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Sustaining high growth in sub-Saharan Africa
Speech by Abebe Aemro Selassie, Director of the African Department, IMF
London School of Economics, 6 November 2017
It is a pleasure to be with you all this evening and my thanks to the LSE and International Growth Centre for inviting me to speak.
I would like to take this opportunity to set out the significant strides that have been achieved by many countries across sub-Saharan Africa and then present what we at the IMF believe is required to keep the region moving in the right direction.
It does not feel like very long ago since I was a student here at the LSE. It was the early 1990s and there was a strong sense of change in the air. The Cold War had just ended, governments across sub-Saharan Africa seemed to be toppling one after the other, and Nelson Mandela had just been freed. These political transitions held the promise of creating fundamental change across the region.
And they did.
Some twenty-five years on sub-Saharan Africa is a much-changed place. It goes without saying that poverty remains unbearably high, the fruits of strong growth in some countries have accrued disproportionately to the better off, and far too many people are still impacted by conflict.
But there has also been much progress and transformation. And, I am not talking about skin-deep changes such as shiny new buildings or a better sky line, but fundamental progress that has shifted the opportunity set of a generation.
As Lant Pritchett has noted, the development process occurs across a number of dimensions; political, administrative, economic and social. And Africa has seen progress across each of these dimensions to varying degrees.
On the political front, an increasing number of countries have moved from unconstrained leaders to systems with more checks and balances. In some cases, we are home to some of the world’s most boisterous democracies.
Administratively, many countries now have reasonably independent central banks, are able to provide basic services and regulatory and judicial frameworks are developing.
By no means are these political and administrative institutions ideal, but they are no longer as inimical to growth as they used to be.
And playing off this, we’ve seen many more episodes of sustained growth accelerations, replacing the episodes of boom and bust. Since 1990, three quarters of the countries in the region have registered at least 10 years of uninterrupted growth, and over one-third of the countries have registered 20 years or more of uninterrupted growth.
This has occurred alongside much improved human development outcomes. Over the last 25 years, life expectancy in sub-Saharan Africa has increased from 50 to 60 years, child and maternal mortality rates have halved, and primary school enrolment is up to 80 percent.
It is against this background of strong progress that I would like to make my main point: we are now seeing a deterioration in the macroeconomic health of many countries in the region, and policy makers need to urgently respond to these growing vulnerabilities.
Over 15 years of continuous growth in income per capita in the region came to an end last year. And 12 of 45 countries are expecting per capita incomes to decline this year. These 12 countries are home to about 40 percent of the region’s population, or 400 million people.
It is also worrisome that macroeconomic imbalances have emerged in many countries. Perhaps the most concerning manifestation of this is the sharp increase in public debt, which is now above 50 percent of GDP in half of the economies in the region.
Indeed, there are some who are already ringing the alarm bells that we are heading toward another debt crisis in the region. It is often the case that commentary on Africa takes on too much hyperbole and generalisations. So allow me to present a more considered assessment.
Why has debt increased so rapidly?
Median public sector debt in sub-Saharan Africa rose from 34 percent of GDP in 2013 to 48 percent in 2016. Debt accumulation has been particularly high in oil-exporting countries, but debt-to-GDP ratios have also risen in countries that have enjoyed consistently high growth rates, the non-resource-intensive countries.
Importantly, however, part of the debt increase is desirable and central to a broader development strategy to use fiscal space for growth-enhancing investment. There remains a significant infrastructure deficit in sub-Saharan Africa. And in the context of lower starting levels of income and a growing population, convergence will require a significant amount of investment. Moreover, creating room for investment was one of the underlying motivations for the official debt relief process of the mid-2000s which, coupled with strong growth, reduced debt to historically low levels.
What is of concern though is the pace of the increase in public debt and the contribution from adverse macroeconomic developments.
In the oil-exporting countries, for example, public debt has increased, on average, by more than 8 percentage points of GDP per year between 2013 and 2016. This reflects large primary deficits, a growing interest bill and balance sheet effects associated with exchange rate depreciation, against the backdrop of low (and at times negative) economic growth rates.
In the rest of the region, the debt-to-GDP ratio has been increasing at an average rate of about 5 percentage points of GDP per year not withstanding rapid economic growth in many cases. The main drivers have been large primary deficits, valuation effects associated with exchange rate depreciation, and a variety of below the line operations such as the migration of liabilities incurred by state owned enterprises onto the government balance sheet.
As a consequence of the rapid debt buildup, debt servicing costs have risen sharply. The median debt service-to-revenue ratio among sub-Saharan African countries increased from 5 percent in 2013 to nearly double that in 2017. In oil-exporting countries, the debt service-to-revenue ratio is at a staggering 25 percent.
This is diverting much needed resources away from priority sectors such as health and education spending. For example, in Zambia – spending on debt interest alone is over half of what the government spends on education and health. In 2011 it was just 20 percent.
Policy makers are of course well aware of these developments and some countries have started the required policy tightening. But in many other cases adjustment keeps getting delayed.
What is holding back the adjustment?
Having spent some time working for the Government of Ethiopia (at a very junior level, I must add) and worked with many ministers of finance since, I understand first-hand that we are advising countries to take some very difficult decisions in order to reign in debt accumulation.
First, and as I have already noted, the development challenges in the region remain vast creating tremendous spending pressures. There is demand for investment in physical infrastructure such as roads, ports and energy to connect people to markets. There is demand for investment in social services such as education and health to prepare a new generation to compete in the global market. And there is demand for investment in public institutions to create transparent and effective governance structures.
Beyond this, the coalition for fiscal prudence is often small. While the coalition for postponing adjustment until tomorrow can often be overwhelmingly powerful. And even when there is the will, the burden of adjustment must fall on one group or another, and each has a strong case for why it should not be them. This can lead to war-of-attrition type situations that have in the past often been the cause of delayed adjustment in other developing and advanced countries.
Another factor, of course, is that the government’s borrowing today are not necessarily the ones that will be repaying tomorrow.
And these domestic factors can be exacerbated by external ones. Take the current low-yield environment on international capital markets which has increased investor appetite for the region’s debt instruments. From a broader perspective, this is a positive development as it provides countries with a more diverse set of financing options. But it is also hard to overlook that borrowing costs are being pushed down due to global factors despite worsening fundamentals in some borrowing countries. When low cost financing is flowing in your direction, it is difficult to resist.
In all, the social, political and economic pressures to accelerate broad-based development carries a heavy price-tag and when financing is readily available, we often see adjustment plans postponed.
What are the policy requirements at this juncture?
They say that to a hammer, everything looks like a nail. And perhaps there is perhaps an element of this at work here. But, I have to say that there is need for attending to the macroeconomic health of the region to rise to the top of the policy agenda.
Our advice is always country specific but a key consideration for many countries now is to strike a better balance between much needed investment and debt sustainability.
Importantly, fiscal reforms need to be put in place, and can be designed to attenuate the adverse effects they can have on growth and the most vulnerable segments of society.
Experience with past fiscal consolidations in the region shows that this is best achieved by raising domestic revenues and making careful decisions when it comes to public spending.
For example, reducing inefficient fuel subsidies that we know end up benefiting the better-off and larger firms, and implementing targeted cash transfers for those most in need can help to reduce overall spending and achieve redistribution goals.
I’d like to focus on the critical role that broadening the tax base can play in creating space to scale-up social and other priority spending and strengthening fiscal sustainability.
In the ideal scenario, debt-financed investments would generate growth, a larger tax base and the required revenues to repay debt. Yet, too often countries fail to capture the return on their investment.
At the IMF our policy advice, technical assistance and program engagement seeks to strengthen institutions and policies to help countries achieve their tax potential. On average, we see potential for the region to increase the tax to GDP ratio by 3 to 6 percentage points over the medium-term. In addition, increasing transparency to identify how public resources are being raised and spent can help to overcome vested interests and contribute toward building sufficient support for raising revenues.
Conclusion: Forces shaping the future
Let me end my remarks by looking forward.
My emphasis today on the importance of tackling the issue of rising public debt head on is because if left unaddressed, it will constrain the region’s tremendous growth potential.
And there are a number of factors that have the potential to engender stronger catch-up growth in the coming years.
For one, most countries in sub-Saharan Africa are on the cusp of a demographic transition – the years when the share of young and old in the population declines and those in working age range increases. And this is something that is of truly global consequence. By 2030 or so, half of the annual increase in the global working age population will come from sub-Saharan Africa. Consider how much consumer demand this means. And on the flip side, it is difficult to see how any labor-intensive activity of scale will not require the region’s labor force.
Second, the rapid technological change we are seeing should facilitate greater catch-up growth. For example, the growth of Fintech is already transforming traditional forms of banking, and offering financial services to millions of people for the first time; many no doubt, aspiring entrepreneurs.
This offers a huge opportunity for sub-Saharan Africa. But reaping the potential of higher living standards will not happen automatically. And indeed, there are countervailing challenges that need to be overcome – climate change, deepening power sharing, ensuring inclusivity. In particular, closing gender gaps will be essential since about half of the contribution from the growing labor force are women.
My broader point is the following: much of the growth momentum over the last couple of decades has come from reforms that have alleviated constraints to growth; weak institutions, problematic governance, policy uncertainty, and elevated macroeconomic imbalances. Beyond this, there are a range of formidable challenges that I just highlighted. The last thing we need is self-induced macroeconomic policy slippages to complicate development prospects.
I recognize that the required reforms are quite tough and not always popular. But sub-Saharan Africa has overcome much greater challenges in the past from a weaker starting position. This is why I strongly believe that the region can, and will, return to a path of strong growth that will raise living standards for all.
Thank you.
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Nairobi faults Dar ‘hostile’ trade actions
Kenya has formally protested to Tanzania over what Nairobi terms as “a policy shift that condones hostile actions against Kenyan citizens and their business interests.”
On Monday, Foreign Affairs Political and Diplomatic Secretary Tom Amollo criticised Dar es Salaam’s decision to burn chicks imported from Kenya as well as auctioning of animals from Kenyan herders, without involving authorities in Nairobi, saying such actions risk soiling historical relations between the countries.
The move followed the summoning of Tanzanian High Commissioner to Kenya, Dr Pindi Hazara Chana, by Kenyan officials to protest what they called Tanzania’s unilateral actions on issues affecting the two countries.
“Kenya/Tanzania relations are longstanding, rich and complex and should not be jeopardised by a hardening of positions over minor issues that can be easily resolved through candid and open dialogue,” Mr Amollo told the Tanzanian envoy during a lengthy meeting in Nairobi.
“There may be need to urgently convene the Kenya-Tanzania Joint Border Commissioners / Administrators Committee Meeting, (Ujirani Mwema), to address emerging cross borders issues.”
Kenya’s latest complaint results from the move last week when the Tanzanian Ministry of Livestock and Fisheries burnt to death 6,400 chicks imported from Kenya, ostensibly to prevent the spread of bird flu.
Nairobi complained the decision had been unilateral especially since no case of the bird flu had been reported within Kenya’s borders.
While Tanzania argued that the importation of the chicks was not supported by paperwork, the move to burn them only added fuel to simmering diplomatic feud between these countries.
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Combating cross border corruption – UNDP partners with national and local authorities to stop the vice
During the long dry seasons, the cattle keeping people of Karamoja will cross over into Kenya looking for water and pasture for their animals.
The same is true for their brothers from the Turkana region of Kenya. This may sometimes result into conflict over the scarce water and pasture.
This is one of the challenges that East Africa’s porous borders face.
With globalisation, borders are now more open allowing easier movement of people, goods and capital among other things. While this is great for trade, border control authorities also have to deal with the challenges it comes with which include human and drug trafficking and illicit flow of firearms linked to terrorist and extremist groups.
These challenges are made worse by widespread corruption along these borders, a root cause that enables these activities to thrive.
To address this issue, the United Nations Development Programme (UNDP) is partnering with the Inspectorate of Government to combat cross border corruption in local border communities.
Efforts to combat this vice started with a cross border study to identify major challenges in the Karamoja – Turkana region. It was followed by a cross border dialogue between government authorities and Civil Society Organisations which culminated into a training workshop and awareness campaign to educate local authorities from Karamoja and the Turkana region in Kenya on the dangers of cross border corruption.
These engagements were held in Moroto and Mbale districts in North Eastern and Eastern Uganda from July to September 2017.
“Borders have become a pathway to corruption,” Mr. George Bamugemereire, the deputy Inspector General of Government said while opening the Moroto dialogue.
He pointed out that criminals were now able to escape justice by crossing borders using modern transport and that is why fighting cross border corruption required the collaboration of all stakeholders.
Ms. Almaz Gebru, the UNDP Uganda Country Director also called on combining efforts to fight cross border corruption and called on all concerned parties to join this fight and not to leave it to government and its institutions alone.
“This is because corruption affects service delivery,” Ms. Gebru noted.
Delegates drawn from Uganda and Kenya’s border authorities as well as civil society organisations agreed to; coordinate, enforce existing laws and harmonise policies to effectively combat cross-border corruption.
While opening the Mbale training workshop, Hon. John Byabagambi, the Minister for Karamoja Affairs in the Office of the Prime Minister noted that “These trainings should enable us to come up with new, yet simple and innovative, ways of dealing with the issue of cross border corruption within a disintegrated social cohesion along the borders.”
He added that increasing engagement between the local community leaders and the law enforcement officials would go a long way in preventing cross-border movement of extremist fighters as well as illicit goods whose proceeds are many times used to finance criminal activities.
“This training is premised on the understanding that prevention of corruption works better than law enforcement, therefore this training should equip you to detect, combat and prevent it,” Hon. Byabagambi told participants.
Ms. Mariam Mutonyi Wangadya, the Deputy Inspector General of Government said that a cross border approach is critical for engaging communities as well as local authorities at the borders so that they are able to develop their own local solutions to address the challenge of cross border corruption.
“We hope that this training will improve cross border accountability through creating awareness among the communities and authorities enabling us all to work together to fight corruption as well as extremism,” she said while emphasizing the importance of interagency collaboration.
“It is only when institutions work together that we will be able to effectively address the governance challenges that lead to cross border corruption,” Ms. Wangadya said.
Participants in the engagements called for border demarcation, strengthening policing to monitor the borders, improving complaint handling procedures when corruption is reported as well as increasing partnerships and community awareness as a way of building their confidence in local authorities in the fight against cross border corruption. These, they believe, would be a good first step towards fighting the vice.
The participants from both sides of the border will work together to develop joint action plans to enable them to address cross border corruption.
These engagements are intended to provide a much needed platform for local authorities to learn new technics in identifying and preventing cross border corruption. With this, UNDP hopes to build the relationships between local authorities across the borders and their communities so that the challenges that come with living along the borders can be addressed at the community level.
“Success by Uganda and Kenya in working together to address our cross-border challenges can and should provide a sound basis to explore opportunities to widen the scope of this effort to include Ethiopia, Somalia, South Sudan, the Democratic Republic of Congo (DRC), Rwanda and Tanzania,” Ms. Gebru said.
The cross-border corruption initiative is part of UNDP’s efforts both at regional and country level to support governments in their fight against corruption, violent extremism and other illicit activities that are hampering the peace and economic growth of Africa. It is supported by the US State Department’s Bureau of International Narcotics and Law Enforcement Affairs (INL) and the UNDP Regional Service Centre in Addis Ababa.
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tralac’s Daily News Selection
Today, in Arusha: Review of draft concept note, TOR, Roadmap and budget estimates for development of EAC Political Confederation Constitution
Starting today, in Abuja: ECOWAS Commission constitutive meeting of support structures for Regional Quality Infrastructure
Assessing Regional Integration in Africa VIII: bringing the Continental Free Trade Area about (ATPC/UNECA)
After providing a status update of regional integration in Africa, this report considers how to ensure that the potential of the CFTA is fulfilled. It has long been known that a major challenge in Africa is not a lack of good policies or strategies, but a lack of their effective implementation. Crucial to implementation is an understanding of the political economy underpinning economic integration in Africa. Conceptual issues in this area form the theoretical basis of the report. The insights from this perspective can help to frame the policy choices and institutional arrangements required for effective implementation. The report demonstrates that the CFTA potentially embodies a “win-win” approach to sharing its benefits, so that all countries in Africa benefit and the interests of vulnerable communities are carefully addressed. To this end, the CFTA will require “flanking policies” that governments can use to smooth the impact of the CFTA and a strong focus on achieving tangible outcomes from the Boosting Intra-African Trade Action Plan at national, regional and continental levels. Recommendations are made to assure mutual gains for all countries, irrespective of their current level of development. Extract (pdf) from Chapter 10: Phase 2 Negotiations - competition and intellectual property rights and e-commerce. Key findings:
Competition and intellectual property will be part of phase 2 of the CFTA negotiations and there is scope for also introducing issues of e-commerce and the digital economy. Negotiations in these policy areas are expected to be launched after the conclusion of the negotiations in goods and services. As African countries are affected in different ways by anti-competitive practices, a regional approach is needed for dealing with cross-border cartels, mergers, acquisitions and abuse. National competition laws operate on a “territorial” basis and are incapable of addressing cross-border anti-competitive practices. The CFTA can be used as a vehicle to address such cross-border competition issues. In doing so it can draw on the successes of COMESA approach to cross-border competition challenges. Procedural and substantive failures around intellectual property issues have contributed to a backlash against trade agreements, notably the WTO’s Agreement on Trade-related Aspects of Intellectual Property and EAC’s early experience.
Innovation in Africa is different, occurring mostly in the informal sector and in the absence of strong intellectual property institutions: an intellectual property framework in the CFTA must reflect this. Traditional, formal IP protections cannot exist in the absence of strong IP institutions and may be ill-suited to the African context in which industries operate successfully without IP. E-commerce and the rise of the digital economy is causing a shift in traditional economic sectors and the emergence of new digital products and services. The scale of this process is considerable and this will alter Africa’s trade and industrialization pathway. Policy recommendations:
Table of contents: Chapter 1: Introduction; Chapter 2: Status of regional integration in Africa; Chapter 3: Conceptual issues in the political economy of integration and the CFTA; Chapter 4: Revisiting the case for the CFTA; Chapter 5: A win-win approach to the CFTA: sharing the benefits; Chapter 6: A win-win approach to the CFTA: critical policies; Chapter 7: Financing for bringing the CFTA about; Chapter 8: CFTA governance; Chapter 9: The CFTA in a changing trade landscape; Chapter 10: Phase 2 Negotiations: competition, intellectual property rights and e-commerce
SADC Transport and Meteorology Ministerial: documentation (SADC)
On OSBPs: Martins Drift/Groblers Bridge: Ministers noted that this border crossing, which is an alternate route on the NSC, is fast becoming a bottleneck and confirmed programme to upgrade the bridge and border facilities. SADC Deputy Executive Secretary: Regional Integration, Dr Thembinkosi Mhlongo, said in his opening remarks (pdf) that “the implementation of the cross-border infrastructure projects should be a major preoccupation of the SADC’s political leaders, policymakers and other stakeholders because it may compromise the targeted regional integration, industrialization and structural transformation agenda of our community.” However, “the current approach to managing regional transport infrastructure programmes does not sufficiently emphasise the importance of national ownership of the regional projects.”
Communiqué (pdf): Ministers analyzed the sluggish implementation of the cross-border infrastructure projects through the lens of national ownership of the regional programmes. They concluded that regional cross-border infrastructure, particularly in the areas of transport, and meteorology, has the potential to facilitate intra-regional trade and investment; unlock national and regional comparative advantages. Ministers underscored the need to address the special needs of landlocked countries to access the rest of the world. The Ministers concluded that partnership is the main strategy to implement these regional projects. They also agreed that placing regional projects on the national agenda is the core of creating an enabling environment, because these projects only kick off after they get attention of national politicians and policy makers.
Are regional value chains a myth in Southern Africa? (SAIIA)
When delving into the reasons behind the failure of SADC to create regional value chains the answers found sound all too familiar – lack of infrastructure, cost of transportation, lack of access to financing, restrictive government policies but also the lack of production efficiency that essentially prohibits basic exports let alone participation in complex regional or global value chains. The stumbling blocks to the creation of true regional value chains are the same that were offered for the lack of Foreign Direct Investment into the region, when this was still the buzz word du jour. So, is all the recent hard work to understand how sectors operate in the various SADC states all in vain? [The authors: Talitha Bertelsmann-Scott, Chelsea Markowitz], [Today’s SAIIA/KAS workshop: Driving value chains in agro-processing in SADC]
Cross-border shopping in Joburg’s CBD (JICP)
This report examines the nature of cross border trade in the inner city of Johannesburg. The study maps the centre of cross border shopping, the goods purchased and the density of affected trade in the inner city. It provides an indication of the contribution of cross border trade to the economy of the inner city. And it scopes the critical factors that contribute to or threaten the successful operation of cross border trade in inner city Johannesburg. The study offers recommendations for appropriate responses from state authorities to these challenges and opportunities that the study will define. Extracts: The extent of this cross border shopping hub is significant. Over 3000 shops, located in a relatively small part of Johannesburg, service this trade. The sample survey indicates that some 70% of the shoppers contributing to these profits are cross border shoppers. The City should acknowledge this and plan for it. It has been dubbed the Dubai of South Africa by some retailers. That ambition – that it be a global retail centre – should be embraced in strategy and in physical plans to upgrade the area. The scale of cross border shopping is extremely high. This is evidence by the large numbers of bus companies that service this trade. On one day 51 bus companies were operating from 19 sites. In that same week, a moderate shopping season of the year (mid August), 465 buses left Johannesburg to neighbouring countries. A large percentage of passengers on those buses were cross border shoppers. Qualitative interviews at the bus depots reveal that in peak seasons these numbers double and then up to 80% of passengers are shoppers.
Zimbabwe gets SADC nod to apply for tariff reprieve (Southern Times)
The SADC Council of Ministers of Trade has given Zimbabwe the greenlight to seek a special dispensation for derogation on outstanding tariff commitments in line with the regional trade protocol. Zimbabwe’s Competition and Tariff Commission: “The country was supposed to have completed the tariff phase down for Category C products by December 2014, but is yet to fully comply. This is largely due to the fact that Zimbabwe is still tackling its economic challenges, hence the need for the extension of the derogation. A proposal was tabled by Zimbabwe to the Council of Ministers of Trade for it to apply for a special dispensation for derogation, outside the set criteria so that it could regularise its commitments under the SADC Protocol on Trade. The Council of Ministers of Trade has given the country the greenlight to submit an application for a special dispensation for derogation on the outstanding tariff commitments. If granted, this will allow Zimbabwe time and policy space for local industry to retool and build production capacities to enhance competitiveness.”
Namibia: Medium term budget speech, MTEF
(i) FY2017/18 Mid-Year Budget Review speech. As a small and open economy, Namibia’s best hopes lies in economic transformation, regional integration and leveraging regional and global value chains. We enjoy a relatively good enabling environment, with political and macroeconomic stability and a predictable policy environment. It is, therefore, material and timely for policy interventions to improve the productive capacity of the economy, diversify economic activities, generate much needed jobs and bolster resilience to shocks. We need to improve the range of finished goods Namibia can trade with in SADC and the African continent. [Presented by Calle Schlettwein, Minister of Finance
(ii) 2017/18 Mid-year budget review and medium-term budget policy statement for FY 2018/19-2020/2021 (pdf). Total exports are estimated to record 7.9% growth in 2017, a slight upward revision from 7.8%, based on the anticipated increases in the production of most minerals due to the prospects of improved commodity prices (zinc, lead, and gold prices) as well as improved infrastructure in diamond mining. In 2018, growth is expected to slow down to 3.2% (downward revision from 3.5%) as diamond production reached full capacity the previous year and, consequently, diamond exports start to slow down. In 2019 and beyond, exports are envisaged to grow by an average of 2.8% riding on increased uranium production and processed zinc. Imports are estimated to contract by 2.4% in 2017 (upward revision from 7.8%) on the back of reduced spending by government, the completion of major investment projects as well as subdued final consumption expenditure. In 2018 and beyond, imports are expected to grow marginally by 1.9% average on the prospects of improved private consumption and investment growth.
Tanzania: Tourists, transit goods up foreign inflows (Daily News)
Rise in the number of tourist arrivals and increase in transit goods to and from neighbouring countries pushed up foreign exchange receipts in the year ending July by 3.0% and 10.4 per cent respectively. According to the Bank of Tanzania monthly economic review for August (pdf), foreign exchange receipts from services increased to over 8.2tri/- ($3,608.4m) from 7.9tri/- ($3,443.1m) in the corresponding period last year. Travel receipts increased following a rise in the number of tourist arrivals, while for transport receipts were on account of an increase in transit goods to and from neighbouring countries,” read part of the statement. The overall balance of payments was a surplus of $1,492.5m in the year ending July compared to a deficit of $275.7m in the year ending last year. A large decline occurred in travel and transportation payments. Travel payments, which accounts for about 40.4% of total services payment, declined by 25.6%, while payments for transportation that account for 41.9% decreased by 10.9% owing to the fall in goods imports.
Tunisia aims to strengthen trade relations with ECOWAS region
Tunisia plans to increase its trade with other African countries in general, and with ECOWAS in particular. This was stated by the Tunisian Minister of Commerce, Omar Behi, after the courtesy visit he paid to Marcel de Souza, President of the Commission of the West African Organisation, on 2 November in Abuja. Mr de Souza and Mr Behi also discussed some of the decisions of the 51st Ordinary Session of the ECOWAS Authority of Heads of State and Government, held in June 2017 in Liberia. The decisions relate to the request addressed to Mauritania, inviting it to submit a request for re-admission into ECOWAS. They also relate to the observer status granted to Tunisia and the agreement in principle given to Morocco for its accession to the West African organisation. Marcel de Souza and Omar Behi stressed the need for Tunisia to adopt a gradual approach to the country’s accession to ECOWAS.
ECOWAS and common currency illusion (editorial comment, ThisDay)
What this plan presumes is a degree of economic sanity and progressive integration of extant national interests that are nowhere near what is needed to create a common currency. Yet, as we have repeatedly canvassed on this page, West African leaders should face the common challenge of poverty before thinking of a common currency that is no more than mere pipe dream. Development and regional integration are, first and foremost, about the nurturing and use of human capital to create a hub of capacities. We must also remind West African leaders that it was this recourse to hasty and ill-digested decision making which led to the introduction of ECOWAS Travellers Cheque some years ago with the result that it could not survive beyond one year. Therefore, while the ECOWAS regional currency plan may not be a bad idea in terms of its perceived linkages with the commission’s broader goals of regional integration, it is best shelved for now. Working towards the creation of a common currency in West Africa by 2020 is an exercise in futility.
Services in global value chains: trade patterns and gains from specialisation (pdf, OECD)
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Assessing Regional Integration in Africa VIII: Bringing the Continental Free Trade Area about
The Continental Free Trade Area (CFTA) is the first flagship project of the African Union’s Agenda 2063 and a key initiative in the industrialization and economic development of the continent.
It has the potential to boost intra-African trade, stimulate investment and innovation, foster structural transformation, improve food security, enhance economic growth and export diversification, and rationalize the overlapping trade regimes of the main regional economic communities. Fundamentally, the CFTA aims to provide new impetus and dynamism to economic integration in Africa.
While Africa exports mainly commodities to the rest of the world, intra-African trade displays high concentrations of value-added products (and services). It is therefore of particular value to Africa’s development. In recent years, intra-African trade has contributed to 57 per cent of the growth in Africa’s exports of capital goods, 51 per cent of processed food and beverages, 46 per cent of consumer goods, 45 per cent of transport equipment and 44 per cent of processed industrial supplies. The CFTA provides a legal arrangement through which this promising trend can be extended to generate win-win gains for all participating African Union Member States.
After providing a status update of regional integration in Africa, this report considers how to ensure that the potential of the CFTA is fulfilled.
It has long been known that a major challenge in Africa is not a lack of good policies or strategies, but a lack of their effective implementation. Crucial to implementation is an understanding of the political economy underpinning economic integration in Africa. Conceptual issues in this area form the theoretical basis of the report. The insights from this perspective can help to frame the policy choices and institutional arrangements required for effective implementation. The report demonstrates that the CFTA potentially embodies a “win-win” approach to sharing its benefits, so that all countries in Africa benefit and the interests of vulnerable communities are carefully addressed. To this end, the CFTA will require “flanking policies” that governments can use to smooth the impact of the CFTA and a strong focus on achieving tangible outcomes from the Boosting Intra-African Trade Action Plan at national, regional and continental levels. Recommendations are made to assure mutual gains for all countries, irrespective of their current level of development.
These recommendations cannot be fulfilled without strategic investments and financing. The report considers methods of financing for bringing the CFTA about, including the role of domestic resource mobilization, non-traditional financial vehicles and regional Aid-for-Trade. Financing must, however, be buttressed with effective implementing institutions and an appropriate CFTA governance structure. The report emphasizes the need to ensure that CFTA institutional structures are based on practical approaches that work in Africa.
The context of this report is a changing world trade environment in which people’s scepticism of trade agreements has become common. Africans are also frustrated by the lack of progress in the Doha Development Agenda at the World Trade Organization. These shifts call for a renewed vision of the role of trade in Africa’s development trajectory. Bringing the CFTA about is part of that vision, in a way that benefits all African countries and leaves nobody behind, in line with the aspirations of Agenda 2063 and the Sustainable Development Goals. It is also a vision for trade policy coherence in Africa in the changing global environment.
Status of Regional Integration in Africa
Overall integration While Africa has many policy initiatives that express commitments to continental integration, the framework that provides both legitimacy and inspiration is the Treaty Establishing the African Economic Community (the Abuja Treaty), which entered into force in 1994.
According to the Economic Commission for Africa (2016),
The first stage has now been completed, with eight RECs formally recognized by the African Union. These are the Arab Maghreb Union (AMU), Economic Community of West African States (ECOWAS), East African Community (EAC), Intergovernmental Authority on Development (IGAD), Southern African Development Community (SADC), Common Market for Eastern and Southern Africa (COMESA), Economic Community of Central African States (ECCAS) and the Community of Sahel-Saharan States (CEN-SAD). The second stage has not been fully completed because progress by the RECs and by members within the RECs has been uneven. The third stage is under way in a number of RECs but not all. Only three of the eight recognized RECs have both a FTA and Customs Union (ECOWAS, EAC and COMESA), although with varying degrees of implementation. While a continental free trade area (CFTA) does not feature explicitly in the AU roadmap, in accordance with the sequential stages of regional economic integration, it is a stepping stone to the creation of a continental Customs Union.
The RECs are progressing at different speeds across the various components of the Abuja Treaty. The EAC has made the most progress across the board.
The following extract from ECA (2016) shows how the CFTA fits into the achievement of the African Economic Community:
The scope of the CFTA Agreement covers trade in goods, trade in services, investment, intellectual property rights and competition policy. This wide scope moves beyond the requirements of a traditional FTA, which requires only the elimination of tariffs and quotas on trade in goods. Therefore, similar to other trading bloc arrangements, it is difficult to neatly place the CFTA under one of the five stages of regional economic integration. The wide coverage of the CFTA is expected to ease the subsequent process of further regional economic integration in Africa.
The harmonization of norms and regulations related to services typically takes place with the establishment of a [single market]. It is however important that trade in services is negotiated alongside trade in goods, since services are inputs into the production of trade in goods and the sector contributes a substantial share to the output of most African economies. The CFTA Agreement will therefore include a sub-agreement on trade in services on the basis of progressive liberalization, consolidating and building on the RECs’ achievements.
Some common investment rules are typically covered under the free movement of capital required by a [single market], whereas an [economic union] would usually contain a fully-fledged common investment policy. Investment issues are rarely covered in free trade areas (FTAs). The CFTA Agreement however is expected to include a sub-agreement on investment that is broad in scope, covering both goods and services. The provision of common rules for state parties in introducing incentives would help to encourage investment into African countries to accelerate development, and would also help to avoid any race to the bottom. A continent-wide dispute settlement system for investment disputes to be settled among state parties will also be key.
Intellectual property and competition policy would typically only be required under an [economic union], the fifth and final stage of regional economic integration. Since few African countries have the institutional capacities and expertise to utilize trade remedy instruments such as anti-dumping, safeguards and countervailing measures, the scope of the CFTA however also covers these areas. Competition policy is a particularly important instrument for regulating unfair trade practices and providing clarity to businesses. Inclusion of a mechanism for regulating competition and facilitating dispute settlement early on will also help to build confidence in the CFTA.
The CFTA Agreement is also expected to include an appendix on the movement of natural persons involved in services and investment, an area of cooperation that is usually not covered until the establishment of a [single market]. This is needed to transform the opportunities provided through the liberalization of trade in goods, services and investment.
Finally, the CFTA project is being rolled out in parallel with the implementation of the Action Plan for Boosting Intra-African Trade (BIAT), which was adopted by the AU Heads of State in January 2012. This initiative goes significantly beyond the requirements of a traditional FTA and is aimed at addressing the constraints and challenges of intra-African trade which are organized under the clusters of trade policy, trade facilitation, productive capacity, trade-related infrastructure, trade finance, trade information and factor market integration. Effective implementation of the BIAT initiative will be crucial to minimizing the challenges and maximizing the gains of tariff liberalization, and ensuring that all African firms and countries are able to take advantage of the CFTA.
In April 2016, the African Development Bank (AfDB), African Union Commission (AUC) and ECA unveiled the Africa Regional Integration Index. The Index seeks to track African countries’ progress in implementing their regional integration commitments to one another in the framework of the RECs. It measures each country’s integration across five dimensions, which have a total of 16 indicators. The following tables capture, for each of the eight AU-recognized RECs, how its members integrate with the rest of the membership, in terms of the country’s overall score and each of its dimensions.
Data updates, not available in AfDB, AUC and ECA (2016), include the most recent data from the African Development Bank’s African Infrastructure Development Index (published in 2016). These data show the average scores for 2011-13 (rather than 2010-12). Work is under way on the second edition of the Index, which will include a sixth dimension on social integration and on gender and will, in addition to measuring within-REC integration, compare how all African countries integrate with the rest of the continent.
Trade integration
Currently there are four functioning free trade areas by AU recognized RECs: COMESA, ECOWAS, EAC and SADC. Further intra-African trade is liberalized through mechanisms beyond the AU-recognized RECs, including the Pan-Arab free trade area, the Central African Economic and Monetary Community (CEMAC) and the Southern African Customs Union (SACU). The Tripartite Free Trade Area (TFTA) will liberalize more intra-African trade. This is also the expectation for the CFTA.
Most intra-African trade occurs between African countries that are members of the same regional grouping. For instance, the average country in the EAC sources 86 per cent of its African imports from other EAC countries. For ECOWAS, the comparable figure is 64 per cent, for SADC 90 per cent, and for COMESA 78 per cent.
Though imports are covered by these REC free trade areas, several REC free trade areas exclude certain products. Free trade area utilization rates are also less than 100 per cent: For instance, the ECOWAS Trade Liberalization Scheme is cumbersome for traders, meaning that many still pay tariffs.
EAC countries already have considerable coverage through their EAC single market and the COMESA FTA. Including the TFTA, the EAC countries would on average cover 99 per cent of their intra-African trade. As ECOWAS coverage is much lower, the CFTA would add considerable value. It could also help to solidify free trade in ECOWAS given the reported constraints to traders regarding the ECOWAS Trade Liberalization Scheme.
The TFTA will be especially important for the COMESA countries that are not in the EAC and are not operating the SADC FTA, as well as for several countries that are not yet implementing other REC FTAs, including Angola, Djibouti, Eritrea and Ethiopia. It will also be valuable for Sudan, which has only a small amount of its intra-African trade captured by the Pan-Arab FTA. For the remaining African countries that are not party to an operating REC FTA, the CFTA is expected to contribute to a large amount of intra-African trade liberalization.
These characteristics of intra-African trade are relevant for the CFTA for two reasons: They show that the tariff revenue losses expected of the CFTA are low, because for many countries a large proportion of intra-African trade is already covered through REC FTAs; and the CFTA will help cover intra-African trade for those countries that do not have operating FTAs within their RECs.
They also suggest that the immediate effects of the CFTA – positive and negative – are unlikely to be dramatic in many countries. The CFTA amounts to a step, rather than a leap, forward for African integration, which will help advance all countries to an improved level of trade integration. (The incremental approach can reduce the structural adjustment costs associated with trade liberalization, and still lead to the trade gains, including improved conditions for forming RVCs, permitting better economies of scale, diversifying exports and facilitating the trade growth forecast by numerous trade models.)
Formal trade arrangements
Since the publication of ARIA VII: Innovation, Competitiveness and Regional Integration, Africa’s RECs have made further advances in liberalizing trade.
COMESA
Democratic Republic of the Congo joined the COMESA free trade area in 2016 through an Act of Parliament, taking the total number of countries to 16. The country will reduce tariffs on imports from other COMESA members over a three-year period, with a 40 per cent reduction on duties in 2016 followed by a 30 per cent reduction in 2017 and another 30 per cent in 2018.
EAC
South Sudan has completed its accession to the EAC, having received approval from the EAC Heads of State in March 2016 and having signed the accession treaty in April 2016.
ECOWAS
The ECOWAS customs union, which came into force in January 2015, applies a common external tariff on trade in goods. ECOWAS has also created mechanisms to ensure that their member states implement the common external tariff, including a customs valuation mechanism; regulations to ensure that inputs for the manufacture of zero-rated products do not face tariffs significantly above those placed on the final product; and safeguard, trade, defense and anti-dumping measures.
Ten out of 15 ECOWAS members were implementing the CET by 2016. In 2017, ECOWAS member countries authorized the ECOWAS Commission to coordinate members’ negotiating positions in the discussions for the CFTA.
Tripartite Free Trade Area (TFTA)
The following developments took place in the negotiations of the TFTA since ARIA VII was written:
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Eighteen of 26 TFTA member states have signed the Agreement, with a 19th due to sign by 10 June 2017, and one (Egypt) has ratified it.
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Rules of origin for product types covering more than 60 of the 96 Harmonized System chapters had already been agreed on by end-May 2017.
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Annexes on trade remedies, dispute settlement and rules of origin have been finalized.
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The start of the second phase of negotiations has been delayed from its original date.
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TFTA member states are discussing whether to drop separate TFTA-level negotiations on trade in services and simply to focus on CFTA negotiations on services trade.
Continental Free Trade Area
The CFTA negotiations continued during 2016 and 2017, including the first meeting of technical working groups and discussions on modalities. As shown in ARIA V, and supported by a more recent study by UNCTAD, the CFTA is expected to bring significant economic benefits to Africa via deeper regional integration and higher incomes and GDP.
Progress update: CFTA negotiations and scope
Negotiations for establishing the CFTA were launched in June 2015 by the Heads of State and Government of the AU at the 26th Ordinary Session of the AU Assembly in Johannesburg, South Africa. Th AU Assembly decision launching the CFTA urged the participation of all regional economic communities (RECs) and member states and called on the AUC, ECA, AfDB, African Export-Import Bank and other development partners for support, with the aim to operationalize the CFTA by the end of 2017.
Following the launch, six meetings of the CFTA Negotiating Forum were held by July 2017, supported by eight meetings of the Continental Task Force, and two meetings each of the Technical Working Groups, the Committee of Senior Trade Officials, and the African Ministers of Trade. The remainder of 2017 will see these bodies convening frequently, with a further two meetings of the Negotiating Forum.
Free trade agreements can take many forms: Potential CFTA configurations were outlined in ARIA VI. The CFTA negotiations are in progress and so it would be premature to provide a detailed outline of current expectations as to form and content.
On the basis of the draft of the negotiating text, and the negotiations and technical work undertaken, the envisaged scope of the CFTA covers agreements on trade in goods, services, investment, and rules and procedures on dispute settlement. The constituent parts of these agreements and their appendices are expected to cover a range of provisions that aim to facilitate trade; reduce transaction costs; and provide exceptions, flexibilities and safeguards for vulnerable groups and countries in challenging circumstances. It is anticipated that agreements on intellectual property rights and competition policy will be tackled in phase 2 of the CFTA negotiations. Crucially, countries are aligning their interests in a comprehensive agreement that achieves substantially more than tariff reductions and that offers safeguards and flexibilities, which are important for ensuring that the gains from the CFTA are maximized and shared equitably.
Though there remain substantive topics to discuss, the negotiations have achieved considerable momentum and build on a long history of African integration. The CFTA has a notable commitment at the highest policy-making levels. The AU Summit in Kigali in 2017 reaffirmed the commitment of the AU Heads of State and Government to fast track the CFTA. Designing the CFTA at the technical working groups and negotiating forum meetings, and ensuring its effective implementation, are now the critical tasks at hand. As foreseen in the Abuja Treaty, the integration process is to culminate in the African Economic Community.
Intra-African trade in goods
Such benefits are needed, as intra-African exports fell steeply in absolute value from $85 billion in 2014 to $69 billion in 2015. Intra-African trade as a share of the continent’s GDP also declined, from around 3.4 per cent to around 2.9 per cent over the period.
As a share of Africa’s total imports, intra-African imports stood at 14 per cent in 2015. As a share of Africa’s total exports, intra-African exports stood at 18 per cent in 2015.
Intra-REC trade
Comparing the share of intra-regional trade in GDP among 25 selected regional trade agreements in force worldwide and reported to the World Trade Organization (WTO), relative to the total GDP of the bloc (since economic blocs with larger GDP may have greater economic diversity within them, creating greater potential gains from trade and therefore a higher share of intra-regional trade in GDP), Africa’s RECs that have regional trade agreements (that is, COMESA, EAC, ECCAS, ECOWAS and SADC), tend to underperform in terms of the share of intra-regional trade in GDP (except for SADC).
Among the eight AU-recognized RECs, SADC consistently has the highest share on this metric, even though it does not have the lowest intraregional economic community average-applied tariffs. Other factors, such as trade complementarity, may explain the pattern of trade within SADC.
Non-tariff barriers and trade facilitation
Africa remains far behind the world on its efficiency of document and border processing requirements for trading across borders, despite significant recent progress. For both document and border processing requirements, the best-performing countries and territories in the global dataset achieved a cost of less than one U.S. dollar and a processing time of one hour or less.
For the TFTA, great effort has been put into eliminating NTBs. A mechanism for reporting, monitoring and eliminating them was developed to address eight categories: government participation in trade and restrictive practices tolerated by governments; customs and administrative entry procedures; technical barriers to trade; sanitary and phyto-sanitary measures; specific limitations; charges on imports; other procedural problems; and transport, clearing and forwarding. As of June 2017, 527 complaints have been resolved and 57 remain active.
On 22 February 2017, the World Trade Organization’s (WTO’s) Trade Facilitation Agreement (TFA) entered into force. It commits members to taking measures to reduce the cost of international trade by simplifying, modernizing or harmonizing the country’s rules and procedures for exporting or importing. While the Agreement obliges developed countries to implement all measures from the date at which it takes effect, developing and least-developed countries will have longer. Each developing or least-developed country will apply an individual list of measures from countries from the date at which the Agreement takes effect, to be decided by the country in question; these are called “category A” measures. A second individual, nationally determined list of measures (“category B”) will be implemented after a transition period (which can be different from measure to measure), to be decided by the country in question. A third individual, nationally determined list of measures (“category C”) will be implemented by the country after a transition period to be determined by the country (which again can be different from measure to measure) and only once it receives capacity building support to do so. Each developing or least-developed country must notify each measure included in the Agreement in one of these three categories.
As African countries start to implement the TFA, trade is expected to be facilitated and boosted, not only among African WTO members likely to become parties to the Agreement, but also between African countries party to the Agreement and non-party African countries. This is because traders from any country (whether party to the Agreement or not) should be able to benefit when trading with a country that is party to the Agreement from measures taken to simplify or modernize export/import rules and procedures.
As of 20 April 2017, of 44 African WTO members party to the TFA, 19 had ratified it. By the same date, 27 had submitted at least some notifications as to which measures will fall into which categories. However, only five (Chad, Malawi, Mauritius, Mozambique and Zambia) had already notified for all of the measures under the Agreement.
The African Corridor Management Alliance, which will promote information and experience sharing and joint projects among Africa’s corridor management agencies, was inaugurated in February 2017. This inaugural meeting included discussion of the Alliance’s work plan and related issues. ECA has provided funding and substantive support for start-up activities.
Trade in services
Data on services trade are notoriously weak, with woefully poor coverage on both what is being traded and with whom, and questionable reliability of the meagre data that are available. Moreover, drawing on balance-of-payments data, services trade data essentially ignores investment flows. Notwithstanding improvements in the collection of services trade data over the past 15 years, the macro- and micro- level services data needed for meaningful economic analysis simply do not exist – a challenge exacerbated in Africa.
One technique commonly used for filling (services) trade flow gaps is to make use of “mirror data,” i.e. look at what, for example, the United Kingdom reports as services imports from Ethiopia as a proxy for what services Ethiopia exports to the UK. While helpful to fill certain gaps, the technique is biased towards understanding North-South trade (as it relies on better reporting from countries in the North). But no public bilateral mirror data exist on intra-African services trade flows, so the oft-cited African share of trade with itself (14% of imports or 18% of exports) does not account for services trade in any way. Case study literature (e.g. AUC, 2015) and experience from African services firms strongly suggest that the majority of business for most African micro, small and medium-sized enterprises (MSMEs) is intra-African.
For barriers to services trade – found “behind the border” in the form of regulatory measures – the World Bank’s Services Trade Restrictiveness Index offers a unique snapshot of prevailing discriminatory restrictions in a subset of 27 African countries, sectors and modes. While there is significant diversity among countries, in aggregate the continent scores relatively well relative to high-income Organisation for Economic Co-operation and Development (OECD) countries, with an average overall index score of 33 compared with 19 for the latter. By mode, Africa scores reasonably well, at 31-21 in mode 1, 31-18.6 in mode 3, and 60.7-58.4 in mode 4. This aggregation masks significant diversity at the country and sector levels, notably where African countries maintain fairly restrictive regimes, for example in professional, retail and transport services.
This seemingly good performance contrasts with broader narratives about the restrictiveness of African economies, as well as with anecdotal evidence that suggests that services barriers and regulations in African countries still heavily impede services trade opportunities for firms. Data issues notwithstanding, this highlights the fact that non-discriminatory barriers (which are not captured in the Services Trade Restrictiveness Index) are no doubt significant. As increased trade and integration take place between African services markets, this emphasizes the importance of looking at the role of discriminatory barriers and non-discriminatory regulations in intra-African services trade.
Informal trade
Much trade between African countries is not recorded in official statistics because it is informal. For example, an estimated 20 per cent of Benin’s GDP is based on informal trade with Nigeria alone. However, data on informal trade are, by its very definition, very limited.
The lack of information on informal trade in Africa makes it difficult to evaluate the impact of policies on informal traders and their livelihoods. And while some policies or economic challenges are known to harm informal traders (e.g. cumbersome customs procedures), it can be hard to estimate their economic impact and the importance of changing these policies without accurate data on the extent of informal trade. If these policies are worsening the livelihoods of informal traders, they may also worsen gender exclusion, since women are known to make up 70 per cent of informal cross-border traders. All of this underlines the need to collect and produce better information on informal cross-border trade in Africa, extending to understanding which products and services are being traded informally, and who (men or women) is trading in them.
Economic Partnership Agreements
After negotiating for 12 years, African countries have recently made progress towards signing Economic Partnership Agreements with the EU, though only a handful have started provisionally applying them. Such agreements with Côte d’Ivoire, Ghana and SACU have entered into provisional application since the publication of ARIA VII. Kenya and Rwanda have also signed them with the EU since then, but they have not yet entered into provisional application.
This report is a joint publication of the ECA, AUC and AfDB. The report was prepared under the overall guidance of Abdallah Hamdok, ECA Deputy Executive Secretary and Chief Economist, with oversight by Stephen Karingi, Officer-in-Charge, Regional Integration and Trade Division. The core team preparing the Report consisted of David Luke, Coordinator of ECA’s African Trade Policy Centre (ATPC) and Jamie MacLeod, ATPC Trade Policy Fellow.
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Industrialization tops SADC agenda as South Africa’s Minister of Trade and Industry visits SADC Secretariat
The Minister of Trade and Industry of the Republic of South Africa, Honorable Dr. Rob Davies on 31st October 2017, visited the SADC Secretariat in Gaborone, Republic of Botswana to discuss ways of moving forward the SADC Industrialization Agenda, in line with the SADC theme: “Partnering with private sector in developing industry and regional value chains”.
The visit by Hon. Davies comes just few months after the Republic of South Africa assumed the Chairpersonship of the SADC during the 37th SADC Summit of Heads of State and Government held in August 2017 in Pretoria, South Africa.
The visit also follows the SADC Summit’s adoption of SADC Industrialisation Strategy and Roadmap in April 2015, in Zimbabwe and the costed action plan in March 2017, in Swaziland. The implementation plan seeks to identify projects and programmes to develop regional value chains that not only promote industrial development but integration in the region.
During the visit, Davies was welcomed to SADC House by the Executive Secretary of SADC, Her Excellency Dr. Stergomena Lawrence Tax. Dr Tax said the visit to SADC Secretariat by the Minister and his team was a confirmation of the Republic of South Africa’s commitment to work with the Secretariat in ensuring concrete deliverables while operationalizing the 37th SADC Summit theme, and in doing so contribute to the SADC Industrialization agenda.
Davies said that the Government of South Africa was committed to render support to accelerate the rolling out of the pdf SADC Industrialization Strategy and Action Plan 2015-2063 (2.34 MB) within the region. “As the Chair, we would like to avail some of our capacities, skills and institutions at the disposal of the SADC Region to develop regional value chains,” Hon. Davies said.
The meeting agreed on the framework to guide the development of the implementation plan and selection of regional projects that will be key to driving the industrialisation agenda in SADC. The envisaged plan is to be considered by the SADC Ministers in March 2018. As the current chair of SADC, South Africa will ensure that this deliverable is realised on the agreed timeframes with the Secretariat.
The meeting identified Value Chains in agro-processing, mineral beneficiation, and pharmaceutical sectors as priorities that the region can focus on during the year. The meeting further agreed to form interdisciplinary expert technical teams, involving both public and private sector representatives, that would champion the identified priority value chains.
The meeting also discussed the need for the formation of a repository of all previous studies on potential bankable projects from each sector as well as providing specific training opportunities to build capacity to support Industrialization in Member States. They also agreed to have short-term plan with key outputs to be presented to a high-level meeting of Member States for consideration and possible adoption.
The Executive Secretary was accompanied by the Deputy Executive Secretary responsible for Regional Integration, Dr. Thembinkosi Mhlongo and SADC Directors in related Directorates. The Deputy Executive Secretary, Dr. Mhlongo will lead the Technical Team from the SADC Secretariat side.
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SADC Ministers responsible for Transport and Meteorology meet in Lilongwe, Malawi
The SADC Ministers responsible for Transport and Meteorology Sectors took place from 30th October to 3rd November 2017 at the Bingu International Conference Centre in Lilongwe, Republic of Malawi to consider the progress made in the sectors of Transport and Meteorology.
SADC Deputy Executive Secretary: Regional Integration, Dr Thembinkosi Mhlongo, said in his opening remarks that “the implementation of the cross-border infrastructure projects should be a major preoccupation of the SADC’s political leaders, policymakers and other stakeholders because it may compromise the targeted regional integration, industrialization and structural transformation agenda of our community.” However, “[t]he current approach to managing regional transport infrastructure programmes does not sufficiently emphasise the importance of national ownership of the regional projects.”
“Many observers have argued that political will and ownership of regional programmes are lacking at national level. Evidence to support this includes the non-domestication of regional agreements, failure to include reand budget for regional projects in national development plans and budgets and poor support to common institutions that we have created to coordinate and jointly manage regional programmes. Member States should be fully involved in decision-making on regional projects which should be integrated into national plans and be assigned budgets.
“The importance and necessity of regional cooperation is increasingly understood by our Member States. Regional cooperation plays a vital role in enabling Member States to achieve common goals set out by them, as well as specific goals set out under the main objective of the Transport and Meteorology Programme is to facilitate the deepening of the SADC regional integration as well as to address the over-arching objective of Poverty Reduction. Our political leadership carries the hope and aspirations of our people, who continue to look up to them to lift the quality of their lives until poverty is completely eradicated.
“The region has embarked on initiatives aimed at addressing challenges arising from the lack of availability and access to sound, cost effective, efficient transport infrastructure necessary to strengthen intra-SADC trade. Major focus remains on the development of SADC Regional Corridors, recognising the need for an integrated transport policy framework to achieve regional integration,” Dr. Mhlongo concluded.
In her opening statement, Ms. Manare Mamabolei, Chairperson of the Committee of Ministers Responsible for Transport and Meteorology, noted that “[t]ransport is the enabler of integration and therefore what we achieve in transport has consequences for the success of the integration project in its entirety. The sub-region and the continent is perceived well in developing new instruments, but regarded weak in implementing the existing treaties. We need to counter this perception by committing to prioritize implementation of existing agreements as opposed to developing new ones.”
“With the creation of the Tripartite Free Trade Area now at an advanced stage, a precursor to our Continental Free Trade Area which is under development, as well as the adoption of the industrialization pillar both at SADC and Tripartite level, the role of efficient, reliable seamless, safe and cost effective transport services as well as meteorological services cannot be overemphasized. As the Committee of Ministers responsible for these sub-sectors established through the Protocol on Transport, Telecommunications and Meteorology, it is our responsibility to review the progress the Sub-Sectoral Committee reported to us annually by the Committee of Senior Officials. From the review, we should reaffirm our commitments and provide direction for implementation.
“I understand the Tripartite Transport and Transit Facilitation Programme (TTTFP) that we approved in Livingstone, Zambia in 2015, was recently approved by COMESA Ministers for Infrastructure at their recent meeting in Lusaka, Zambia 3-4 October 2017. To complete the process, the inaugural meeting of Tripartite Ministers responsible for infrastructure endorsed the TTTFP and officially launched the programme on 26 October 2017 in Dar Es Salaam, Tanzania. EAC was the first Region to approve the TTTFP in 2016.
“I am advised that the purpose of TTTFP is to develop and implement harmonised road transport policies, laws, regulations and standards for efficient cross border road transport and transit networks, transport and logistics services, systems and procedures in the Tripartite region. I am reminded of the OR Tambo International Road Transport Indaba where I was invited to deliver the Keynote Address. The event was attended by representatives from inland SADC countries, and it brought together key stakeholders in the trade and transport value chains with a view to hold constructive deliberations on how to improve the cross-border transport system, intra-Africa trade and enhance industrialisation in Africa.
“I am advised that Member States who attended the Indaba drafted the Linking Africa Plan which is aimed at providing interventions toward addressing trade and transport challenges, unlocking Africa’s economic growth and development; improving regional competitiveness, enhancing intra-Africa trade and industrialisation in the continent. I therefore hope that in future, Officials from Member States will submit the final Plan to Ministers through the SADC Secretariat for us to appreciate the alignment of the recommendations with our regional initiatives.
“[O]n the 10th October 2017, the day before the start of the Oliver Tambo International Road Transport Indaba, we held and concluded a workshop on the establishment of the Multilateral Cross-Border Road Transport Agreement. Through the MCBRTA, for those who may not have opened their eyes to this strategic development, through the MCBRTA, we seek to march the region out of the binding limitations of bilateral road transport and trade agreements. Our strategic intent is to move towards the development of a more progressive, and strategic, multilateral agreement that will commit all of us to a common governance framework for entire SADC region. Our ultimate intent is to progressively move toward a common governance framework for the tripartite Free Trade Agreement, committing SADC, EAC and COMESA. It is our firm view that without the MCBRTA, we will not be able to achieve a common, consistent and reliable governance framework for the TFTA area. We therefore urge all the forward and progressive thinking countries to work together to make the realisation of the Multilateral Cross-Border Road Transport Association a reality. Our hope is that through this structure, we will ensure the realisation of the objectives of harmonisation and systematic achievement of common objectives for all SADC, EAC and COMESA member-states.
“While some considerable progress was made last year in the transport and meteorology sectors much more needs to be done to provide the seamless, efficient and cost-effective services. We will therefore during this meeting be reviewing recommendations by the Committee of Senior Officials and make decisions aimed at expediting the implementation of the sectors’ program,” she concluded.
Meeting of SADC Ministers Responsible for Transport & Meteorology: Communiqué
3 November 2017
1. Background
The 2017 edition of the SADC meeting of Ministers responsible for Transport and Meteorology Sectors took place from 30th October to 3rd November 2017. The Government of Malawi hosted the meeting at the Bingu International Conference Centre in Lilongwe, Malawi. SADC holds annual Sector Ministers meetings as part of the governance and programme management strategy. The purpose of the meeting was to consider the progress made in the sectors of Transport and Meteorology in the implementing the SADC Protocol on Transport, Communications and Meteorology and the derivative policies and programmes and to provide guidance to implementing national, corridor and regional institutions including the Secretariat. The meetings of Beira Development Corridor and North South Corridor at Ministerial level and the Maputo Development Corridors at technical and Senior Officials levels preceded the meeting of Ministers responsible for Transport and Meteorology.
2. The Transport Sector
The SADC Transport Sector is composed of road and rail transport, ports, maritime and inland waterways, as well as air transport. The main areas of focus in the transport sector include infrastructure development, harmonisation of laws and policies, capacity building, and transport transit and trade facilitation. The development of the Free Trade Area, planned progressing to a Customs Union and ultimately a Common Market in SADC cannot be achieved without the development of Transport Infrastructure. The Transport Sector addresses the provision of adequate, integrated, safe and efficient infrastructure services in road, railways, civil aviation and maritime, ports and inland-waterways services.
3. Air Transport and Civil Aviation
The Meeting of Ministers reviewed progress in this sub sector, the noted in particular the establishment of the SADC Aviation Safety Organisation (SASO) hosted by the Kingdom of Swaziland and urged those Member States who have not yet signed the Charter establishing SASO to sign. Concerning the implementation of the SADC Civil Upper Airspace Management Centre (CUAMC) Project Ministers directed the Secretariat to ensure close collaboration with other RECs in the Tripartite (COMESA and EAC) on systems implementation to ensure seamlessness, interoperability and standardisation; and encouraged Member States to consider inter-state/bilateral harmonisation and interoperability. Ministers also reviewed the implementation of the Yamoussoukro Decision (YD) which concerns the Liberalization of Access to Air Transport in Africa and seeks to establish a Single African Air Transport Market by 2017 as decided by the AU Assembly. Ministers urged the SADC Secretariat to collaborate with the Tripartite Regional Economic Communities (COMESA, EAC and SADC) in the implementation of Yamoussoukro Decision.
4. Roads Infrastructure, Transport and Traffic
The high ratio of landlocked countries, the long distances to gateway ports, the lack of an integrated and liberalised road transport market in the East and Southern African region pose numerous obstacles and impediments to trade. Ministers noted that to bring a solution to the challenges the Tripartite Transport & Transit Facilitation Programmes (TTTFP) that they approved in 2015 has since been approved by COMESA and the EAC. Ministers also noted that the Tripartite Ministers responsible for Infrastructure launched the TTTFP on 26 October in Dar es Salaam Tanzania as it is a Tripartite flagship programme. SADC Secretariat on behalf of the Tripartite coordinates the programme. The TTTFP purpose is to develop and implement harmonised road transport policies, laws, regulations and standards for efficient cross border road transport and transit networks, transport and logistics services, systems and procedures in the Tripartite region.
5. Rail Infrastructure
Ministers noted that the North South Corridor Rail Study commenced in February 2017.The study will identify and prioritize projects for implementation in the short, medium and long-term necessary for the revitalisation of SADC railways. This is critical in order to correct the current skewed and unsustainable ratio of between road (90%) and rail (10%) in regional freight transport market share.
6. One Stop Border Posts (OSBPs)
Ministers reviewed progress on trade and transport facilitation, and in particular noted the following development;
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Beitbridge:Recently the Presidents of South Africa and Zimbabwe agreed to fast-track operationalisation of the Beitbridge One-Stop Border-Post (OSBP) and welcomed establishment of the Joint Technical Committees to develop the necessary legal framework for the OSBP.
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Kazungula Bridge: The on-going project consists of 3 packages, the road and bridge physical structure and the OSBP facilities on both sides of the Zambezi River which forms the border between Botswana and Zambia. Kazungula Bridge is scheduled for completion in January 2019, the OSBP on the Botswana side scheduled for completion in September 2018 and the OSBP on the Zambia side is scheduled to be completed in December 2019. Ministers also noted that both Botswana and Zambia have OSBP laws in place but what is now needed is the signing of an OSBP Bilateral Agreement between Zambia and Botswana and that this is in progress.
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Martins Drift/Groblers Bridge: Ministers noted that this border crossing, which is an alternate route on the NSC, is fast becoming a bottleneck and confirmed programme to upgrade the bridge and border facilities.
7. Maritime
Ministers noted the progress in the implementation of the following programme-Enhancing Maritime Connectivity Project (EMCP) in the Eastern Africa, Southern Africa and the Indian Ocean with Support from European Union 11th European Development Fund. The overall objective of the program is to increase value of trade within the region.
Ministers also noted that there is a need to develop a legal framework for regulating, coordinating and facilitating the sustained provision of global and regional coverage of meteorological observational data, products and services to address the continued and expanding requirements of the maritime user community, focusing on safety of life and property at the sea, integrated coastal management and societal impact over the Indian as well as Atlantic Ocean.
8. The Meteorology Sector
The Meteorological Sector’s main purpose is to establish meteorological systems and infrastructure that are fully integrated, efficient and cost effective to meet the requirements of the users, and to minimise adverse effects associated with the severe weather and climate phenomena.
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Ministers noted progress on implementation of programmes and projects.
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Ministers urged Member States that have not yet signed the Meteorological Association of Southern Africa (MASA) Constitution to do so as soon as possible in order to ensure operationalization of MASA.
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Ministers also noted that Member States are obliged to be compliant with the Quality Management System (QMS) standard for the provision of the aeronautical meteorological services to airlines. Non-compliance to the obligatory regulations on QMS of the Chigago Convention will have far reaching consequences on the Member States and could find their airspace declared unsafe for air travel by ICAO due to safety considerations. Therefore, Ministers have urged Member States which have not yet been ISO 9001-2008 or ISO 9001-2015 certified to take necessary and urgent action to comply to avoid their countries from being flagged as a high safety risk zone and be found looking revenues incurred on the air traffic.
9. SADC PIDA Acceleration Programme On Beira And North South Corridors
Ministers responsible for the above two corridors met and made the following decisions and observations concerning progress on the implementation of projects the Beira and North South Corridors (NSC):
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Signing of the MoU on the Establishment of a Corridor Management Institution for the North South Corridor. Ministers noted progress on signing the MoU where 3 Corridor States had already signed and urged other to do once they have completed their internal processes. The MoU envisages the establishment of a corridor management institution to coordinate project design, development and implementation and the resolution of barriers to trade and transport on the corridor. The NSC is the busiest regional transport corridor in SADC carrying 60% of regional traffic and serving 7 countries i.e Botswana, DRC, Malawi, Mozambique, South Africa, Zambia and Zimbabwe. NSC is a multimodal corridor anchored on the port of Durban in South Africa
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Signing of the Agreement on the Beira Development Corridor. Minister noted progress on development of the Corridor and noted that 2 Corridor States had already signed the MoU. The other Corridor States countries have assurances that they are on course to sign once they have completed internal process. Beira Development Corridor is anchored on the Port of Beira in central Mozambique and serves Zimbabwe, Malawi, Zambia and DRC. It is also planned to establish a corridor management body to be hosted by one of the corridor states. Ministers approved the options for setting up the NSC and BDC Corridor Management Institutions and the Road Maps and approved the BDC and NSC List of Minimum Requirements for hosting the BDC and NSC Management Institutions.
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PIDA Week. Ministers noted that the 2017 edition of the NEPAD PIDA Week aimed at highlighting infrastructure development in Africa would be hosted by Namibia. PIDA Week is hosted on a rotational basis and this year is SADC’s turn. Ministers agreed to support Namibia and to participate in PIDA Week activities and meetings from 10-14 December 2017 in Swakopmund, Namibia.
10. Conclusions
Ministers analyzed the sluggish implementation of the cross-border infrastructure projects through the lens of national ownership of the regional programmes. They concluded that regional cross-border infrastructure, particularly in the areas of transport, and meteorology, has the potential to facilitate intra-regional trade and investment; unlock national and regional comparative advantages. Ministers underscored the need to address the special needs of landlocked countries to access the rest of the world. The Ministers concluded that partnership is the main strategy to implement these regional projects. They also agreed that placing regional projects on the national agenda is the core of creating an enabling environment, because these projects only kick off after they get attention of national politicians and policy makers.
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Namibia: 2017/18 Mid-Year Budget Review and Medium-Term Policy Statement
Mid-Year Budget Review Tabling Speech presented by Calle Schlettwein, Minister of Finance, on 2 November 2017
While the global economic landscape offers a window of opportunity for resurgent trade, the medium-term outlook is clouded with downside risks on revenue as a direct offspring from sluggish regional growth prospects. Low regional growth episode presents multiple risks for Namibia.
As a small open and resource-based economy, with a trade to GDP ratio of over 100 percent, Namibia is vulnerable to external shocks through the trade link. Commodity price volatility exert pressure on economic activity, public revenue, international reserves and the external position. Equally, weak external demand in our main trade partners presents challenges for the export sector, which limits potential growth. As such, measures to improve the productive capacity of the economy as well as economic diversification are critical for Namibia to bolster resilience.
The current conjecture of gradual growth and tightness of the fiscal adjustment path presents opportunity for the policy framework which balances between the consolidation policy stance and providing for a package of policy actions to protect the gains made through consolidating expenditure, while at the same time mitigate the unintended consequences.
At the current conjuncture:
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domestic economic growth has slowed in tandem with the regional averages,
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per capital incomes are stalling due to sluggish growth conditions,
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gains in job numbers have narrowed and, in some sectors such as construction, have reversed,
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allocative efficiency needs to be scaled-up to ensure that critical service delivery is not impaired by budgetary shortfalls,
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efficiency gains are a priority target as there is no substitute for doing more with less,
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fiscal space remains narrow, building buffers is indispensable for long-term sustainability,
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fiscal consolidation has yielded gains which must be protected from reversals, while unintended negative consequences must be mitigated,
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graft and fiscal indiscipline should be deterred and nipped in the bud,
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the financial management system must prevent and deter incidences of budget over-commitments.
To recap, we had less options than to implement a steeper fiscal consolidation this time last year:
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the domestic economy came under pressure, growth and income estimates were revised downwards sharply,
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absent timely corrective action, financing needs were elevated beyond what the market could provide,
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market confidence was at an all-time low and liquidity diminished, putting the financing of the budget deficit at risk,
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a commensurate corrective action was urgently needed. We responded timeously,
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as a result, the policy framework was recalibrated and expenditure realigned to a revised framework,
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we have regained market confidence and growth is resuming again. Ascending to higher rates of growth requires patience and prudence to guard against reversals.
While the Mid-Year Budget Review allows for allocative efficiency and expenditure correction in respect to the FY2017/18, its Medium-Term Policy Framework proposes a package of policy actions to mitigate the unintended consequences.
This Budget Review and its Medium-Term Policy Framework:
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provides limited additional resources to address spending on outstanding contractual obligations and meeting critical needs in respect of the delivery of essential public services,
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maintains the fiscal consolidation policy stance with added impetus to enhance the growth friendliness of the fiscal consolidation policy stance, while guarding against excess procyclicality,
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proposes to scale-up the development budget priority infrastructure spend through the establishment and operationalization of the Infrastructure Fund with a knock-on effect on growth and activity in the construction sector, which is currently contending with prolonged recessionary pressures,
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additionally harness alternative means of financing through Public, Private Partnerships, SME Financing Strategy, targeted guarantee support to qualifying Public Enterprises and better leveraging of select state assets, and
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proposes tackling the productive capacity and structural transformation of the economy through implementation of provisions of Public Procurement Act, Growth at Home strategic interventions and local economic development interventions contemplated in the Namibia Investment Promotion Act as may be amended.
Economic, fiscal and financial context
The global economic landscape presents differentiated speed of economic recovery. Globally, the International Monetary Fund projects an uptick in global economic activity and improvement in trade volumes. The global economic activity rate is projected to rise from 3.2 percent in 2016, to 3.6 percent in 2017 and reach an estimated 3.7 percent in 2018.
Equally, the world trade volume is projected to rise by 4.2 percent in 2017 and 4.0 percent in 2018, from 2.4 percent recorded in 2016. Non-fuel commodity prices are projected to taper off in 2018, after a moderate recovery in 2017.
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growth for Advanced Economies hovers around 2 percent, reflecting demand improvements in the Euro Area and moderate growth for the US and UK economies, and
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Emerging Markets and Developing Economies will anchor global economic performance with activity pitched at about 4.5 and 4.9 percent for 2017 and 2018 respectively, thanks for expansionary policies for China and India
The prospects for the Sub-Saharan African Region are anticipated to brighten moderately, with growth rising from the worst performance in two decades of 1.4 percent in 2016 to 2.6 percent in 2017 and 3.4 percent in 2018. This regional outlook is underpinned by low growth outlook for the region’s biggest economies of Nigeria and South Africa. On the other hand, the soft recovery in commodity prices, improvement in agricultural output as well as continued flow of capital to the region support a moderate growth recovery going forward.
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growth for the South African economy stood at 0.7 percent in 2016 and it is projected at 1.1 percent in 2017 and averaging 1.5 percent over the next MTEF,
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Angola, Africa’s third largest economy and a key source of demand for Namibia, is projected to grow at about 1.5 percent in 2017 and strengthening moderately to 1.6 percent in 2018.
In spite of the upswing in global economic growth, significant risks and uncertainties still linger on medium-term growth outlook. This is in regard to increasing protectionism, possible tightening of financial conditions in Emerging Markets and Developing Economies due to monetary policy rate normalization in the US expected by the end of 2017 and continued rising geopolitical tensions. The low growth environment in the region also come with revenue risks, especially on revenue from SACU.
The subdued regional economic outlook and the new growth normal for our largest neighbouring trade partners, continue to present a particularly challenging trade and economic environment for Namibia.
As a small and open economy, Namibia’s best hopes lies in economic transformation, regional integration and leveraging regional and global value chains. We enjoy a relatively good enabling environment, with political and macroeconomic stability and a predictable policy environment. It is, therefore, material and timely for policy interventions to improve the productive capacity of the economy, diversify economic activities, generate much needed jobs and bolster resilience to shocks. We need to improve the range of finished goods Namibia can trade with in SADC and the African continent.
Domestic economic developments and macroeconomic impacts
Turning on the domestic economic developments and outlook, the year 2016 presented challenging developments since the global financial crisis in 2009. Economic growth slowed to about 1.1 percent, down from 6.0 percent in 2015, in line with the 2016/17 budget estimates of 1.3 percent.
This outturn mirrors the regional economic performance and it is due to a confluence of factors:
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primary industries remained in contraction since 2013 which was due to subdued commodity prices, especially for the uranium sub-sector, production constraints in the diamond industry and the severe drought condition and related water challenges in the agricultural sector. Primary industry sector has now eased out of negative growth territory and will be a key driver for growth going forward,
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secondary industries declined as the construction sector adjusts to a bust period after completion of large private and public infrastructure projects and the end of unsustainably high expansion,
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the tertiary services sector continues to anchor growth, but weak demand conditions have impacted on especially the retail and wholesale sector, while tourism and financial intermediation sectors remained relatively robust,
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on the demand side, consumption has slowed as measured by the deceleration in private sector credit extension and the reduction in Government material consumption of goods and services,
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the payment of outstanding invoices previously accumulated by Offices/Ministries and Agencies has injected liquidity in the market, this alleviating the burden on the balance sheets of service providers,
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monetary policy has remained generally accommodative and the recent Repo Rate cut in August this year to 6.75 offers a good respite to support domestic demand and investment,
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exports have started to regain momentum as large investment projects such as Swakop Uranium have commenced with export activity and imports have slowed to normal trend due to completion of major investment projects and fiscal consolidation measures,
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the trade balance has improved and Current Account deficit has narrowed from 14.1 percent of GDP in 2016 to an estimated 5.8 percent of GDP by September 2017,
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the Overall balance of payments remains in surplus of about N$3 billion as at September 2017, and
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the international reserves have increased to 5.1 months equivalent of import cover which is more than sufficient to support the currency peg, thanks to Rand denominated loan proceeds and more inflows from export earnings going forward.
2017/18 Mid-Year Budget Review and Medium-Term Budget Policy Statement
for the 2017/2018-2019/2020 Medium-Term Expenditure Framework
Real GDP registered a slower growth of 1.1 percent in 2016 compared to a strong growth of 6.0 percent recorded in 2015, and below 1.3 percent estimated in the current Fiscal Strategy. The main factors behind the growth were the primary and secondary industries that recorded a contraction of 2.0 percent and a slower growth of 7.8 percent, respectively compared to estimated contractions of 1.7 percent 3.7 percent in Fiscal Strategy.
The contraction in primary industries were attributed to decline of 5.7 percent in the output from mining and quarrying subsectors, with both diamond and other mining and quarrying registered a decline. Another factor was the dismal growth in metal ores triggered by low production due to expected closure (ending of life of mine in 2017) of a zinc mine.
The contraction observed in the secondary industries was mainly attributable to a decline in the construction sector. The sector recorded a contraction of 26.5 percent in 2016 compared to a strong performance of 26.0 percent in 2015, and above the 11.5 percent estimated in the Fiscal Strategy.
A positive growth of 3.4 percent in the manufacturing sector is observed in 2016 compared to a decline of 4.6 percent recorded in 2015. This performance is mainly attributed to diamond processing and other food products sub-sectors that recorded growth rates of 65.9 percent and 4.0 percent in 2016 compared to declines of 24.1 percent and 12.3 percent in 2015, respectively. The recovery in diamond processing owes to the increased supply of rough diamonds. This follows an intervention by government and De Beers to increase the number of quality stone to processors1 as well as the processing of diamonds that were held in inventory during the previous year due to low market absorption capacity.
The tertiary industries registered slower growth of 3.9 percent in 2016 compared to 7.6 percent in 2015, despite that it remains the biggest contributor to GDP, with a contribution of more than 50 percent share to GDP. Year-on-year, all the sectors within the tertiary industries slowed down indicating slower economic activities across the service sector except for financial intermediation which remained flat.
External sector
Trade and Balance of Payments
Merchandise exports from Namibia decreased by 2.8 percent during the first half of 2017, when compared to the corresponding period of 2016. Specifically, noted decreases in merchandise exports came from diamonds, other mineral products and other commodities. Meanwhile, exports for food and live animals as well as for manufactured products recorded strong increases over the same period. Merchandise imports fell by 13.3 percent between the first half of 2016 and the first half of 2017.
The fall in merchandise imports were more visible amongst mineral fuels, oils and products; base metals and articles of base metal; products of the chemical industries; vehicles, aircraft and vessels; as well as machinery, mechanical and electrical appliances. There was, however, a substantial increase in imports for precious and semi-precious stones during the same period.
On the net basis, the above developments in in merchandise trade led to the easing of Namibia’s merchandise trade deficit (covering goods only), which reduced by 32.6 percent from N$14.0 billion during the first half of 2016 to N$9.4 billion during the first half of 2017.
Current Account Balance
Namibia recorded high trade deficits since the year 2012, and this was due to factors such as increased investments in the mining sector, which required the importation of construction materials and equipment; expansionary fiscal policy as well as expansionary monetary policy. With many construction projects at mines and in government having come to an end, imports started to stabilise, while exports increased faster in 2016 and during the first half of 2017.
At the same time, SACU inflows increased during 2017 in line with SACU estimates for 2017. Namibia’s revenue share from SACU revenue pool increased to N$19.6 billion in 2017, from N$14.8 billion in 2016. Namibia’s current account deficit narrowed to N$1.8 billion during the first half of 2017, compared to N$8.6 billion during the same period of 2016. The improvement in the current account deficit was primarily attributed to the narrowing of the trade deficit, a reduction in net investment income payments and increased inflows in the secondary income account, particularly SACU receipts. Although SACU revenues are expected to decrease after 2017, the combination of a moderation in import growth and increased mineral exports are expected to sustain an improved external position for Namibia going forward.
Outlook for the domestic economy: Demand-side projections
Gross Fixed Capital Formation
Gross fixed capital formation is expected to decline by a lower 2.3 percent in 2017, an upward revision from the earlier estimated contraction of 7.4 percent, as a result of the slowdown in economic activities that caused lower investment due to fragile investment confidence as well as the completion of major capital projects (Namport port expansion due to reach completion during mid-2018, Neckartal dam reaching due to be completed in first quarter 2018 and suspension of the mass housing project).
In 2018, gross fixed capital formation is expected to bottom out with a growth of 2.1 percent (upward revision from 0.1 percent), backed by increased investments in private property developments. Going forward, gross fixed capital formation is projected to grow at an average of 2.7 percent on the back of improved government and private investment as economic activities stabilizes.
Exports
Total exports are estimated to record 7.9 percent growth in 2017, a slight upward revision from 7.8 percent, based on the anticipated increases in the production of most minerals due to the prospects of improved commodity prices (zinc, lead, and gold prices) as well as improved infrastructure4 in diamond mining. In 2018, growth is expected to slow down to 3.2 percent (downward revision from 3.5 percent) as diamond production reached full capacity the previous year and, consequently, diamond exports start to slow down. In 2019 and beyond, exports are envisaged to grow by an average of 2.8 percent riding on increased uranium production and processed zinc.
Imports
Imports are estimated to contract by 2.4 percent in 2017 (upward revision from 7.8 percent) on the back of reduced spending by government, the completion of major investment projects as well as subdued final consumption expenditure. In 2018 and beyond, imports are expected to grow marginally by 1.9 percent average on the prospects of improved private consumption and investment growth.
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tralac’s Daily News Selection
Transforming African economies through smart trade and industrial policy (UNECA)
The present report builds on the recommendations of the 2015 Economic Report on Africa through a thorough assessment of what is required of African economies to industrialize smartly through trade. The assessment is informed by an analysis of whether current trade policies and tariff structures positively contribute to Africa’s broader industrialization policy. Among the key findings:
Both manufacturing and services sectors have key roles to play in Africa’s industrialization: Manufacturing is a high value-added sector in which labour can flow into and deliver high productivity. The sector has strong forward and backward linkages with other sectors of the economy, including agriculture and the external sectors. The services sector is gaining significant importance. It is the main contributor to GDP in the majority of African countries and has been the continent’s fastest-growing sector during the past two decades. A thriving service sector is essential for attracting investors into African businesses and driving growth in the manufacturing sector, given that it allows local sourcing of needed support services such as logistics, telecommunications and financial services.
More fresh thinking is needed on how to achieve Africa’s industrialization objectives: Trade has a key role to play. Intraregional trade has the potential to facilitate increased economies of scale, diversification and value addition. In 2014, manufactured goods accounted for 41.9 per cent of intra-African exports, compared with only 14.8 per cent of Africa’s exports outside the continent. Intra-African trade, however, is underexploited owing to high trade costs in the region. IntraAfrican trade, as a share of total African trade, was only 15.3 per cent in 2015. ECA modelling exercises indicate that establishing the CFTA would boost intra-African trade in goods by 52.3 per cent. Estimated increases are highest for industrial products (53.3 per cent).
Status of integration on agenda as EAC ministers meet in Arusha (The New Times)
A report on the status of East African Community integration agenda covering the period July 2016 to June 2017 will be high on agenda as ministers responsible for EAC affairs and planning meet in Arusha, Tanzania today. A statement from the EAC Headquarters, in Arusha, indicates that among the items on the agenda of the meeting are: consideration of report on the implementation of previous decisions of the Sectoral Council of ministers responsible for EAC affairs and planning (SCMEACP); and consideration of progress report on the status of implementation of the EAC Common Market Protocol.
Nigeria, Economic Community of West African States, major world economies adopt Abuja Statement (FMITI)
Nigeria, the Economic Community of West African States (ECOWAS), World Trade Organisation (WTO), Friends of Investment Facilitation for Development (FIFD) and participants at the High Level Policy and Private Sector Trade and Investment Facilitation Partnership Forum today adopted a declaration titled “The Abuja Statement” at the close of the two-day event, which saw the participation of over 30 African countries as well as major world economies. The Abuja Statement on “Deepening Africa’s Integration in the Global Economy through Trade and Investment Facilitation for Development” was unanimously adopted after two days of intensive deliberations between policy makers and the business community from around the world.
Nigeria: CBN Targets 80% Financial Inclusion By 2020 (ThisDay LIVE)
The Central Bank of Nigeria (CBN) assured Nigerians Wednesday that it would work aggressively towards increasing financial inclusion rate to 80 per cent, by cutting down the number of people excluded from the financial system to 20 per cent in the next three years (2020). According to him, specific areas of focus identified which would be pursued aggressively include “prioritising intervention and creating awareness to ensure patronage, incorporating non-interest financial services into CBN intervention programmes.”
ECOWAS common external tariff not in Nigeria’s best interest — MAN (Vanguard)
Manufacturers Association of Nigeria (MAN) said the Common External Tariff (CET) for countries in Economic Community of West African States (ECOWAS) as negotiated and currently structured is not in the best interest of Nigeria. President of MAN, Dr. Frank Jacobs disclosed this at the one-day business roundtable on critical issues on Raw Materials Sourcing for Manufacturing Industries in Nigeria tagged: ‘Tariff Duty and Related Matters’.
Ghana, Kenya to boost Africa’s trade ties (Ghana web)
“Intra-Africa investments and trade are prerequisites for regional and national economic development and growth…In a couple of years, Africa will have more people than India and China combined,” Mr. Robert Ahomka-Linsdey, Ghana’s Deputy Minister of Trade and Industry told participants from Ghana, Kenya, Nigeria, Togo, Benin, Cote D’Ivoire, South Africa, Namibia, Sudan, Europe and North America attending the Kenya Trade Expo Ghana 2017 event in Accra this week, as experts from government agencies and the business community converged to examine the challenges and looming opportunities for intra and inter-regional cooperation around Africa. [Intra Africa Trade imperative to promote continent (Ghana News Agency)]
Africa needs roads and bridges, cooking oil and cement (The Herald)
Roads and railways, bridges and harbours – that’s what we need to invest in if we are to grow Africa’s economies and provide jobs for the millions of young people who want to become part of the continent’s growth. That – and the need for trade among African countries in goods ranging from cooking oil to cement – is the message coming from a major conference in Addis Ababa. The executive secretary of the United Nations Economic Commission for Africa, Vera Sogwe, told delegates at the conference that “overcoming infrastructure gaps remains critical if the continent is to unlock its economic potential”. [10th Session of the Committee on Regional Cooperation and Integration ends on high note (UNECA)]
Zimbabwe: Govt raises red flag on export licensing (The Herald)
Mines and Mining Development Permanent Secretary Munesushe Munodawafa, said Government has started looking at setting up a computerised system to improve efficiency and transparency. “We want a computerised export licensing system and the current system is manual. For one to just look at the process at the moment, you can see a lot of gaps that exist. We have had cases where export permits were forged and (also) signatures of Government officials,” said Mr Munodawafa.
Namibia: Mid-term budget concerns analysts (The Namibian)
Finance minister Calle Schlettwein tabled his medium-term budget review in parliament yesterday, and shortly afterwards, PSG Namibia’s head of research, Eloise du Plessis, had preliminary comments for The Namibian. She said the increase in spending came as a surprise since revenue was expected to decline over the medium-term expenditure framework (MTEF). “The budget deficit targets given in the March budget will not be met, and will be deteriorating,” she said. From the look of things, government will be borrowing a lot more to fund spending, Du Plessis said, adding that this would not sit well with ratings agencies. Namibia could thus possibly face more downgrades.
Zambia: Govt urged to find maize market for farmers (Lusaka Times)
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Nigeria, Economic Community of West African States, major world economies adopt Abuja Statement
Statement reaffirms that trade and investment are inseparable and remain indispensable “twin engines” for economic growth, modernization and development of Africa
Nigeria, the Economic Community of West African States (ECOWAS), World Trade Organisation (WTO), Friends of Investment Facilitation for Development (FIFD) and participants at the High Level Policy and Private Sector Trade and Investment Facilitation Partnership Forum today adopted a declaration titled “The Abuja Statement” at the close of the two-day event, which saw the participation of over 30 African countries as well as major world economies.
The Forum was opened yesterday the 2nd of November by Vice-President, Prof. Yemi Osinbajo with the support of the Minister of Industry, Trade and Investment Dr. Okechukwu Enelamah.
The Abuja Statement on “Deepening Africa’s Integration in the Global Economy through Trade and Investment Facilitation for Development” was unanimously adopted after two days of intensive deliberations between policy makers and the business community from around the world.
The Statement reaffirmed that trade and investment are inseparable and remain indispensable “twin engines” for economic growth, modernization and development of Africa.
It reiterated the need to scale up investments in “connectivity” – infrastructure – ports, transport corridors and telecommunications networks to enable Africa participate and benefit from today’s integrated and digital global economy. It supported the ongoing Continental Free Trade Area (CFTA) negotiations in Africa.
The Statement said: “One of the central objectives of the High Level Forum was to examine how the WTO could contribute to facilitating the required investment – as well as trade by developing multilateral approaches to improving transparent, cutting red tape, streamlining procedures and strengthening international cooperation with the aim of expanding sustainable pro-development investment.”
Furthermore, the Statement noted: “Participants underscored the importance of enabling developing and least developing countries to increase their participation in global investment flows, including by mobilizing resources needed to address their technical and capacity constraints.”
The Statement called for a successful 11th WTO Ministerial Conference in Buenos Aires in December to strengthen the WTO as a global public good that remains central to the welfare, prosperity and development of all its members.
The Statement further emphasized that policies, institutions and best practices are required for expanding the required investment in the domestic economies of African countries, the region and continent.
In his reaction, Minister Enelamah said: “The new narrative of Nigeria out there: that the country is positive, pro-development, pro-business and pro-enabling environment for business.”
On his part, the Director General/Chief Negotiator of the Nigerian Office for Trade Negotiations (NOTN) Ambassador Chiedu Osakwe stated that “This High Level Forum on Trade and Investment Facilitation held in Abuja, was an acknowledgment of Nigeria’s economic and trade policy leadership in West Africa, Africa and the global economy.”
The High Level Forum was co-hosted by the Ministry of Industry, Trade and Investment, ECOWAS in partnership with FIFD. Members of FIFD coalition are Nigeria, Argentina, China, Australia, Brazil, Chile, Colombia, Hong Kong China, Japan, Korea, Mexico, Pakistan, Russia, Singapore, Switzerland, Canada, the European Union and Qatar.
Other participants at the Forum were WTO DG Roberto Azevedo; Secretary General of the United Nations Conference on Trade and Development (UNCTAD) Mukhisa Kituyi, African Union (AU) Commissioner for Trade and Industry Albert Muchanga, President of ECOWAS Commission Marcel Alain de Souza and CEOs and business leaders from Hauwei, Procter and Gamble, Vodacom, etc.
Abuja Statement:
“Deepening Africa’s Integration in the Global Economy through Trade and Investment Facilitation for Development”
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The Federal Government of Nigeria and the Commission of the Economic Community for West African States (ECOWAS), in partnership with the WTO Friends of Investment Facilitation for Development (FIFD), co-hosted a “High-Level Trade and Investment Facilitation Forum for Development, in Abuja, Nigeria, from the 2nd to the 3rd November 2017. The event was opened by H.E. Professor Yemi OSINBAJO, SAN, GCON, Vice President of the Federal Republic of Nigeria and the Chairman of the Nigerian Economic Management Team. WTO Director-General Roberto Azevêdo, UNCTAD Secretary-General Mikhusa Kituyi, President of the World Economic Forum Børge Brende, ECOWAS Commission President Marcel Alain De Souza, Commissioner for Trade and Industry, African Union Commission Albert M. Muchanga, addressed the High-Level Forum, as did CEOs and Senior Business Leaders from Vodacom, Huawei, and Procter & Gamble. Ministers and senior trade and investment officials from over 30 African countries actively participated.
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The High-Level Forum met at a time of critical challenges as well as enormous opportunities in Africa. A dramatic increase in population, the mounting pressure for jobs, and the pressing need to expand prosperity across the continent are accompanied with a quantum potential to accelerate industrialization, leap frog technological development, and leverage Africa’s demographic dividend for sustained and inclusive growth. Africa is emerging as the next global growth frontier and realizing this potential must be a major priority, not just for Africa, but for the global economy as a whole.
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The High-Level Forum created a platform that brought together African investment and trade decision-makers, partners from other regions of the global economy, as well as key private sector representatives, to discuss these challenges and opportunities, and to explore how more cooperative approaches to investment and trade facilitation could be harnessed for win-win outcomes.
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A critical starting point for the exchanges and sharing of experiences was the reaffirmation that trade and investment are inseparable and remain indispensable ‘twin engines’ for economic growth, modernization, and development in Africa as in the wider global economy. Only by scaling up investments in ‘connectivity’ infrastructure – ports, transport corridors, telecommunications networks – could African countries participate in, and benefit from, today’s integrated and digital global economy. Only by increasing, intensively, investments in globally competitive industries, services, and start-ups – from both foreign and domestic sources – could African countries generate the resources required to advance education, improve health care, reinvest in innovation, and generate employment opportunities for millions of young people. Participants acknowledged – and reiterated – the United Nations’ projection that developing countries would need an additional US$ 2.5 trillion in investment annually to achieve the 2030 Sustainable Development Goals. The High-Level Forum equally endorsed the proposition that higher levels of domestic security and stability would be achieved with higher levels of welfare, prosperity and job creation, facilitated by greater intensity in trade and investment facilitation.
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The High-Level Forum noted that expanding this required investment – and the global networks, know-how, and technologies that accompany it - required complementary polices, institutions, and best practices, domestically, and regional and international cooperation. They underscored the urgent necessity of creating a favorable business climate and of implementing sound market-driven domestic policies. They also highlighted the importance of advancing regional and international co-operation to create a more transparent, efficient, and predictable environment for investment and trade, as well as to ensure that their benefits are widely shared.
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One of the central objectives of the High-Level Forum was to examine how the WTO could contribute to facilitating required investment - as well as trade – by developing multilateral approaches to improving transparency, cutting red tape, streamlining procedures, and strengthening international co-operation, with the aim of expanding sustainable and pro-development investment. Participants underscored the importance of enabling developing and least-developing countries to increase their participation in global investment flows, including by mobilizing the resources needed to address their technical and capacity constraints. To this end, participants urged WTO Members to undertake more focused discussions aimed at developing a multilateral framework to facilitate investment for development. They also encouraged the WTO to cooperate closely with other relevant international organizations, such UNCTAD, and regional partners, such as ECOWAS, to ensure mutually supportive, pro-development approaches to this critical issue.
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More broadly, the High-Level Forum called for a successful Eleventh WTO Ministerial Conference in Buenos Aires from 10-13 December 2017 to strengthen the WTO as a global public good that remains central to the welfare, prosperity, and development of all its Members. As a valuable and necessary complement to strengthening the global trading system, participants also supported ongoing negotiations to establish the “Continental Free Trade Area” (CFTA) – a Single Market for Trade in Goods and Services across Africa – and called on Members of the African Union (AU) to advance this strategic objective.
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The High-Level Forum thanked the Federal Republic of Nigeria and the ECOWAS Commission for hosting this High-Level Forum on Trade and Investment Facilitation for Development. In this context, the High-Level Forum acknowledged and welcomed the determined efforts by the Nigerian Government on Trade and Investment Facilitation and on improving the business environment as well as the ‘Ease of Doing Business’ for growth in Nigeria. The High-Level Forum also acknowledged the efforts of the ECOWAS Commission at regional integration and the facilitation of trade and investment for growth and job creation.
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The High-Level Forum requested the Federal Republic of Nigeria to circulate, as a document of the WTO General Council and the Eleventh Ministerial Conference, this Abuja Statement on: “Deepening Africa’s Integration in the Global Economy through Trade and Investment Facilitation for Development”
Azevêdo highlights important role of trade and investment in promoting sustainable development
Extracts from the speech by WTO Director-General Roberto Azevêdo
“Today, trade plays an important role in the economy of developing countries. To have an idea, trade now represents 34 per cent of developing countries' GDP on average – compared to 20 per cent for advanced countries.
And the fastest-rising engines when it comes to trade and investment today are not in Europe or North America, but in Africa, Asia and Latin America.
China, for example, is now the world's largest exporter and second largest foreign investor; thirty years ago, it ranked 32nd in world trade.
And this remarkable story of trade and investment-led development includes countries of all sizes and regions – from Ethiopia and Indonesia, to Ghana and Cambodia.
This is very positive.
However, for trade to play its full part, the right conditions need to be in place. Many elements are involved in this mix.
This includes physical connectivity. If you're selling goods, you need the hard infrastructure which allows you to ship them to your buyer.
And to support this connectivity we need the appropriate soft infrastructure. That means a regulatory environment which works to facilitate trade.
Yet, there is much to be done to ensure that all can participate and compete. Connectivity remains a major obstacle in many places.
For example, Africa's infrastructure investment needs are estimated at about 120-150 billion dollars annually – with a financing gap of about 60-80 billion dollars per year.
Globally, the UN estimates that developing countries alone will need an additional 2.5 trillion dollars annually in foreign and domestic investment if they are to meet the 2030 Sustainable Development Goals.
This situation deserves our attention. Bridging these gaps could help reduce Africa's trade costs, boost its competitiveness, diversification, industrialization, and participation in global trade.
It can also help to spread the benefits of trade more widely, reaching more people and leveraging trade to promote growth and development.
Many governments simply may not have the public resources to build the infrastructure they need. And therefore a large part of infrastructure investments will need to come from other partners.
And let me stress that infrastructure is just part of this picture. Investments will also help overcome supply side constraints, promoting the diversification of the productive structure, reducing dependency on basic commodity exports, and adding value to the exported product.
Also, investments improve access to more advanced technologies, production techniques, and managerial methods.
Countries would be able to leapfrog steps towards a more modern economy. There will also be a positive impact on the capacity and skills of the work force, who will have access to more advanced and better paying jobs.
Steps to create a more enabling environment for investments would make these countries more attractive locations for productive and sustainable FDI - both in infrastructure and in productive assets. If the conditions are right, we'll have a win-win situation.
For these reasons and many others, I think that today's discussion about investment facilitation is very important.
We need to share ideas, exchange insights, and learn from one another's experiences to ensure these forces can work together to create more opportunities particularly for developing countries.
And I think it is very positive that we have some important elements to build on in this discussion.
Africa, for example, is a case in point.
Many African countries are engaged in facilitating trade and investment – and will showcase their experience during this Forum. There are some interesting initiatives being implemented, which can help inspire other solutions in the continent.
For example, last year President Buhari launched the Presidential Enabling Business Environment Council (PEBEC) – chaired by Vice President Osinbajo. This initiative aims to cut red tape, remove bottlenecks, coordinate policies and facilitate doing business in Nigeria.
Many other countries are taking similar coordinated steps to facilitate trade and investment – for example by creating electronic “single windows" for both investment and trade.
Furthermore, some countries represented here are also engaged in the negotiation of a Continental Free Trade Area and in developing a parallel Pan African Investment Code.
These steps can go a long way in creating a more enabling environment for investment in Africa.
And I think that they also showcase how regional integration and investment flows are clearly connected as well, and how regional cooperation can help advance these efforts....
In conclusion, I want to emphasize that this Forum is indeed an important opportunity to help provide useful inputs to that debate.
Working together, we can ensure that we seize all of the tools available to us in the search for stronger growth and more sustainable development – in Africa and around the globe.
So let me congratulate once more the Government of Nigeria, organizers of this event, for their initiative and vision.”
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Transforming African economies through smart trade and industrial policy
In the 2015 Economic Report on Africa of the Economic Commission for Africa, a clear case was established for the increased and improved use of trade and trade policy as tools to drive the continent’s industrialization.
The present report builds on the recommendations of the report through a thorough assessment of what is required of African economies to industrialize smartly through trade. The assessment is informed by an analysis of whether current trade policies and tariff structures positively contribute to Africa’s broader industrialization policy.
Importance of industrialization
Africa’s experience with industrialization has been disappointing
Globally, the share of manufacturing in total output rises with per capita income until countries reach upper-middle-income status and then declines, as services become more prevalent at higher incomes. This has not been the case in Africa. In 2014, Africa’s average share of manufacturing value added in gross domestic product (GDP) was 9.8 per cent, 3 percentage points less than the 12.8 per cent figure of 1990. The share of manufacturing exports in Africa’s total exports similarly declined, from 25.6 per cent in 1995 to 18.9 per cent in 2014. Africa’s exports remain concentrated largely in primary commodities and raw materials (fuels, ores and metals and agricultural raw materials). The Herfindahl-Hirschman Index on product concentration shows Africa’s exports as less diversified than the rest of the world.
Both manufacturing and services sectors have key roles to play in Africa’s industrialization
Manufacturing is a high value-added sector in which labour can flow into and deliver high productivity. The sector has strong forward and backward linkages with other sectors of the economy, including agriculture and the external sectors. The services sector is gaining significant importance. It is the main contributor to GDP in the majority of African countries and has been the continent’s fastest-growing sector during the past two decades. A thriving service sector is essential for attracting investors into African businesses and driving growth in the manufacturing sector, given that it allows local sourcing of needed support services such as logistics, telecommunications and financial services.
Industrialization has gained increasing importance in African development policies and frameworks in recent years
The Action Plan for the Accelerated Industrial Development of Africa serves as the main agenda for Africa’s industrialization. Agenda 2063 of the African Union calls for the promotion of sectoral and productivity plans, and regional and commodity value chains to support the implementation of industrial policies. African countries, in recognition of this, have designated industrialization as the central pillar of the CFTA project. The continent’s regional economic communities also recognize that industrialization needs to take centre stage in regional integration and development agendas. The Southern African Development Community (SADC) and the East African Community (EAC) have standalone industrial strategies to guide the regional industrialization process.
Using trade as a tool to drive Africa’s industrialization
More fresh thinking is needed on how to achieve Africa’s industrialization objectives
Trade has a key role to play. Intraregional trade has the potential to facilitate increased economies of scale, diversification and value addition. In 2014, manufactured goods accounted for 41.9 per cent of intra-African exports, compared with only 14.8 per cent of Africa’s exports outside the continent. Intra-African trade, however, is underexploited owing to high trade costs in the region. Intra-African trade, as a share of total African trade, was only 15.3 per cent in 2015. ECA modelling exercises indicate that establishing the CFTA would boost intra-African trade in goods by 52.3 per cent. Estimated increases are highest for industrial products (53.3 per cent).
Although the idea of actively using trade and trade policy to support industrialization is not new, it has recently experienced a resurgence
Trade has greater prominence in the Sustainable Development Goals than the Millennium Development Goals, with trade-related targets included as a means of implementation. The African Union’s vision contained in Agenda 2063 calls for developing productive capacities, boosting intra-African trade, the establishment of the CFTA and improved regional infrastructure, among other trade-related priorities. African countries recognize the role that the CFTA can play in achieving its industrialization and have designated industrialization as the central pillar of the CFTA project.
Africa’s industrialization is influenced by non intra-African trade agreements
Preference-granting countries determine the products and terms for granting preferences covered under preferential trade arrangements
In many African countries, there is an imbalance between productive capacity and stringent rules of origin and product standards. This calls for improvements in the design of the preferential trade arrangements to support Africa’s industrialization and development.
Shifts towards greater reciprocity in preferential trade arrangements are expected during the coming decade
Rapid full liberalization risks reducing the competitiveness of African producers, which may undermine efforts to industrialize and diversify, if the adjustments that are necessary are insufficiently managed. This is because foreign products would be granted increasingly favourable treatment in African markets and, in some cases, more favourable treatment than products from other African countries.
Mega-regional trade agreements have implications for Africa’s industrialization agenda
ECA modelling indicates that the establishment of envisaged mega-regional trade agreements will result in loss of market share by African countries through preference erosion and competitiveness pressures. African economies will also find it more difficult to industrialize through building supply relationships with rapidly growing emerging markets such as China.
Africa faces significant constraints to industrialization through trade
Africa has less trade integration than other developing regions
Africa’s total trade as a share of GDP was 40.0 per cent in 2015, compared with 47.3 per cent for developing economies as a whole. Intra-African trade also underperforms, compared with other developing regions. Intra-African trade as a share of total African trade was 15.3 per cent in 2015, whereas, for example, trade among developing economies in Eastern Asia as a share of total Eastern Asian trade was 32.1 per cent.
Prevailing tariff rates significantly underestimate both Africa’s internal and external trading costs
The continent’s cost of trading with the world was 283 per cent in ad-valorem tariff equivalent in 2013, higher than that of all other regions except Central Asia, which has a higher share of landlocked countries. The reason for this is the prevalence of non-tariff measures and physical market access barriers, such as poor infrastructure affecting African countries.
Legitimate standards are important for Africa’s industrialization through trade
Compliance with standards helps to encourage industrialization through enhancing trade capacity and competitiveness, facilitating mutually beneficial trade in industrial products and the integration of firms into regional and global value chains, and improving the efficiency of production and trade. There is, however, an increasing trend in the misuse of overly burdensome technical barriers to trade as nontraditional protectionism measures. Meeting these standards have challenged capacityconstrained African countries with inadequate quality infrastructure.
Design of Africa’s industrial tariff structures is important
High industrial tariffs increase the costs of industrialization in Africa
Overall, the import-weighted tariffs on Africa’s imported intermediates are significantly higher than Eastern and South Eastern Asia (a region experiencing rapid industrialization) and the rest of the world. This difference is large for processed industrial supplies, parts and accessories of capital goods and parts and accessories of transport equipment, all of which are important inputs for manufacturing industries. The tariffs on intermediates imported into Africa from outside are significant. This limits their use in production processes and therefore reduces the possibilities for the export of transformed products.
There is a weak relationship between effective rate of protection and revealed comparative advantage
To assess the amount of protection granted to African industries by import tariffs, it is important to analyse both nominal tariffs and the effective rate of protection, which is a measure of the total effect of the entire tariff structure on the value added per unit of output in each industry, when both intermediate and final goods are imported. Higher protection of specific sectors is not always awarded to specific sectors in which countries have comparative advantages in production. This suggests that the targeting of high rates of effective rate of protection could be improved.
Comparative advantage and export restrictions can be useful tools for targeting smart industrialization through trade
Analysis of revealed comparative advantage can identify potential areas of specialization
Various studies use a region-revealed comparative advantage analysis to help to identify potential areas of specialization for a group of countries and individual countries in the regional economic communities. This can help to guide trade and industrialization strategies and maximize the mutual gains from regional trade. As an indicator of a country’s productive capacity, however, revealed comparative advantage is a static concept. As countries’ endowments change, productive capacities evolve. Targeted policy actions can help countries to shift their productive capacities towards goods that embody more value added and can generate more linkages with and spillovers to the rest of the economy.
Export taxes can help to encourage value addition by reducing or banning the export of raw materials and unprocessed goods
African countries do not make extensive use of this tool. Although export taxes can promote industrial development, they must target industries with comparative advantage and supported by other industrial policies to ensure that selected industries in Africa take off. Indefinite exports taxes, however, risk providing a permanent benefit to domestic producers, which could reduce incentives to improve competitiveness overtime.
The present report is a joint publication of the Economic Commission for Africa (ECA) and the Overseas Development Institute. The core team for the preparation of the report consisted of Lily Sommer, African Trade Policy Centre Trade Policy Fellow; Maximiliano Mendez-Parra, ODI Research Fellow; and Linda Calabrese, ODI Senior Research Officer.
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Status of integration on agenda as EAC ministers meet in Arusha
A report on the status of East African Community integration agenda covering the period July 2016 to June 2017 will be high on agenda as ministers responsible for EAC affairs and planning meet in Arusha, Tanzania today.
The ministers’ session follows meetings of technocrats earlier this week.
Olivier Nduhungirehe, the Minister of State for Foreign Affairs, Cooperation and East African Community, arrived in Arusha Thursday morning for the meeting.
A statement from the EAC Headquarters, in Arusha, indicates that among the items on the agenda of the meeting are: consideration of report on the implementation of previous decisions of the Sectoral Council of ministers responsible for EAC affairs and planning (SCMEACP); and consideration of progress report on the status of implementation of the EAC Common Market Protocol.
The Protocol on the Establishment of the EAC Common Market entered into force on July 1, 2010 after ratification by all the then five Partner States: Burundi, Kenya, Rwanda, Tanzania and Uganda.
It provides for four freedoms – free movement of goods; labour; services; and capital – which are expected to significantly boost trade and investments and make the region more productive and prosperous.
Tripartite arrangement
The Arusha meeting will also conside: a progress report on the COMESA-EAC-SADC tripartite arrangement.
In July, COMESA-EAC-SADC countries moved a step closer to forming a larger free trade area when ministers and senior officials from member countries met in Kampala, Uganda to resolve issues that prevented them from ratifying the ‘historic’ Tripartite Free Trade Area (TFTA) first signed by leaders on June 10, 2015, in Egypt.
The tripartite arrangement aims to create a larger common market across half of Africa.
It is regarded as a critical step toward opening up opportunities for business and investment within the three blocs. But for the benefits to actually be realised, it must first be ratified by at least 14 of the 26 member countries.
By June 9, only 19 countries had signed the agreement and only Egypt had ratified it.
At the time, officials told The New Times that countries that had not put pen to paper were in the process of ratification.
A major concern that made it difficult for some countries to sign, or for those that had signed not to ratify quickly, was delay in concluding negotiations on critical annexes – on rules of origin; trade remedies and dispute settlement, and on dispute settlement mechanism – to the TFTA agreement.
But these were later concluded and all countries reportedly agreed that this paved the way for more signatures and ratifications for the agreement to come into force.
The ministerial session in Arusha will also discuss the draft fifth EAC development strategy (2016/17-2020/21); key priority areas for the financial year 2018/19; and the progress report on the development of a roadmap for the integration of South Sudan into the regional bloc, among others.
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10th Session of the Committee on Regional Cooperation and Integration ends on high note
The 10th Session of the Committee on Regional Cooperation and Integration (CRCI) ended in Addis Ababa Thursday night with participants adopting recommendations that will go a long way in assisting member States in adopting and implementing the Continental Free Trade Area (CFTA).
The meeting, held under the theme “Implementation of the continental free trade area and shared gains”, generated a lot of interest from member States with debate going well into the night as they discussed how countries will benefit from the CFTA.
The main objective of the meeting was to examine efforts being made to fast track the implementation of the Action Plan for Boosting Intra-African Trade and an agreement to establish a Continental Free Trade Area.
“We are happy that member States showed full support for the adoption and implementation of the CFTA,” Stephen Karingi, Acting Director of the Regional Integration and Trade Division (RITD) at the Economic Commission for Africa (ECA), said at the end of the meeting.
“This meeting was special because it gave much attention to the CFTA, which will make a huge difference in Africa’s development once adopted. It showed member States how to better implement the CFTA with due linkages to agriculture, infrastructure, energy, food security, investment, regional integration and land.”
Outcome
The ECA, in cooperation with the African Union Commission, participants agreed, should take a leading role in monitoring the implementation of the various components of the agreement to establish the CFTA.
Member States were encouraged to enhance the implementation of the Boosting Intra-African Trade Action Plan while the AUC and its partners were asked to track progress made in that regard and provide technical assistance for the implementation.
Countries were encouraged to involve the private sector in the process of establishing the CFTA to ensure that the design of the agreement addresses their priorities and concerns, particularly with regards to the rules of origin.
Among some of the recommendations, member States and regional economic communities (RECs) were encouraged to adopt sound monitoring and evaluation frameworks to ensure the effective implementation of regional integration commitments.
ECA, AUC and the African Development Bank (AfDB) were urged to increase their investment in generating and collecting data on trade and regional integration.
The ECA was tasked to collect and compile data based on intra-African investments; undertake a review study to identify financial challenges faced by African countries, such as those related to infrastructure and industrial projects; undertake a study on promoting regional value chains for some commodities with a view to examine key barriers and embark on another study on regional integration issues and opportunities for landlocked countries and Small Island Developing States (SIDS) in Africa.
Land
Under progress on land policy formulation and implementation in Africa, participants agreed that the ECA and the African Land Policy Centre (ALPC), should collaborate with member States to advance regional integration by promoting harmonization and convergence of land policies in relevant protocols and programmes of the RECs and by integrating land policies in regional agricultural investment plans and national agricultural investment plans.
The ECA was asked to build its institutional capacity in support of land governance by institutionalizing the recently launched ALPC in a manner that ensures financial stability, operational efficiency and strong ownership in accordance with a 2015 decision of the same meeting.
And in line with a recent African Union decision, ECA and the ALPC were called upon to apply the recommendations of a recent study on land, ethnicity and conflict to develop guidelines for member States to use to mitigate land-based and ethnic-based conflicts.
Food Security
To improve food security in Africa, member States were encouraged to empower small-scale farmers by making them more commercially oriented through the adoption of farming models that fit with the specificities of small-scale production in Africa.
Member States were also urged to promote regional agricultural value chains through improving transboundary infrastructure and transportation, harmonization of standards, and enhancing the productive capacity of agriculture and agribusiness, including agro-industry; and to integrate national food reserves into regional food reserves to better adapt to the adverse effects of climate change.
Recommendations were also made on inclusive infrastructure development, which is the key to promoting Africa’s industrialization and how to boost intra-African investment.
Trade policy experts, ministers, academia, partner organizations such as the African Union Commission, African Development Bank, Overseas Development Institute (ODI) and representatives of UN agencies attended the meeting.
New ECA publications put in focus human rights perspective of CFTA; smart trade & industrial policy in Africa
The Economic Commission for Africa (ECA), the Overseas Development Institute (ODI) and the Friedrich-Ebert-Stiftung (FES) on Wednesday launched joint reports on transforming African economies through smart trade and industrial policy and the Continental Free Trade Area (CFTA), respectively.
The joint launch was organized by the African Trade Policy Centre (ATPC) of the Economic Commission for Africa during the ongoing 10th Session of the Committee on Regional Cooperation and Integration.
The two reports launched were “Transforming African Economies Through Smart Trade and Industrial Policy”, a joint report of the ATPC and the London-based ODI, and “The Continental Free Trade Area (CFTA) in Africa – A Human Rights Perspective”, a joint report of the ATPC and the Friedrich-Ebert-Stiftung (FES).
The CFTA report was also done in collaboration with the Office of the High Commissioner for Human Rights (OHCHR).
The first report provides a thorough assessment of what is required of African economies to undertake smart industrialization through trade, informed by an analysis of whether current trade policies and tariff structures positively contribute to Africa’s broader industrialization policy.
The second report provides an ex-ante Human Rights Impact Assessment (HRIA) of the CFTA, which explores the potential adverse effects of the CFTA on vulnerable groups such as women, informal cross border trades, the youth and smallholder farmers.
In his remarks at the joint launch, Coordinator of the African Trade Policy Centre, David Luke, said the reports were closely related with their recommendations complementing one another.
“Unless the CFTA is targeted at achieving Africa’s industrialization goals, it will not be able to support inclusive and human rights consistent trade,” Mr. Luke noted.
Expert discussants from the International Labour Organization (ILO), SEATINI-Uganda, the African Organisation for Standardisation (ARSO) and the ODI applauded the organisations involved for what they said were excellent publications that will go a long way in informing debate and member States’ decisions on trade, industrial policy and related issues.
They highlighted that globalization was a reality that Africa cannot run away from but added that it must start at home through regional integration and the CFTA.
At the same time, it was noted that the recent backlash against globalization has been partly driven by inadequate attention being paid to important distributive issues related to human rights, and that the CFTA human rights impact assessment was therefore very timely and welcome.
The experts praised the “Transforming African Economies Through Smart Trade and Industrial Policy” report for acknowledging the importance of standards and conformity assessment in Africa’s industrialization, and moving away from the traditional protectionist view of how to use trade policy for industrial development.
The launch was attended by representatives of Member States, regional economic communities (RECs), the African Union Commission (AUC), civil society, academia and the private sector.
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Global Business Forum on Africa: selected updates
(i) Dubai hosts summit, positions self as Africa investment hub. Experts at the opening of “Next Generation Africa”, Dubai’s fourth Global Business Forum on Africa, said the continent’s 54 countries – home to a fifth of the world’s population – require tens of billions of dollars in investment in infrastructure, energy and other sectors. Investment, Emirati officials hope, will be channelled through Dubai, a trading hub and member of the United Arab Emirates. “We believe that Dubai’s strategic goals can be aligned with Africa’s ambitions as it enters a new phase of development,” said the Dubai chamber chairman, Majid Saif al-Ghurair. The number of African companies registered in Dubai jumped to 17,000 last year, an increase of 41% from 2015, according to Ghurair. Trade volume between UAE and Africa totals around $35 billion and has been growing at a double-digit rate annually.
(ii) Why Dubai is a trade hub for Africa: interview with Hamad Buamim (Dubai Chamber of Commerce and Industry). In terms of African companies operating in Dubai, 52% in the trade sector, 20.4% are represented in the building and construction sector and 12.5% work in the real estate, leasing and business services sector. On the other hand, only 2% of these companies operate in the manufacturing sector, 1.3% in the hotels and restaurants sector and 0.3% in the agriculture sector.
(iii) Dubai spends $27m to promote African investment opportunities. Goolam Ballim, Chief Economist at the Africa’s largest financial services provider Standard Bank said Dubai Chamber held the conference to help bridge the information gap between investors and African companies, so they can tap the continent’s massive potential. “Africa’s growth has been the second fastest after Asia. So while only fifteen years ago, Africa was regarded as a dark continent, the last decade and a half has brought Africa to the fore because of this rapid economic growth of some nations offering enormous economic opportunities like Kenya in the east. Maybe not the whole continent, but various African countries are in rapid catch up phase. Along with Kenya, South Africa, Dubai can be that gateway into African opportunities, and I suspect the Dubai chamber has realised it,” Ballim said. “Nigeria is drawing an astonishing level of interest on the back of incremental reforms, [while] in southern Africa the gas opportunity in Mozambique has the lure of a certain type of Qatar gas experience,” Ballim says.
(iv) Next-generation Africa-GCC business ties in a digital economy (Economist Intelligence Unit, sponsored by Dubai Chamber of Commerce and Industry). This report presents the perspectives of the next generation of business leaders in Africa and the GCC, focusing on millennial entrepreneurs, against an evolving economic and technological backdrop. It explores their approach to entrepreneurship and investment, and delves deeper into sectors of interest such as retail, financial services and renewable energy. There is room for growing business ties between the two regions if key hurdles can be overcome. Key findings of the report (pdf): (i) Young business leaders in the GCC and sub-Saharan Africa want flexibility and freedom in how they work; (ii) Growing self-confidence is boosting the potential for homegrown solutions and South-South collaboration; (iii) Awareness of the opportunities for Africa-GCC business links is limited, but growing; (iv) Consumers, not commodities, are powering growth sectors in Africa; (v) The practical challenges remain real for entrepreneurs interested in the African market; (vi) African entrepreneurs are turning to the GCC for more than just capital.
(v) UAE-Rwanda trade and investment update. On the sidelines of the Global Business Forum on Africa, Rwanda signed two bilateral agreements with UAE, which are expected to enhance investor relations. The pacts will facilitate promotion and reciprocation of protection of investments as well as double taxation avoidance. Speaking to The New Times, from Dubai, Emmanuel Hategeka, the COO of the Rwanda Development Board, said that the forum presents an ideal platform to mobilise investments. “UAE has been a major source of investors to Rwanda registering over $100 million in planned investments in logistics, hospitality and financial services,” Hategeka said.
(vi) Almost all African nations commit to participating in Expo 2020 Dubai. Reem Ibrahim Al Hashemi, Minister of State for International Cooperation and Director-General of Expo 2020 Dubai: “We are uniquely perched at the centre point between two great continents of Africa and Asia where fastest-growing economies of the world can be found today. Dubai not only serves as a hub for commerce and trade between the Arab world and the African continent, but also increased its footprint to lands in the East and South as well,” she said. Over the last five years, the Dubai Chamber has opened representative offices in Ethiopia, Ghana, Mozambique and Kenya to assist UAE companies that want to expand their footprint on the continent and also to attract African businesses to Dubai.
A transformative CFTA requires inclusion of women (UNECA)
A group of experts met in Addis Ababa for the 2017 edition of the continental workshop on trade and gender under the theme The role of regional economic communities in supporting gender sensitive implementation of the CFTA (pdf). The workshop was organized by the African Trade Policy Centre, in conjunction with the 10th Session of the Committee on Regional Cooperation and Integration. In his opening remarks, David Luke, the Coordinator of the African Trade Policy Centre, noted that the CFTA was an ambitious project. However, it will be necessary to ensure that the benefits are shared, and this includes paying special attention on gender equality in the CFTA process. “Too often we still hear the claim that trade policy is gender neutral, while we know that the benefits and costs of trade are not equally distributed between men and women. When we do discuss women in trade, the discussion remains limited to the patterns observed – such as the fact that many informal traders are women – rather than the causes of these imbalances,” he said. The meeting called for explicit gender language in the CFTA to ensure political commitment and a legal basis for action on gender equality in the context of the agreement. It was suggested that RECs could use their status as intergovernmental bodies to develop regional common positions and frameworks to support implementation. [World Entrepreneurs Investment Forum 2017: all 17 Global Goals interrelated, with strong links to gender equality]
The Global Gender Gap Report 2017 (WEF)
The Global Gender Gap Report benchmarks 144 countries on their progress towards gender parity across four thematic dimensions: Economic Participation and Opportunity, Educational Attainment, Health and Survival, and Political Empowerment. In addition, this year’s edition also analyses the dynamics of gender gaps across industry talent pools and occupations. [What is the gender gap (and why is it getting wider)?]
Doing Business 2018: profiled African country reports (all pdf). Djibouti, Ethiopia, Ghana, Kenya, Malawi, Mauritius, Mozambique, Nigeria, Rwanda, Tanzania, South Africa, Zambia. To download other country profiles, go to the Download Center facility, here
Commentaries: 15 years of reforms to improve business climate worldwide; World Bank rankings: The myths and realities of Doing Business in India
Nigeria’s first Sub-National Competitive Index was launched today in Abuja. For the headline results, scroll down the National Competitiveness Council of Nigeria twitter feed
Governors of ECOWAS Central Banks call for synergy towards common currency
This was the key message from a working visit of the Governors of Central Banks of ECOWAS Member States to the President of the ECOWAS Commission Mr. Marcel de Souza on 1 November in Abuja. During the visit, the President of the Commission emphasized the need for a single currency which will increase inter-state trade and foster economic integration in the region. However, he stated that in regards to the convergence, none of the Member States have met the convergence criteria as stipulated by the 2012-2016 marco-economic programme. Mr Godwin Emiefele (CBN, Governors of Central Banks of ECOWAS Member States chairperson): “There is also a need to establish a formal reporting framework between the committee of Governors and the Council of Ministers to facilitate channeling of relevant policy decisions and information on the Monetary Cooperation Programme to the Authority of ECOWAS Heads of State and Government”, said Mr Emiefele.
Tunisia tightens import restrictions to tackle trade deficit (Reuters)
Tunisia’s central bank has ordered local lenders to stop financing the importation of hundreds of products - from fish to perfume- as the country tries to curb a record trade deficit. A document seen by Reuters showed that banks had been told not to provide loans to finance imports of some 220 consumer products unless the importer deposits enough funds to cover the cost of the import. The products listed include tropical fruits, alcoholic beverages, cosmetics products and air conditioners. A senior government official told Reuters that Tunisia hoped the import restrictions would help maintain its foreign reserves and halt a slide in the dinar against the dollar.
Africa oil and gas review: learning to leapfrog (PWC)
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Boosting infrastructure investment by addressing governance gaps
Government, private sector, multilaterals, and development partners gather in Cape Town as this topic takes center stage globally
Infrastructure is hard to get right – across the world. Up until now, policy makers focused on improving access to finance. Marking a significant shift, this week representatives from African governments, the global private sector, multilateral institutions, and other development partners meet in Cape Town to participate in the region’s first roundtable on the governance of infrastructure, hosted by the Development Bank of Southern Africa (DBSA). The topic takes center stage as consensus develops globally that a major factor hindering infrastructure implementation is a lack of good governance.
Strong governance structures are critical to governments’ ability to deliver the infrastructure their communities need. When governments are better able to identify, develop, and coordinate their infrastructure pipeline, project financing – both domestic and foreign – will flow. It is indisputably within the power of governments, the business community, and civil society to make this happen. There are many success stories in developing countries to prove it.
With participation from over 120 delegates (including 11 cabinet ministers) and 27 Anglophone and Lusophone Sub-Saharan African countries, the event brings together senior decision-makers including Patrick Dlamini, CEO of DBSA; His Excellency Malusi Gigaba, South Africa Minister of Finance; Dr. Stergomena Lawrence Tax, Executive Secretary, Southern African Development Community (SADC); and Hartwig Schafer, Vice President of the World Bank.
The roundtable, Building the Right Infrastructure for Tomorrow, will offer insights, new ideas, and solution-focused tools such as “InfraCompass” and the online preparation facility “Source” that help improve the governance of public investment in order to deliver essential services and goods – with direct and indirect benefits for the economy and society as a whole. This is the first of a series of roundtables about infrastructure governance that will be organized around the world in the months to come. The next roundtable in Sub-Saharan Africa is planned for May 2018.
In Sub-Saharan Africa only 35 percent of the population has access to electricity. Access to modern transport has declined in the region over the past 20 years, and 23 percent of the population still lacks access to safe water.
The magnitude of these figures masks a more fundamental need. Good governance is essential to avoid white elephants, fraud, waste, and inefficiencies; it is critical to deliver sustainable, inclusive services that promote economic growth, innovation, and increase the quality of life for citizens. It is also paramount to attain the Sustainable Development Goals (SDGs).
The roundtable follows directly from the 2015 Addis Ababa Action Agenda on financing for development. It also comes in response to the recommendations of the 2017 Global Infrastructure Forum, which called on the multilateral development banks and partners to help strengthen the investment capacity, policy, and governance frameworks of governments and enhance private sector participation.
Discussion at the roundtable will be guided by this key question: Why is infrastructure hard to get right? Participants will focus on how to formulate a holistic vision for their infrastructure programs that anticipates the infrastructure needs of the present and the future – and provides inclusive, sustainable services.
At the opening ceremony, DBSA President Patrick Dlamini said: “I am delighted that DBSA has been able to bring together such an esteemed audience of senior decision makers from across the continent. I hope that this inaugural event will pave the way for a greater understanding of the importance of good governance for infrastructure.”
The event is sponsored by the African Development Bank Group, African Legal Support Facility, DBSA, European Investment Bank, Global Infrastructure Hub, Konrad Adenauer Stiftung, NEPAD-IPPF, OECD, PPIAF, and the World Bank Group.
Note: The opening ceremony and second session will be livestreamed.
Why good infrastructure governance is the key to unlocking Africa’s potential
Op-ed by Chris Heathcote, CEO of Global Infrastructure Hub (GI Hub)
Infrastructure is crucial to Africa’s growth prospects. It’s also hard to get right. Until now, policy makers have focused on improving access to finance. But a consensus is developing globally that a major factor hindering infrastructure implementation is a lack of good governance and well-planned projects.
This is a topic that deservedly takes centre stage this week as representatives from 27 African governments, the global private sector, multilateral institutions, and other development partners gather in Cape Town to participate in the region’s first roundtable on the governance of infrastructure hosted by the Development Bank of Southern Africa (DBSA). This is the first in a series of roundtables being delivered by the World Bank, OECD, GI Hub and other partners, which aim to help countries move towards infrastructure planning and governance frameworks that facilitate inclusive and sustainable investment decisions.
There’s certainly no denying the need for infrastructure development on the continent, as has been emphasised during the course of Germany’s G20 Compact with Africa initiative. In Sub-Saharan Africa, only 35 percent of the population has access to electricity. Access to modern transport has declined in the region over the past 20 years, and 23 percent of the population still lacks access to safe water.
Against this background, it’s understandable that the investment focus over the past 10 years has been on utilities and trying to improve access to electricity and water. For some countries this is a significant challenge. Ethiopia, for example, needs to spend 20 percent of its GDP to meet its electricity Sustainable Development Goals (SDGs) and another nearly seven percent to meet its water SDGs.
That’s a major chunk of its GDP, particularly when you compare that the average investment in all infrastructure in Latin America stands at about 5.5 percent. Ethiopia is not unique and such cases point to a significant underinvestment in economic infrastructure such as ports, airports and roads across Africa. And that’s before you factor in investment in ‘softer’ forms of infrastructure like the rollout of telecoms and broadband internet access which are also crucial for economic growth.
So, how do African countries attract and retain the kind of investment in infrastructure projects needed to help stimulate that growth? The InfraCompass tool created by GI Hub recently studied infrastructure markets across 49 countries to pinpoint the best conditions for infrastructure delivery and found the strongest driver of investment was the rule of law.
This is why governance, rather than development finance, is the primary focus of this roundtable. Of course, finance is vital. Without it, infrastructure development would not be possible. But there’s a growing realisation globally and in Africa that if you get the governance aspects right, the finance will follow. Get it wrong and the investment will dry up.
Getting the governance right also allows for efficient and disciplined planning, which is crucial if a proposed infrastructure project is to be sustainable and contribute to growth and lift people out of poverty.
A 2014 study by the International Monetary Fund (IMF) found that increased public infrastructure investment raises output in the short term by boosting demand and in the long term by raising the economy’s productive capacity.
More specifically, the study found that an increase of one percentage point of GDP in investment spending raises the level of output by about 0.4 percent in the same year and by 1.5 percent four years after the increase. In addition, the boost to GDP a country gets from increasing public infrastructure investment offsets the rise in debt, so that the public debt-to-GDP ratio does not rise.
In other words, investment in public infrastructure can pay for itself and more, but only if it’s done correctly. That’s a big if. We’re all familiar with projects that have turned into white elephants, beset with fraud, waste, and inefficiencies.
Infrastructure is a very powerful engine of economic growth, but only if it’s an economically crucial piece of infrastructure created as part of carefully thought out development plan. If not, a country risks falling into the trap of building infrastructure that does not create growth and which it can’t afford to maintain, which then falls into disrepair. This is known as the ‘build, neglect, rebuild cycle’.
It’s why when canny investors, whether they be multi-lateral institutions or private sector players, look at markets they want to understand why a particular piece of infrastructure is necessary, what revenue it will it drive and whether it is affordable. They know it can only be affordable if it’s driving growth by one means or another.
This is also why corruption is such a hinderance to economic growth. Consider those IMF multiplier figures again. If you assume that corruption adds a 40 percent ‘inefficiency premium’ to a project, then any multiplier effect evaporates. Instead, the project becomes a drag on the economy.
We at GI Hub have found that public-private partnerships (PPPs) can play a valuable role in combatting corruption by encouraging transparency regarding bidding and payments. Where we see countries improving in terms of their corruption indexes, we quite often see PPPs being used to overcome that corruption and to improve levels of transparency.
Which brings us back to the crucial importance of the rule of law. Investors want to know what legal frameworks exist and whether they are being fairy applied and in a timely manner. Kenya is one of the examples in our InfraCompass study of a country which used PPP laws to increase transparency and to show its willingness to run clean bidding processes.
It’s thanks to this and other success stories that the perception of Africa as a hotbed of corruption is changing. You’re seeing investors like Meridiam Infrastructure increasingly targeting Africa as an investment destination. The question is no longer whether to invest in Africa, but which countries in Africa will be most likely to stand behind the sort of long-term contracts investors are interested in and have the economic plan to create and maintain the stability they require.
There’s investment going into countries like Morocco, Gambia, Nigeria, Kenya and South Africa – the latter of which has been an investment destination for some time. As this level of investment grows, it will create the precedents that will encourage other countries to clean up their acts and become stable, positive partners to investors and, hopefully, move more countries into that elite group of investment countries. By showcasing these positive examples, and providing practical support at the political and bureaucratic levels, this roundtable is intended to help speed up the transition for more African countries to better infrastructure governance models.
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A transformative Continental Free Trade Area requires inclusion of women
A group of experts met in Addis Ababa for the 2017 edition of the Continental Workshop on Trade and Gender under the theme, “The role of regional economic communities in supporting gender sensitive implementation of the Continental Free Trade Area”.
The workshop was organized by the African Trade Policy Centre of the Economic Commission for Africa (ECA), in conjunction with the 10th Session of the Committee on Regional Cooperation and Integration.
In his opening remarks, David Luke, the Coordinator of the African Trade Policy Centre, noted that the Continental Free Trade Area (CFTA) was an ambitious project.
The CFTA is expected to significantly boost intra-African trade and accelerate structural transformation on the continent, said Mr. Luke. However, it will be necessary to ensure that the benefits are shared, and this includes paying special attention on gender equality in the CFTA process.
“Too often we still hear the claim that trade policy is gender neutral, while we know that the benefits and costs of trade are not equally distributed between men and women. When we do discuss women in trade, the discussion remains limited to the patterns observed – such as the fact that many informal traders are women – rather than the causes of these imbalances,” he said.
The meeting called for explicit gender language in the CFTA to ensure political commitment and a legal basis for action on gender equality in the context of the agreement.
It was suggested that Regional Economic Communities (RECs) could use their status as intergovernmental bodies to develop regional common positions and frameworks to support implementation.
The meeting also highlighted the role of development partners in supporting building capacity in gender mainstreaming, including through improved gender statistics.
The experts agreed that the understanding of the links between trade and gender equality was often missing on the continent.
Many initiatives had been introduced to promote the role of women on trade, but effective implementation remained an issue. Going forward, they agreed, implementation and monitoring of outcomes from agreed initiatives should be prioritized.
Workshop participants included representatives from the RECs, United Nations agencies, the African Union Commission, member States, civil society and private sector. A representative of the Canadian Embassy in Addis Ababa also attended.
Background
It is traditionally considered that the impacts of trade agreements and trade policy in general are gender neutral. Real life experience has proven that this is not the case. While trade liberalization is not inherently good or bad for gender inequality, gender and trade mutually affect each other in ways that can amplify existing gender gaps.
To meaningfully acknowledge this relationship – and use it for closing and not widening the gender gap – it is important that rather than being an afterthought, gender considerations become an integral part of trade agreements and trade policy.
The African countries launched the negotiations for the Continental Free Trade Area (CFTA) in June 2015, with negotiations expected to conclude by the end of 2017. The CFTA is an ambitious continental project, and is likely to have deep impacts in terms of boosting intra-African trade and strengthening Africa’s position in the global market. Given the expected changes in the dynamics of Africa’s trade within the continent and with others, the ability for African countries to consider gender aspects of trade policy is crucial.
The African regional economic communities (RECs) form the backbone of the CFTA process and can have an important role in guiding and supporting the implementation of gender-sensitive strategies by their respective member states
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Dubai can help Africa’s entrepreneurs leapfrog developmental challenges, experts say
African entrepreneurs see Dubai as a strategic business hub that can help fill market gaps across the continent
Dubai can play a key role in supporting the development of Africa’s entrepreneurial eco-system by helping the continent’s business leaders and entrepreneurs leapfrog developmental challenges. That was the view echoed by a panel of entrepreneurs who spoke during first day of the 4th Global Business Forum on Africa, which is taking place on November 1st and 2nd at Dubai’s Madinat Jumeirah.
The high-profile forum, held under the patronage of H.H. Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE and Ruler of Dubai, is being organised by the Dubai Chamber of Commerce and Industry.
The panel session, entitled “Innovative Solutions – Is Leapfrogging a Reality or a Myth?”, involved the participation of Jeremy Hodara, Co-Founder and Co-Chief Executive Officer of Jumia Group, UAE; Vahid Monadjem, Chief Executive Officer of Nomanini, South Africa; and Ada Osakwe, Founder and Chief Executive Officer of Agrolay Ventures, Nigeria.
The panellists spoke about how Dubai can leverage its strategic geographic location and capital to connect African entrepreneurs with new growth opportunities and fill market gaps across the continent.
Describing their journey, the panellists noted that technology presents a new landscape of opportunities for entrepreneurs on the continent. However, they also pointed out that infrastructure bottlenecks must also be addressed to accelerate business growth.
There is a need to create the right environment and policies to ensure the success of Africa’s entrepreneurs and SMEs, said Osakwe, adding that governments must take action to implement policies that support business growth. She pointed out that the emergence of young entrepreneurs across Africa is not limited to technology, and noted that new solutions are being adopted by the continent’s agro-business sector.
For his part, Monadjem revealed that African enterprises are creating new business models that factor in existing challenges and added that Africa has a strong narrative pushing people towards entrepreneurship across the continent.
“Entrepreneurship is not the cure for infrastructure. The government is responsible for ensuring that the horizon of growth is there, and entrepreneurs are responsible for realising that potential,” Monadjem said.
Africa is witnessing growing demand for products and services, despite the lack of a strong distribution infrastructure, Hodara explained, noting that this trend is creating plenty of opportunities within the continent’s fast-growing e-commerce sector.
“If you wait for countries in Africa to have as many malls as in Dubai, it might never happen. Yet, African consumers will find a way to access these products, and that is why e-commerce is a great opportunity,” said Hodara.
The need for more valuable partnerships was identified as a key factor which could give a major boost to entrepreneurial and business growth in Africa. Monadjem shared his view that “disruption is less useful than disruptive partnerships,” and stated that he sees tremendous potential to foster innovation through corporate partnerships.
Sangu Delle, Chief Executive Officer of Golden Palm Investments, Ghana, introduced the theme of the forum “Next Generation Africa”, and revealed that young entrepreneurs accounted for a third of the participants at the event. He described the forum as an important platform for African and UAE entrepreneurs, and business and government leaders to explore new opportunities that can potentially drive entrepreneurial growth in Africa.
The Global Business Forum series, launched by Dubai Chamber in 2013, focuses on Africa, the Commonwealth of Independent States (CIS) and Latin America. To date, the series has hosted 10 heads of state, 74 ministers and dignitaries, and 5,400 executives, as well as a host of influential decision makers from 65 countries around the world.
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Africa’s oil & gas industry needs to ‘learn to leapfrog’ and harness innovation and technology to stay ahead of the competition
PwC’s Africa Oil and Gas Review, 2017 analyses what has happened in the last 12 months in the oil and gas industry within the major and emerging markets
The oil & gas industry in Africa continues to face market challenges arising from the low oil price, competition for revenue growth and local talent together with new expectations from investors and regulators.
“Africa’s oil & gas industry is experiencing significant change and upheaval. There are fundamental shifts in companies’ strategies, business models and ways of working,” says Chris Bredenhann, PwC Africa Oil & Gas Advisory Leader.
The sustained lower price of oil has been accepted as the new normal in the oil & gas industry with companies putting plans in place to enable a more agile response to commodity price fluctuations in the future. For some, this means a diversification of portfolio, with many considering moves to an energy mix that includes some form of renewables. Despite the challenges, there are a number of opportunities on the African continent.
“The time is opportune for oil & gas companies to take up and utilise advances in technology as an enabler in meeting some of the challenges faced. Instead of playing catch up the rest of the world, we believe that the industry should be ‘learning to leapfrog’ so that they are not only ahead of disruption – they actually cause it,” Bredenhann says.
PwC’s Africa oil and gas review, 2017 analyses what has happened in the last 12 months in the oil & gas industry within the major and emerging markets.
As at the end of 2016, Africa is reported to have had proven natural gas reserves of 503.3 trillion cubic feet (TcF), up 1% in total gas reserves on the continent. About 90% of African gas production continues to come from Algeria, Nigeria, Egypt and Libya though the overall quantity produced in 2016 reduced by 1.1% down to 208.3bcm.
Africa’ share of global oil production has continued its downward trend from the past four years, dropping sharply, moving it down from 9.1% of global output last year to 8.6%.
The challenges in Africa’s oil & gas industry
The top challenges in the oil & gas industry have remained similar to those in previous years with uncertain regulatory frameworks, corruption, and tax requirements remaining in the top six for the past four years. It is notable that financing costs and foreign currency volatility have both become more critical challenges since 2015 when they were ranked 11th and 10th respectively.
“It is disheartening that governments are not catching up to demands and calls from oil & gas companies to ensure regulatory certainty to players who are looking to invest in hydrocarbon plays in various African countries,” Bredenhann comments. Upstream regulation in South Africa remains uncertain, with the separation of oil & gas from mining still not achieved in the Mineral and Petroleum Resources Development Act (MPRDA). Other key markets in Africa, such as Nigeria and Tanzania, are also experiencing significant regulatory issues.
Corruption has remained among the top three challenges over the last four years, with numerous instances occurring across the continent. Despite the existence of anti-corruption programmes at government and corporate levels, the effectiveness of such programmes is questionable. In the context of corruption issues, it is not surprising that the costs of finance have risen to third among major challenges for African players. It is likely that the regional issues and uncertainties combined with a constrained wider industry, have led banks and other institutions to be wary of offering favourable financing terms.
The lack of skills development continues to be a problem in Africa, and it is becoming a global challenge in the oil & gas industry overall.
Will lower oil prices continue?
Aside from those challenges highlighted by companies, adjusting to the new normal of lower oil prices remains a concern for companies. The oil price has been relatively ‘stable’ through 2017. Having recovered since the January 2016 low, it has typically been trading in the US$50-60/bbl range. As the Brent oil price reached close to US$60/bbl in September 2017, the market began asking whether ‘lower for longer’ may be over. The demand for oil is picking up, and supply is easing off, suggesting a market rebalancing is underway. However, as we have often seen with global oil prices, nothing is ever certain.
Oil & gas companies cited geopolitics, supply and demand as the three major reasons for the current oil price environment. Looking ahead, respondents expect modest increases in prices over the next two years – with 65% and 52% expecting the price to be in the US$51-60/bbl range for 2018 and 2019 respectively.
The changing competitive landscape
In response to many of these challenges, oil & gas companies are looking to alter their strategies and operating models, which has changed the competitive landscape. Companies reported that major changes anticipated or recently experienced in the competitive environment are driven by the growth in alternative fuels, the impact of technology-driven disruption and the need for cost reduction.
Are oil & gas companies fit for Growth?
Oil & gas companies cited ‘too little investment in developing capabilities’ as the most significant impediment to business growth. This was followed by weak strategy and leadership.
According to PwC research, companies become ‘Fit for Growth’ by doing three things consistently and continuously: they focus on a few differentiating capabilities; they align their cost structure to these capabilities; and they organise their businesses for growth.
According to PwC’s Oil & Gas Review, 75% of companies say that they have reviewed their Africa strategy in the last three years, but they also acknowledge that there are issues with incoherence and a problem with executing it in day-to-day business.
PwC’s Fit for Growth approach emphasises that investment in capabilities that enable the organisation to create unique value for customers is key for sustainable growth.
Survey respondents indicated that they are investing in the development of new or the enhancement of existing capabilities (18%), local content and skills development (14%), infrastructure improvements (13%), and regulatory compliance (12%) over the next three years.
It is notable that cost management as a strategic focus has fallen in importance this year. One-third of respondents indicated that they had no cost-cutting intentions. Just under half of respondents intend to reduce costs by up to 20%.
Achieving sustainability
The need to strategically assess the portfolio of activities oil & gas companies in Africa pursue in order to be sustainable in the drive towards a low-carbon environment is necessary. The review results indicate that M&A and partnerships are key to delivering the intended and repositioned strategies and growth. The minority of respondents were related to an M&A proposition to drive growth, with approximately 30% of respondents being targeted for acquisition and about 40% having targeted an entity themselves. The majority of respondents referred to a partnership proposition with nearly 60% having both been approached or approaching another entity for partnership.
While some oil & gas companies continue to explore opportunities for cost reduction and improved efficiency, consideration is now being given to how they will stay ahead of the competition. Given the perception of slow uptake of digital solutions in the oil & gas industry, it is surprising that nearly a quarter of companies stated that they had implemented some form of digital solution, from production and drilling to mobile solutions.
Leveraging local content
More than 25% of oil & gas companies said that projects had been postponed or delayed by local content policies, and about 15% have relocated or cancelled projects in response to local regulations. About 10% indicated an acceleration of their projects. One-third of respondents think that there are more local companies today that can serve the sector. Just under one-third acknowledge that local skills at the right level are available in their country and 11% said that new players have emerged in upstream as a result of the regulations.
“The oil & gas industry in Africa is riddled with complex challenges and adversity, but with challenge comes opportunity. The opportunity is there for players who are willing to ‘reimagine the possible’ in a future that looks very different to our present.
“It is clear that African oil players must ‘learn to leapfrog’ to remain competitive in the new energy future,” concludes Bredenhann.
Distributed by APO Group on behalf of PricewaterhouseCoopers LLP (PwC).
Download: Africa oil & gas review: Learning to leapfrog (PDF)
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Africa unites to attach investment at Africa Oil Week in Cape Town
The key themes discussed at Africa Oil Week 2017 were the development of the continents’ oil and gas resources, with a focus on exploration, regulatory frameworks and governance
The African oil industry met last week to discuss the potential, but also the challenges, that the industry faces as the continent moves towards the commercialisation of its huge gas and oil reserves. Six of Africa’s oil ministers from Cote d’Ivoire, Namibia, Nigeria, Ghana, Mali, South Africa attended, including US Secretary for Energy Rick Perry.
The event drew speakers from the highest echelons of government, operators, service providers, legal, advisory and research firms. The key themes discussed were the development of the continents’ oil and gas resources, with a focus on exploration, regulatory frameworks and governance.
Identifying the way forward for the industry was a strong theme, as Africa competes for investment capital. The African continent accounts for 16% of active offshore fields and 70% of offshore fields, these are either under development or represent potential developments.
It was agreed that there are big opportunities to use Africa’s substantial gas resources to meet the constant and ever-growing need for power. This in turn will trigger economic growth within the continent to meet the needs of a projected population of 2 billion in 2035. But in order for this to happen, there needs to be greater cooperation to move energy around the continent.
In addition, African countries need to address the regulatory and fiscal conditions in order to attract investment and reignite the development of identified deep-water assets and to exploit the substantial latent exploration potential of the continent.
Reflecting on the Ministerial presentations and those 160 experts that spoke at the conference, Paul Wilson, Africa Oil Week’s, Portfolio Director, ITE Group said, “The conference has confirmed that the African oil and gas industry is set to grow as it realises its true energy potential”.
As US Energy Secretary said, “We see progress, we see signs of political and economic freedom that bring stability and prosperity.”
Phil Loader, Executive Vice President, Global Exploration, Woodside Petroleum, Australia, said, “There is a significant amount of resource potential”, and BP’s Jasper Peijs, Vice President of Exploration, Africa confirmed that, “We are growing our footprint in Africa”.
But perhaps Tullow Oil’s CEO Paul McDade, summed the conference up by saying, “Africa will need to compete for capital, competition is going to be tough, where the lowest cost producers will win. In that race Africa has a number of critical advantages, it is perfectly placed between the main global refining centres in the US, Europe, Asia where demand does continue to growth.
“The quality of the oil in East and West Africa is good generally light, and critically it has low sulphur content… Africa has significant potential to deliver low cost crude both from new developments and existing operating areas… Africa has got a full range of opportunities on-shore, off-shore, deep water, shallow water and can suit all companies large and small … there is immense opportunity”. And finally, he praised Africa Oil Week as, “The eminent conference in Africa, a world class event”.
The dates for Africa Oil Week were confirmed as 5-9 November 2018 where the conference will once again take place in Cape Town, South Africa.
Distributed by APO Group on behalf of Africa Oil Week.
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Dubai Chamber report explores entrepreneurs’ role in bolstering Africa-GCC economic ties
Study finds massive potential for growth and for GCC investments in Sub-Saharan Africa
The Dubai Chamber of Commerce and Industry’s efforts in backing small and medium enterprises in Africa have led to further Gulf Cooperation Council (GCC) investment in the continent, concluded the Economist Intelligence Unit (EIU) report, “New Horizons: Next generation Africa-GCC business ties in a digital economy”.
Sponsored by the Dubai Chamber and launched in preparation for the 4th Global Business Forum on Africa, “Next Generation Africa” on November 1st-2nd, 2017, the report investigates the prospects of building relationships between young entrepreneurs and investors in Africa and the GCC in order to determine the challenges to overcome, as well as the future opportunities to benefit from.
The report reveals that the UAE and Saudi Arabia were the second (US$11bn) and fifth (US$3.8bn) largest investing countries, respectively, in Africa by capital investment in 2016, according to fDI Intelligence, a division of The Financial Times. This serves as a great indicator to the future of economic ties between the GCC and Africa. The study also explores the approach to entrepreneurship and investment, delving deeper into sectors of interest such as retail, financial services and renewable energy. H.E.
Hamad Buamim, President and CEO of the Dubai Chamber of Commerce and Industry, noted that Africa and the GCC are witnessing this rise of a need breed of entrepreneurs who are addressing regional challenges and charting a new course to drive economic growth and development on the continent.
“Dubai is well-positioned to serve as a gateway for African companies that are looking for growth opportunities and easy access to expand their footprint in the GCC, Asia, and Europe. Dubai Startup Hub, an initiative of Dubai Chamber, is an ideal platform to assist innovative startups and SMEs from Dubai and around the world, including African entrepreneurs who are keen to collaborate and explore new business prospects,” H.E. Buamim added.
Moreover, the study indicates that there is room for growing business ties between the two regions; Africa has proven consistently resilient and aspirational with the younger generation catalysing an entrepreneurship revolution across the continent, expanding the demand for consumer goods, technology and services in the process. Young businesspeople in GCC countries, on the other hand, are continuously seeking investment opportunities beyond the Middle East. As GCC start-ups mature, entrepreneurs and investors are starting to see the value of business links and expansion to Sub-Saharan Africa.
Additionally, young business leaders in the GCC and Sub-Saharan Africa both want flexibility and freedom in how they work; entrepreneurship is an increasingly attractive career for millennials. During a study of nine African countries, only two showed a dip below 25% in the number of youth engaged in some form of entrepreneurial activity. Even employed millennials exhibited an entrepreneurial streak and strived to do business differently, eschewing hierarchy, and favouring flexibility and empowerment.
Furthermore, the report discovered that growing self-confidence boosts the potential for home-grown solutions and south-south collaboration. Young business leaders in Africa and the GCC no longer only look to the West for inspiration and brands to import. Increased access to the latest technologies enables them to develop products and services that meet the needs of the local and regional markets.
On the same note, the study reveals significant room for growth for Africa-GCC business links. Africa remains, on the whole, the third phase of growth after the Middle East and Asia for GCC-based companies. Gulf private equity investment in Africa is likewise a niche activity, dominated by a handful of funds. However, awareness around the massive potential of an Africa-Gulf cooperation is on the rise, experts claim. As private capital from Europe and North America into Africa has consistently sought to exit the continent over the past decade, more opportunities open up for Gulf investors.
Elsewhere, the report indicates that consumers are powering the growth of several sectors in Africa. With consumer spending forecast to reach US$1.4 trillion annually by 2020, long-term consumption trends make Africa an enticing prospect for young business leaders. The continent’s emergent middle-class is the key driver behind interest in sectors such as retail (particularly, e-commerce), financial services, healthcare and education. Technology is now a primary gateway to get goods and services into new hands. The room for growth is vast: e-commerce accounted for just 1% of overall retail in South Africa last year. Financial technology (fintech) is another promising sector poised to boost the fortunes of the continent’s small businesses.
Lastly, the report found that African entrepreneurs are turning to the GCC for more than just capital. While the region was largely viewed as a source of capital for African start-ups, Gulf investors and businesses have a lot more to offer by way of knowledge-sharing on operational and legal strategies. The Gulf is also increasingly becoming a destination for African products and services, particularly in the retail and food sectors.
In conclusion, the report suggests that the shift in the economic landscape in Africa and the GCC reflects the evolution of the next generation of business leaders. The growth of the middle class has driven a demand for consumerfocused products and services in a diverse set of sectors including retail, food, finance, education, healthcare and energy. This creates a host of new opportunities for regional investors, particularly from the GCC.
Download the report: Next-generation Africa-GCC Business Ties in a Digital Economy