task of addressing multiple policy domains in parallel in order to realize the benefits of e-commerce.
“UNCTAD’s work on the digital economy should be taken at the regional and national levels to support developing countries and LDCs prepare for the transformation,” Mr. Osakwe said.
This work includes eTrade for All, a unique partnership that connects the dots among partner organizations, donors and business owners to bolster more inclusive development.
“UNCTAD’s eTrade for All offers an important platform to support policymaking in developing countries and to champion successful initiatives,” said Torbjörn Fredriksson, chief of UNCTAD's Information and Communication Technology Analysis Section.
“Increasingly, the contribution of digitalization to sustainable development will require a concerted, holistic, cross-sectoral and multi-stakeholder approach,” he said.
Digital transformation will be further explored at UNCTAD’s E-commerce Week held in Geneva, Switzerland, on 16-20 April 2018, which this year looks at the development dimension of digital platforms.
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2nd EA Business and Entrepreneurship Conference calls for promotion of cross-border investments
East Africans urged to take advantage of regional opportunities to grow their businesses
The second edition of East African Business and Entrepreneurship Conference & Exhibition themed Accelerating Industrialization, Innovation and Investment in the EAC was held from 14th-16th November 2017 at Serena Hotel in Dar es Salaam, Tanzania. The conference looked at Creating an Enabling Environment for Businesses to Foster Industrialization, Innovation and Investment in the EAC and Towards a Single EAC Investment Destination as cross cutting issues.
Her Excellency Samia Suluhu Hassan, Vice President of the United Republic of Tanzania, graced the 2nd East African Business and Entrepreneurship Conference & Exhibition during the official opening ceremony on the 14th of November 2017. The conference attracted participation of more than 330 high-level government and private sector decision makers from the EAC Partner States as well as business leaders, East African Diaspora, Entrepreneurs & investors from the region and abroad.
“More raw materials for East African industries should be sourced from within the EAC Partner States and there is need for employment creation for the growing youth population in the region,” said H.E Samia Suluhu Hassan, Vice President of United Republic of Tanzania.
Amb. Dr. Augustine Mahiga, Minister of Foreign Affairs and East African Cooperation, United Republic of Tanzania and Amb. Liberat Mfumukeko Secretary General, East African Community, Dr. Detlef Waechter Ambassador of the Federal Republic of Germany to the United Republic of Tanzania and to the East African Community; Mr. Vijay Pillai Adviser to Vice President for Africa, World Bank; Mr. Dennis Karera, Managing Director, Kigali Heights, Rwanda; Dr. Samuel Nyantahe, Chairman, Confederation of Tanzania Industries (CTI), Tanzania; Mr. Olivier Lambert, Lead Operations Officer, Multilateral Investment Guarantee Agency, Worldbank Group and Mr. Felix Mosha, Managing Director IBM Holdings, Tanzania set the stage for discussions on the current policies and missing links in bid to accelerating industrialization, innovation and investment in the EAC.
The second day of the conference was marked by the launch of “Creating Perspectives: Business for Development” project that aims to improve economic perspectives for Small and Medium Enterprises (SMEs) in East Africa through scaling up of production and thus growth of businesses.
Hon Christophe Bazivamo, EAC Deputy Secretary General Productive and Social Sector EAC alongside with Mr. Jim Kabeho, Chairman, East African Business Council (EABC), Mr. Ernst Hustaedt, Country Director, GIZ, Tanzania and Mr. Matthias Wachter Head of Department Security, Raw Materials and Africa Federation of German Industries (BDI), Germany officially launched the new project.
“A lot of companies in Africa are SMEs facing challenges in enhancing competitiveness and growth,” said Mr. Matthias Wachter. “SMEs in Germany would like to know the processes of investing in Africa.”
“We are happy to be spearhead this new project that will support the growth of SMEs in the region,” said Mr. Jim Kabeho, EABC Chairman.
Also, the East African Business Council signed an affiliation agreement with the World SME Forum to support and enhance African SMEs’ integration to global markets so as to contribute to economic development, job creation and inclusive growth in EAC countries. The agreement was signed by Ms. Lilian Awinja, Executive Director of the EABC and Dr. Tunc Uyanik, President of the World SME Forum.
This conference offered an opportunity for the region to dialogue critically on how to encourage entrepreneurship and attract more foreign & cross border investments. It played a key role to inspire entrepreneurship spirit among East Africans with aim to support start-ups to set up businesses, small enterprises to grow, the medium to scale up and the large enterprises to outsource to small ones.
The simultaneous exhibition offered a platform for the EAC Investment Authorities to showcase investment opportunities in the region and firms and entrepreneurs show cased their products and services and shared bankable project proposals ready for investment not only from foreign but also local investors.
Key industry experts and relevant public decision makers led deliberations on the current policies and missing links in the conference sectors sessions namely: Information Communication Technology (ICT), Agri-Business, Urbanization, Cotton and Textile, Patents and Copyrights in the Creative Industry, Trade and Gender, Health, Banking and Finance, e-Commerce and Start-Ups.
Arising issues from the deliberations include:
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Lack of viable strategies, policies and systems of coherent laws and regulations to stir up industrialization
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Failure to fully implement the EAC Customs Union and Common Market Protocols
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Different investment incentives across the region leading to competition instead of cooperation
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Lack of a Regional Local Content Policy
Indeed, the conference allowed for exchange of ideas, expertise, B2B (Business to Business) and B2G (Government to Business) networking and offered a platform to learn about latest developments in the region. Below are key recommendations that arose from the conference in bid to trigger more cross border investments and enhance the business environment.
Creating an Enabling Environment for Business to Foster Industrialization, Innovation and Investment in the EAC
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Diversifying the manufacturing base and raising local value add from existing rate of below 10% to at least 40%. This can be achieved through promoting the development and investment in strategic regional industries with sectors in which EAC has potential comparative advantage
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Partner States should accelerate promotion of cross boarder investment (CBI) and double their efforts to encourage East Africans to take advantage of regional opportunities to grow their businesses instead of over-depending on FDI outside the region.
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Create a credible, rules based regional investment regime that enhance predictability for investment policies and laws with mechanism to resolve trade disputes and enhance awareness about and promotion the EAC region as a single investment destination
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Transforming Micro Small and Medium Enterprises capable of contributing up to 50% of manufacturing GDP from 20%
Towards a Single EAC Investment Destination
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Implement fully the EAC Customs and Common Market Protocols
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Formulate an EAC Investment Policy & Strategy
Amb. Celestine Mushy, Director of Multilateral in the Ministry of Foreign Affairs and East African Cooperation, United Republic of Tanzania, urged the business community to collectively champion free trade as well as movement of capital and people during the official closing ceremony of the 2nd East African Business and Entrepreneurship Conference & Exhibition.
“We will read your views expressed during your discussions keenly with the aim of identifying what more we can do to strengthen business activities in the region and to speed up wealth creation for our people,” said Amb. Mushy who noted the recommendations of the conference.
EABC through our Observer Status with the East African Community (EAC), we are committed to follow closely the implementation of the recommendations in order to amplify investments in to the region.
EABC appreciates the support received form all key players in organizing the 2nd East African Business and Entrepreneurship Conference & Exhibition in particular, Tanzania Investment Center, Burundi Investment Promotion Agency (API), Kenya Investment Authority (KenInvest), Rwanda Development Board (RDB) and Uganda Investment Authority as well as EABC members, National Focal Points (NFPs) and sector associations for their continued support and commitment to the regional agenda, namely Tanzania Private Sector Foundation, Federal Chamber of Commerce Industries Burundi, Kenya Private Sector Alliance, Rwanda Private Sector Federation, Private Sector Foundation Uganda, Confederation of Tanzania Industries, Association of Burundi Industries, Kenya Association of Manufacturers, Rwanda Association of Manufacturers and Uganda Manufacturers Association. Our sincere gratitude goes to SBC Pepsi, DEG, HEVA Fund, Oxford Business Group, ALAF Ltd Tanzania, Kenya Commercial Bank – Tanzania, JC Decaux, Zoom Tanzania and Strathmore Business School our knowledge partner and Jumia Travel our Travel partner.
Much appreciation to development partners German Development Cooperation (GIZ), Federation of German Industries (BDI), and the EAC-German Cooperation particularly the GIZ-EAC integration Programme was expressed.
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African presidents draw strong consensus for inclusive growth at Africa 2017
Egypt looks to play a key role in driving regional integration in Africa
The Africa 2017 Forum wrapped up in the Egyptian resort city of Sharm el Sheikh with a clear message of intent from President Al Sisi to bring Africa closer together. The business and investment Forum, titled “Driving investment for inclusive growth”, was convened from 7th to 9th December 2017 to increase intra-African investments and cross-border collaboration.
Egyptian President Abdel Fattah El Sisi hosted five African heads of state and top business leaders from across the continent, including President of the Republic of Guinea Alpha Condé, President of the Republic of Rwanda, Paul Kagame, President of the Republic of Côte D’Ivoire Alassane Ouattara, and President of Somalia, Mohamed Abdullahi Mohamed.
The second edition of the Forum was another clear statement of intent from the Egyptian President, who, in his opening remarks, highlighted the strong bond Egypt has with the rest of the continent, saying it has always been a partner in African development. Putting Africa on the global map and paving the way for a prosperous future can be achieved by working harder to attract investment and collaborating more closely.
African presidents reached a strong consensus to focus on regional integration, inclusive growth and youth empowerment in order to achieve continued and sustained growth on the continent. The message from the Forum was that entrepreneurship and private sector would be the driving force to transform the continent.
The Heads of State stressed the need for self-reliance and domestic resource mobilisation. The event offered business owners with an opportunity to meet investors, engage with political leaders and policy makers and explore new ideas to improve business environment across the continent.
In two private roundtables held on the sidelines of the event that the President held alongside other African heads of state and business leaders from Egypt and the rest of the continent, it was said that Al Sisi would do whatever he could to bring the continent together, both politically and economically.
The Forum had a strong focus on increasing intra-Africa trade, inclusive growth and stronger China-Africa cooperation, especially in terms of technology transfer.
During the event, Egypt also has signed a deal with the World Bank for a US$1.15 billion development policy loan to fund the government’s plan to boost economy. It is the last one in a series of three annual loans provided from 2015 to 2017 totalling US$3.15 billion. The deal supports the Egyptian economic reform program aimed at creating jobs, ensuring energy security, strengthening public finances and enhancing business competitiveness.
The final day of the Forum focused on industrial revolution for Africa and China-Africa economic relations. It was agreed that China-Africa relationship was a win-win one. Ambassador Helen Hai, CEO, Made in Africa initiative, China, said China had a clear strategy for Africa but the continent needs to be in the driving seat when it comes to discussions about the China-Africa relationship.
She said the relationship was moving on from resources to partnerships with African countries but they needed to be clear about what they wanted from China. She said 85 million jobs were likely to be exported from China in the next few years as labour costs increased in that country and Africa was well placed to attract them. “If Africa can capture those jobs they can enjoy the same economic transformation China had.”
However, Carlos Lopes, Former Executive Secretary, UNECA, and Professor, Graduate School of Development Policy and Practice, University of Cape Town, Guinea-Bissau, said it was not inevitable that the jobs would migrate to Africa.
He warned that many jobs that could move out of China could be replaced by robots and automation, not Africans, and that other regions would also compete for the kind of jobs that Africa seeks – those at the lower end of the value chain. “A few African countries will make it, but not all,” he said.
“This huge move to get jobs can be elusive if we are not fast enough in creating opportunities. The window is closing very fast. We need to move quickly and do so in a way that is commensurate with the interests of China’s strategy.”
The three-day event, organised by Egypt’s Ministry of Investment and International Cooperation and the COMESA Regional Investment Agency (RIA), saw over 2,000 delegates from 75 countries attend the Forum. Minister of Investment and International Cooperation Sahar Nasr said that the forum’s sessions offered a chance to exchange expertise and showcase investment opportunities in Egypt and Africa.
The conference has put forward five recommendations:
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Pumping new investments in Africa to boost economic growth and development
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The establishment of joint projects, particularly in infrastructure, to support investment and trade among African states.
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Enhancing the role of the African private sector to increase investment rates in the continent.
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The execution of programs that encourage entrepreneurship and the adoption of programs that would increase youth’s participation in the African economy.
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Empowering women in all fields of economic activity, considering them as active members in the process of developing Africa and achieving economic stability.
The Forum was preceded by a Young Entrepreneurs Day which brought together over 200 young African entrepreneurs who were meeting investors to pitch their businesses over the two days of the Forum. Al Sisi highlighted the importance of African youth, saying they should be the cornerstone of development plans in the continent as governments strive to promote innovation and technology.
President of Rwanda, Paul Kagame, co-chair of the Young Entrepreneurs Day, reiterated the need for more urgency: “We cannot afford to waste opportunities because of unnecessary red tape and associated delays.” Citing the launch of the Tripartite Free Trade Area in Egypt in 2015, he added it was important that African leaders drive the institutional reform of the African Union in order to get the FTA fully operational.
Heba Salama, Director of the COMESA Regional Investment Agency, co-conveners of the Forum, in an emotional address reminded the young and the leaders in the room that if your dreams don’t scare you, they’re not big enough. This did not go unheeded by the entrepreneurs in the room many of whom had scaled up businesses that were ripe for take-off.
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Economic overview: Recent developments in the global and South African economies – November 2017
Although conditions have recently improved to varying degrees in a number of sectors of the South African economy, such as agriculture, mining, manufacturing and retail trade, the economic environment remains generally weak.
South Africa’s economic outlook
Growth prospects are likely to remain unsatisfactory in the short-term, with some acceleration in the expansion momentum expected over the medium- to longer-term.
The rate of increase in South Africa’s gross domestic product (GDP) is projected by the IDC at only 0.6% for 2017, potentially rising to a very modest 1.2% in 2018. GDP growth is projected at 2.3% per year, on average, for the period 2018 to 2022, which would be well below the National Development Plan’s average annual growth target of 5.4% per annum over the period up to 2030.
External trade
Benefitting from surpluses on the balance of trade since February 2017, the deficit on the current account of the balance of payments narrowed during the course of the year. The cumulative trade surplus for the first 9 months of 2017 amounted to R47.1 billion, compared to a deficit of R6.7 billion over the same period a year earlier.
Weak economic conditions at home resulted in imports declining by 1.2%, with machinery and equipment imports falling by 6%. Higher agricultural production due to improved climatic conditions in most of the country permitted a 29% drop in imports of agriculture products. On the other hand, the value of imports of refined petroleum product imports increased by 47%.
South Africa’s export performance has benefited from steadily improving demand conditions in external markets. A relatively competitive ZAR exchange rate and some recovery in commodity prices also supported overall exports, which increased by 5.4% (year-on-year) over the first 3 quarters of 2017. Whereas mining exports rose by 15%, external sales of motor vehicles declined by 8.6% despite the improving economic climate globally, including Europe.
Increasing optimism amongst global business and consumers are supporting higher levels of economic activity in advanced economies as well as in emerging markets. This underpins the International Monetary Fund’s projections of 3.6% and 3.7% growth in world GDP for 2017 and 2018, respectively. This is a significant improvement on the 3.2% expansion recorded in 2016.
This momentum is being assisted by accommodative monetary policy made possible by relatively muted inflationary pressures, especially but not exclusively in advanced economies. Although the normalisation of monetary policy is now under way in the United States (US), the pace of increase in policy rates going forward is expected to be quite gradual. Market expectations are positioned in favour of another 25 basis points’ increase in the Federal Funds rate in December 2017, but this should not destabilise global financial markets.
Since the tax cuts sougth by the Trump administration have yet to materialise, the associated stimulus has not been forthcoming. Nonetheless, the US economy is still expected to record growth of 2.2% and 2.3% in 2017 and 2018, respectively. This has positive implications for global trade dynamics and for South Africa’s export performance, for the US accounts for around 13% of global import volumes and 7.3% of South Africa’s exports.
The IMF is projecting output growth in the Eurozone at 2.1% for 2017, or 0.4 of a percentage point higher than its previous estimates. This is underpinned by lower political risks and improving aggregate demand, which is also being supported by accommodative monetary policy. The European Union (EU) accounts for 34% of global import volumes and 22.6% of South Africa’s export basket. However, the medium-term prognosis for the EU’s economy continues to be weighed downward, to some extent, by the potentially negative implications of Brexit as well as the public and private debt overhang in its peripheral member states.
Economic growth in China has been supported by sustained domestic policy stimulus and robust public investment, which has been significantly propelled by the rapid accumulation of municipal debt. Despite the debt sustainability risks and the Chinese authorities’ deleveraging efforts, economic growth is projected to come in at 6.8% for 2017, moderating to 6.5% next year. While restrictions on industrial production related to pollution control measures are expected to weigh on demand for commodities, the net effect of China’s robust economic expansion is still expected to favour South Africa’s trade performance.
The prognosis for growth in import demand in the world’s major markets, including the United States, Eurozone and China, is thus increasingly favourable. The rate of increase in import demand by advanced economies is projected by the IMF to accelerate from 2.7% in 2016 to an average of 3.9% over the period 2017 to 2020. Import growth in emerging markets, in turn, is forecast to rise from 2% last year to an average of 4.8% over 2017-2020. This provides a strong basis for sustained growth in global demand for South African primary commodities and manufactured exports going forward.
Improving economic sentiment globally and a still robust growth outlook for China in particular, which accounts for 50% of world demand for commodities, are expected to support global demand and the prices of industrial commodities. This should have positive implications for South Africa’s terms of trade over the short- to medium-term.
Continuing challenges in some of Sub-Saharan Africa’s economies, including several macroeconomic imbalances, as well as political and policy uncertainty, continue to hamper the region’s growth, which is expected to register 2.6% in 2017. Nevertheless, the region’s economic performance is expected to gather momentum in the years ahead. This will be on the back of more supportive domestic as well as external conditions, including increased foreign demand for and prices of key export commodities. The IMF expects the region to post 3.5% average annual growth over the period 2018 to 2020, which is well below the average of 5.6% achieved over the 15-year period to 2015. African economies accounted for 27.8% of South Africa’s exports last year.
Against this background of improving conditions in global (and regional) markets, numerous South African business enterprises are likely to focus increasingly on growing export sales, especially in light of yet subdued demand domestically.
Macroeconomic performance under more adverse conditions
The downside risks to South Africa’s economic outlook are high. It is therefore important to assess the potential repercussions of a worse performance. Accordingly, to supplement IDC’s baseline growth projections (Base Case), as outlined in previous sections of this report, an alternative scenario (Low Road) has been modelled on the basis of a set of assumptions.
In such a scenario, the assumptions regarding global growth were lowered to some extent; South Africa’s sovereign credit ratings were assumed to be downgraded to sub-investment levels across the board (including ratings for local currency denominated debt); confidence levels in the economy were assumed to decline further and to remain very low for an extended period of time, leading to a substantial further deterioration of domestic demand and investment conditions; and, due to the exclusion of South African bonds from major global indices, the ensuing large net capital outflows were assumed to lead to a sharp weakening of the ZAR, with adverse implications for inflation and interest rates.
Sectoral performances in a Low Road scenario
A deterioration of the domestic economic environment would reflect increasing strain in the various drivers of demand in one way or another, impacting on sectoral performances. However, in the Low Road scenario described above, all sectors of economic activity, without exception, would be expected to be affected adversely, albeit to differing degrees.
For example, reduced household spending on durable goods would have a negative impact on the local motor vehicles sector, mainly passenger cars, whilst lower investment expenditure would affect the demand for commercial vehicles, both medium and heavy. In addition, weaker global demand would affect the sector’s export performance. Reduced overall demand for motor vehicles would, in turn, have negative consequences for capital spending and employment levels in the sector itself.
Many supplying and supporting industries whose activities are closely linked to the motor vehicle sector would also be affected by lower production in this sector. For instance, demand for inputs such as fabricated metals, rubber, textiles, leather, electronics, glass, paint etc. would tend to fall. Hence, production in the respective supplying industries would have to be adjusted downward in line with weakening demand from the motor vehicle sector.
In a Low Road scenario, many firms across several sectors would face serious financial difficulties, which could compromise their sustainability and employment. Substantial job losses would possibly be recorded in labour-intensive sectors such as agriculture, forestry and fishing; textiles, clothing, leather and footwear, as well as in construction. Consequently, efforts to address the triple challenges of unemployment, poverty and inequality would suffer major setbacks in such a scenario.
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tralac’s Daily News Selection
Featured tweets on MC11 dynamics, outcomes:
@sdonnan: There’s an alternative narrative emerging this morning [Wednesday] at WTO MC11. Just had someone make case to me that we are entering a new era of plurilateralism at the WTO. Most concrete thing happening here is statements by groups of countries on ecommerce, investment and micro SMEs.
@USTradeRep: Congratulations to DG @WTODGAZEVEDO and Minister @SusanaMalcorra on a successful MC11. The new direction of the WTO is set: improving trade through sectoral agreements by like-minded countries.
@MalmstromEU: The @WTO MC11 Ministerial meeting was a lost opportunity. It failed to achieve any multilateral outcome. My statement to delegates:
@WTODGAZEVEDO: The WTO faces challenges, no doubt. But from what I saw here, we have the seed of an organization which can work better. An organization that can be vibrant, flexible and nimble. Let’s continue working to that end:
@Kiptoock: Today, on the sidelines of WTO MC11 meetings in Buernos Aires, I led Kenya team in holding a bilateral trade meeting with South Africa delegation led by Ms Xolelwa Mlumbi-Peter (Chief Trade Negotiator). We discussed matters of mutual interest.
ICTSD commentary on the WTO Ministerial outcomes: In landmark move, country coalitions set plans to advance on new issues
“We knew that progress here would require a leap in members’ positions,” WTO Director-General Roberto Azevêdo said at the closing ceremony on Wednesday, which started a few hours behind schedule as members sparred over final items. “Our work will go on after Buenos Aires. We can’t deliver at every ministerial.” He also urged members to remember that multilateralism is not always about “getting what you want,” but the best outcome that all can accept. Pursuing the former, he warned, is “a recipe for failure,” while noting that announcements from various large group coalitions on new issues shows an “outbreak of dynamism in other areas.” Ministers were unable to reach consensus on a ministerial declaration, despite multiple drafts being circulated during the day in an effort to bridge remaining gaps. Sources said areas of disagreement including how and whether to reference the Doha Round and aspects of the 2015 Nairobi ministerial declaration, among others. Instead, ministerial conference chair Susana Malcorra issued a summary of the week’s discussions under her own responsibility.
Global civil society reactions to end of WTO Ministerial Conference
The WTO ministerial conference in Buenos Aires concluded without a formal statement, reflecting the deep divide between poorer countries who have demanded that WTO members deliver on their promises to address outstanding development issues and richer countries that sought to leave those promises behind and move on with negotiations on rules of commercial interest to them. Please find below reactions from members of the 80 civil society representatives from 34 countries in Buenos Aires as part of the Our World Is Not For Sale network delegation. [OWINFS final statement, pdf]
Kenya’s trade in agricultural exports hampered by pesticide residue (KBC)
Speaking in a side event on Trade in Food and Agricultural Products, Pesticide Maximum Residue Limits, Mohamed said Kenya, Uganda and the US will now spearhead efforts in addressing challenges facing farmers in addressing trade relate MRL gaps. She states “we are calling for voluntary actions by individual Members and institutions to increase the capacity and efficiency in setting international standards to address the need for more MRLs set on minor crops.” [Kenya sponsors accession of South Sudan to WTO]
Peter Draper: Trade, inclusiveness, inequality and the WTO – a South African perspective on a complex debate (GEGAfrica)
Mauritius-China Free Trade Agreement signature of MoU to launch the negotiations (GoM)
A Memorandum of Understanding was signed between the Ministry of Foreign Affairs, Regional Integration and International Trade and the Ministry of Commerce of the People’s Republic of China, to launch the negotiations for the Mauritius – China Free Trade Agreement. The MoU was signed on 12 December during the 11th WTO Ministerial Conference in Buenos Aires. Mauritius-China comprehensive FTA will cover trade in goods, trade in services, investment and economic cooperation as recommended in the Joint Feasibility Study concluded in May 2017.
Watch the growth of trade country-level data availability in TCdata360 (World Bank Blogs)
In the next few blogs we’ll explore our data gaps to identify any patterns we can find within the context of the TCdata360 platform – which countries and regions throw up surprises, which topics are better covered than others, which datasets and indicators grow more ‘fashionable’ when, and the like. In this first blog, we’ll look at data availability at the country level. TCdata360 classifies its data into four high-level topics: Innovation, Investment, Sectors, and Trade (plus Economy). We’ll be looking at the indicators and datasets under these 4 topics for this whole blog series.
Unified action needed in Central Africa to defuse regional tensions, Security Council told (UN)
Despite some positive developments in Central Africa, the overall situation still required concerted action at all levels to address socio-political tensions, economic difficulties and abuses by armed groups, the Secretary-General’s Special Representative to the region told the Security Council on Wednesday. François Louncény Fall, Head of UNOCA, introducing the Secretary-General’s latest report, said the organization was facilitating the search for a peaceful resolution of regional conflicts. Mr Fall welcomed advancements in regional integration, particularly the free movement of persons achieved by the establishment of the Central African Economic and Monetary Community zone. UNOCA was supporting that schema as well as capacity‑building in mediation, early warning collaboration with civil society and gender mainstreaming for the secretariat of the Economic Community of Central African States.
PIDA Model Law for infrastructure development in Africa endorsed at 2017 PIDA Week
The law is expected to be adopted by African Heads of State at their January Summit, after which the ECA and its partner in this project, NEPAD, will help countries to domesticate the law to fit their needs. Meanwhile, delegates also agreed that Africa should up its game in mobilizing domestic resources to fund the complete implementation of five selected projects and promote the maximal use of local content within the beneficiary countries and regions. The five projects are the Central Corridor (Dar es Salaam to Chalinze Toll Road), Kinshasa-Brazzaville Road and Railway Bridge, Ethiopia-Sudan Power Interconnector, Zambia-Tanzania-Kenya Power Connection and the Batoka Hydropower Plant. In their final communique delegates recommended that for Africa to build on progress made through the implementation of PIDA PAP, there was need for some strategic focus on a number of things. This includes fast tracking the assessment of the PIDA mid-term review and engaging the preparation of the PIDA PAP 2 (2020-2030) with an updated list of the priority projects; promote integrated corridor development using data-driven decision-making models to prioritise projects for commercial viability and promote the setting up of legal frameworks and instruments for corridor management.
Lobito Corridor Trade Facilitation Project (AfDB)
The Project has three components (i) Capacity building for trade facilitation and corridor coordination, (ii) Technical assistance for value chains and economic clusters development and (iii) Project management. It will be implemented over 48 months, starting December, 2017. Needs Assessment (pdf): Despite its strategic importance, development of the Lobito Corridor has progressed haphazardly. There is weak cross-border coordination in the planning and development of physical infrastructure while soft issues have not been tackled in tandem. For instance, construction of the road to the border with Angola is nearing completion on the Zambia side, yet no agreement exists regarding border facilities and procedures. In 2017, Zambia opened a Customs post at Jimbe border and has earmarked it for upgrading to a OSBP but no similar arrangements are in place on the Angola side. While business activities are booming along the Corridor in the mining, agricultural and retail sectors (e.g. Shoprite, SPAR, Hypermarket, Choppies in Zambia, and Shoprite and Kero in Angola), local SMEs have failed to tap into the opportunities due to capacity constraints including lack of business skills, inability to comply with product standards, and lack of access to information on market opportunities. Therefore, there is a need to promote participation of local SMEs, which are left outside the loop, to participate in value chains and economic clusters and profitable trade along the Corridor. [Feasibility study on the extension of the Cameroon-Chad Railway Line: appraisal report]
Mauritius: Addressing inequality through more equitable labor markets (World Bank)
The report is structured as follows. Chapter one sets the stage by presenting stylized facts on the trends in household income inequality between 2001 and 2015, comparing these trends with trends in consumption inequality, and identifying the main culprit behind the rapidly rising inequality in household incomes, that is, household labor income. Chapter two supplies a set of descriptive trends of the two groups of factors, namely, household demographics and labor market forces, that contribute to changes in household labor income and follows up with a decomposition exercise on changes in household labor income between 2001 and 2015.Because the analysis indicates that an unequal increase in female labor force participation and rising inequality in individual earnings are among the main contributors to the expanding inequality in household labor income, Chapter three takes a deep dive into the issue of gender inequality in the labor market. Chapter four resumes the main analysis of the drivers of increasing inequality in individual earnings.
World Inequality Report 2018: executive summary (pdf, World Inequality Lab)
The World Inequality Report 2018 relies on a cutting-edge methodology to measure income and wealth inequality in a systematic and transparent manner. By developing this report, the World Inequality Lab seeks to fill a democratic gap and to equip various actors of society with the necessary facts to engage in informed public debates on inequality. In recent decades, income inequality has increased in nearly all countries, but at different speeds, suggesting that institutions and policies matter in shaping inequality. Since 1980, income inequality has increased rapidly in North America, China, India, and Russia. Inequality has grown moderately in Europe (Figure E2a). From a broad historical perspective, this increase in inequality marks the end of a postwar egalitaria regime which took different forms in these regions. There are exceptions to the general pattern. In the Middle East, sub-Saharan Africa, and Brazil, income inequality has remained relatively stable, at extremely high levels (Figure E2b). Having never gone through the postwar egalitarian regime, these regions set the world “inequality frontier.” [Thomas Piketty says the US is setting a bad example on inequality for the world]
37% of the Indian workforce will be in new job roles by 2022: report (LiveMint)
By 2022, 37% of the Indian workforce would be employed in new job roles, according to the Future of Jobs report commissioned jointly by Ficci-Nasscom with EY. The report provides insights into the future of jobs and vision of change for the job market in India by 2022. According to the report, exponential technologies in advanced markets are expected to improve productivity by 15-20% in the next five years, while 60-65% of the Indian workforce in the IT-BPM sector would be deployed in jobs that have radically changed skill sets, followed by 55-60% in BFSI and 50-55% in the automotive sector.
One Planet Summit: joint IDFC-MDB statement (AfDB)
Extracts: Redirect financial flows in support of transitions towards low-carbon and climate resilient sustainable development. Building on what is already being done, this will increase the overall amount or share of finance that goes towards climate action. Support the development of enabling policy and regulatory environments, at both national and sub-national levels, in conjunction with the private sector and civil society, while remaining focused on the most vulnerable populations. IDFC members and MDBs will continue to deepen this work and increase country-level coordination between institutions.
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WTO Ministerial: In landmark move, country coalitions set plans to advance on new issues
The WTO’s Eleventh Ministerial Conference has drawn to a close, capping a busy week of talks which saw members only able to endorse limited substantive outcomes at the multilateral level.
The last day also saw large groups of members confirm plans to conduct more structured work among themselves on e-commerce, investment facilitation, and micro, small, and medium-sized enterprises.
“We knew that progress here would require a leap in members’ positions,” WTO Director-General Roberto Azevêdo said at the closing ceremony on Wednesday, which started a few hours behind schedule as members sparred over final items. “Our work will go on after Buenos Aires. We can’t deliver at every ministerial.”
He also urged members to remember that multilateralism is not always about “getting what you want,” but the best outcome that all can accept. Pursuing the former, he warned, is “a recipe for failure,” while noting that announcements from various large group coalitions on new issues shows an “outbreak of dynamism in other areas.”
Ministers were unable to reach consensus on a ministerial declaration, despite multiple drafts being circulated during the day in an effort to bridge remaining gaps. Sources said areas of disagreement including how and whether to reference the Doha Round and aspects of the 2015 Nairobi ministerial declaration, among others. Instead, ministerial conference chair Susana Malcorra issued a summary of the week’s discussions under her own responsibility.
Fisheries: Prepping for 2019
The Ministerial Decision on Fisheries endorsed on Wednesday was ultimately structured around two main paragraphs, as expected on Tuesday evening. The two paragraphs direct members to continue talks “with a view to adopting” a deal by 2019, which is the year of the next ministerial conference and one year before a UN deadline under the Sustainable Development Goals (SDGs) to discipline subsidies to overcapacity and overfishing and eliminate those to illegal, unreported, and unregulated (IUU) fishing.
These future negotiations would build from a text circulated on 5 December with working documents on IUU fishing, overfished stocks, overcapacity, capacity-enhancing subsidies, and overfishing; notifications and transparency; and special and differential treatment, reflecting the negotiating work and different proposals from the Geneva process prior to the ministerial.
Malcorra told members at the closing ceremony that “Buenos Aires, without a shadow of doubt, will be remembered as a conference where the negotiations were seriously launched on fisheries,” noting the level of activity and the decision to continue building on that work with a 2019 target was more action than the issue had seen in years.
Several WTO members who were advocating for an interim deal on disciplining subsidies at least to IUU fishing expressed frustration that these efforts failed to bear fruit.
“All WTO members have to face a simple fact: we failed to achieve all our objectives, and did not achieve any multilateral outcome. The sad reality is that we did not even agree to stop subsidising illegal fishing,” said EU Trade Commissioner Cecilia Malmström in a statement issued at the day’s close.
Agriculture, development talks stumble
Ministers failed to agree consensus language on future work on agriculture, following US objections to a draft text which delegates had said was initially agreed mid-morning. Sources told Bridges that the US had objected to three main areas.
Firstly, they had opposed a clause referring to special and differential treatment for developing countries, such as longer implementation periods for less onerous commitments. Secondly, the US said it cannot accept references to paragraphs 30 and 31 of the 2015 Nairobi ministerial declaration, which recognise WTO members disagree on reaffirming the 2001 Doha negotiating mandates, but also recorded members’ commitment to advance talks on remaining Doha issues, including agricultural domestic support, market access, and export competition.
Thirdly, the US reportedly opposed the idea of dedicated negotiating tracks on public food stockholding and the special safeguard mechanism, arguing that the mandate for future work should be Article XX of the Agreement on Agriculture, which commits countries to continuing the reform process begun under the Uruguay Round.
The US had reportedly also opposed explicit mention of cotton negotiations – a clause added during the day after the C-4 group of West African countries opposed its omission in an earlier text.
A version of the draft text for a ministerial decision circulated Wednesday morning would have committed members to focus their work on the impact of WTO rules on development, through case studies, workshops, and sharing best practices. These would draw on the issues raised by the G90 coalition, made up of the African Group; African, Caribbean, and Pacific (ACP) Group; and Least Developed Country (LDC) group.
The earlier submission from the G90 prioritises 10 proposals, eight of which were raised in older discussions and two newer ones on technology transfer and LDC accession. Among the roadblocks were divides on the issue of differentiation, and opposition from the US given concerns over how development issues have evolved. US Trade Representative Robert Lighthizer had openly criticised in the opening plenary the nature of of the current “understanding of development” in the global trade club, saying earlier this week that it “cannot sustain a situation in which new rules can only apply to the few, and that others will be given a pass in the name of self-proclaimed development status.”
“We have come a long way in rationalising the original proposal by bringing the number of proposals down to 10,” commented an African trade diplomat. A developed country trade delegate told Bridges that developed countries sought to understand more concretely barriers facing developing countries, therefore demanding new approaches and evidence from the ground.
Coalitions set to move forward on new issues
A series of joint ministerial statements were finalised on Wednesday by different coalitions of WTO members, specifically on the areas of electronic commerce; micro, small, and medium-sized enterprises (MSMEs); investment facilitation; and domestic regulation in services.
Over the past week, multilateral talks on e-commerce had focused on next steps for an existing e-commerce work programme, as well as the renewal of long-standing moratoriums on duties on electronic transmissions and non-violation and situation complaints under the WTO’s intellectual property rules.
Early in the day, sources said that the moratorium renewal talks appeared to have failed, amid reported opposition from India and Indonesia, only for officials to craft a deal in the ministerial’s final hours to renew both moratoriums for two more years.
On the Work Programme on Electronic Commerce, the ministerial decision on e-commerce both renews the electronic transmissions duties moratorium and says that members “will endeavour to reinvigorate our work and instruct the General Council to hold periodic reviews” over the coming two years and report back to the next ministerial.
A coalition of WTO members numbering some 70 countries, counting EU member states individually, confirmed on Wednesday that they would be starting “exploratory work together toward future WTO negotiations on trade-related aspects of electronic commerce,” with plans to hold a first meeting early in the new year. The statement said that the work would be open to any interested members, “and will be without prejudice to participants’ positions on future negotiations.”
The group includes economies of varying sizes and development levels, including among others Australia, Japan, Singapore, the US, the EU, Costa Rica, Australia, and Russia.
“[E-commerce] is a great leveller. It provides opportunities, for businesses and individuals to engage in global trade in a structured and meaningful way,” said Australian Trade Minister Steven Ciobo to reporters, explaining the widespread interest in these e-commerce discussions.
The US Trade Representative praised the outcome in a public statement issued Wednesday evening, suggesting approaches like these could play a valuable role in the global trade club.
“The launch of this initiative marks a significant milestone, with a large group of countries now working together to move forward in this important area within the WTO. Initiatives like this among like-minded countries offer a positive way forward for the WTO in the future,” said Lighthizer.
Another joint Joint Ministerial Statement on MSMEs on MSMEs was released with the support of 87 countries, counting the EU’s members individually. The statement announced an “informal work programme” on the subject, aiming to look at various issues “of relevance to MSMEs,” including among others slashing trade costs and improving access to trade finance. Along with pledging to keep the group open to all interested participants and report back regularly in WTO forums, such as heads of delegation, the General Council, and future ministerials, they also said they would keep working at setting up a multilateral working group at the organisation. They would not, however, be aiming to launch negotiations, officials said.
On domestic regulation in services, around 60 countries have signed on to a joint ministerial statement, reiterating their “commitment to advancing negotiations on the basis of recent proposals” as well as those that emerge in future WTO talks, while calling for an intensification of work. They also make reference to a separate communication that captures some of the different proposals on domestic regulation from the past year and notes their proponents.
A large group of countries comprising both developed and developing countries have also agreed and endorsed a joint statement to start “structured discussions with the aim of developing a multilateral framework on investment facilitation.”
“We recognise the dynamic links between investment, trade and development in today’s global economy,” reads the joint statement, which also articulates the need for global international cooperation in order to foster a more “transparent, efficient, and predictable environment” to facilitate cross-border investment and outlines what such a framework
Moreover, the statement specifies that the multilateral framework will not deal with market access, investment protection, or dispute settlement. Investment facilitation does not deal with those issues, but rather is about steps such as information sharing or making investment measures more predictable.
All together, the 70 countries which support this initiative represent 70 percent of global trade, officials said.
“We will expand that consensus,” said Ambassador Chiedu Osakwe to reporters. Osakwe serves as Nigeria’s chief trade negotiator.
South Sudan to begin accession process
The country of South Sudan is now set to begin formal talks to join the WTO, after members agreed to establish an accession working party. The nation’s request for observer status was first initiated in December 2012, and moving forward on accession talks was discussed at the level of heads of delegations during the conference.
Members welcomed the conflict-affected and fragile state’s move to join the global trade club, though the process will require complex talks at both bilateral and multilateral levels to determine accession terms. Experts have noted that such a process can be challenging for resource-constrained countries with limited capacity, given the significant domestic reforms also involved.
MC11 Closing Ceremony, 13 December 2017
Remarks by DG Azevêdo
What we've seen over the last three days is the hard grind of multilateralism. 164 members working together, engaging and debating.
We have made important progress in some areas. In most of them it did not prove possible.
Members did not manage to agree final, substantive agreements this time.
Anyone who has been following the debate in Geneva would know that progress on the longstanding issues was always going to be difficult.
We knew progress here would require a leap in members' positions. We didn't see that.
So our work will go on after Buenos Aires.
We can't deliver at every ministerial. It's not every time that ministers meet that they are going to be able to strike deals of the magnitude of what we achieved in Bali and Nairobi.
But that doesn’t diminish the disappointment that we feel.
Despite our best efforts we could not meet the deadline on public stockholding. It's not the first deadline we miss – but it is still disappointing.
We could not even agree on more detailed programmes in many areas. And I know that for many, especially the proponents, the disappointment is particularly bitter.
We worked hard in all areas. We couldn't have asked any more of our excellent facilitators – and I offer once again my sincere thanks for their dedication.
Development and inclusiveness must remain at the heart of our work. They certainly remain at the core of my priorities in everything we do.
If we are not improving the lives of the poorest or giving the smallest a chance to compete, we are not doing our jobs.
So in taking this work forward, I think we need to do some real soul searching.
Some important progress has been made.
We have gained a greater understanding of each other's positions and concerns. We should acknowledge that.
And, importantly we should note that members remain committed to continuing and intensifying work in all of the areas that we have been discussing this week.
We have decisions on:
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the e-commerce work programme and moratorium
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the moratorium on TRIPS non-violation and situation complaints
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the work programme on small economies
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the creation of the working party on the accession for South Sudan – setting them on the road to membership.
And we have the decision on fisheries subsidies.
Of course we wanted to go further, but this is progress.
For the first time, the membership has committed itself to achieving SDG target 14.6 and to fulfilling this commitment by MC12. Members also re-committed to providing the information about their subsidy programmes that is critical to completing the negotiations. And they agreed to build on the intensive work that has taken place over the past year.
People want to get back to work and make further progress to meet the new deadline. But even here, mindsets will need to change if we are to advance.
We have also seen an outbreak of dynamism in other areas. It seems that Buenos Aires has in fact breathed fresh air into some parts of the organization.
Some large groups of members have come together to advance issues of interest to them and to the global economy. These groups are not just notable for their numbers, but for the diversity of the members involved: developed, developing and least-developed.
It is for these members to pursue conversations such as this as they see fit. But, as with every element of our work, I would urge members to remain open and welcome any member who wants to join the conversation at any time. We should always be seeking to advance a conversation that reaches the whole membership.
The fact that this is happening shows that people see this organization as a place where they can advance issues that are of importance to them and to their economies.
This dynamism is clearly reflected in the huge interest we are seeing from all our stakeholders.
One test for whether we're doing a good job is whether constituencies are paying attention. In Buenos Aires we saw more interaction, more interest from other stakeholders than we have for some time.
So, we must be doing something right.
The Business Forum, organized here in Buenos Aires by Argentina's Ministry of Production, was the first such event ever held alongside a WTO ministerial conference. It signals a step change in this engagement.
I've also been impressed by the sheer number and quality of the side events that have taken place in the margins of the Ministerial Conference.
In addition, at a challenging time, this Conference started with an overwhelming show of political support for the organization.
The signing of the Presidential Declaration in support of the WTO at the opening ceremony sent a forceful message about the importance of the trading system.
And this seemed to extend across the membership.
In the plenary hall we heard repeated, clear, strong support for the system. What's disappointing is that this support did not translate into action.
If we really all support the WTO, if we really do, we have to bear in mind that multilateralism doesn't mean that we get what we want. It means we get what is possible.
It's not compatible to expect multilateralism to work and at the same time to expect to walk out with everything you wanted. This is a recipe for failure.
If we prize the system, we have to come knowing that we'll need to make compromises. Sometimes painful compromises.
This element can be improved at the WTO.
On that point we were lacking.
I have no doubt that some of the issues we were facing could have been managed if we had shown the flexibility that we need to make the system work.
Once again I stress – the system is not perfect. But it is the best we have. And we are all going to regret very deeply should it ever cease to function.
From what I saw here in Buenos Aires, we have the seed of an organization which can work better. An organization that can be vibrant, flexible and nimble.
But for that to happen, we all have to believe in that vision.
We are one step closer to this goal today. And one of the chief reasons for that is Susana.
Not only has she worked tirelessly over the last year to get us to this point, she has also managed the running of the conference in an extremely competent manner. With her efforts to promote political dialogue she has forced members to confront some of the issues that I have just mentioned.
I am profoundly thankful for that. I hope we will take this forward. As you have said, Susana: there is life after Buenos Aires.
And while you're enjoying that life, I wanted to give you a reminder of our work here – this ceremonial gavel.
May you continue to wield it with the wisdom you have shown this week!
Thank you all.