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AGOA Forum 2017: the report of the conference proceedings is published
Underway, in Dar: 2nd phase of training on the Tariff Reform Impact Simulation Tool. [Details of an earlier training session in Accra]
WTO delegation to review Egypt’s trade policies in February 2018
A high-level delegation from the WTO arrived in Cairo on Sunday for a five-day visit to discuss the WTO’s draft report on Egypt’s trade, economic, and investment policies. The main meeting to review Egypt’s trade policies will be held on 20 and 22 February 2018, according to Willy Alfaro, the director of the Trade Policy Reviews Division at the WTO. Minister of Trade and Industry Tarek Kabil said that the Egyptian government will make use of this opportunity to highlight the economic and legislative reforms that have been taken recently and to present the government’s future plans to boost economic growth and attract more investments. [Downloads: West African Economic and Monetary Union TPR]
COMESA: Proposed 2018 annual budget drops
The proposed 2018 annual budget for the COMESA Secretariat and its agencies has declined by $10m as several cooperating partners grants come to an end. This was revealed during the opening of the 37th meeting of the Committee on Administration and Budgetary matters. “The annual budget will decrease from $42m, in 2017, to $32m, for 2018. This translates into a 30% reduction,” Mr Ngwenya said. Member States are expected to contribute $16.7m while cooperating partners are expected to provide $15.6m. He told delegates that funding from cooperating partners may however increase for 2018 if the programming processes of the 11th European Development Fund are completed early and grant agreements are signed. Among the COMESA agencies that will be affected are the Regional Investment Agency, the Federation of Women in Business and the COMESA Competition Commission. He noted: “At some point, our cooperating partners will naturally expect COMESA Member States to assume a greater share of funding of the COMESA work programme.”
Tanzania scraps customs pact with DRC to boost cargo trade (IPPMedia)
The government has suspended the Single Customs Territory clearance system it initiated with the DRC in 2015 after facing a myriad of challenges including Congolese ships deserting the port of Dar es Salaam. According to the permanent secretary in the Ministry of Trade, Industries and Investment, Prof Adolf Mkenda, the government has already sent a six-month notice to DRC on its plans to terminate the agreement. The PS made the disclosures at a high-level public-private dialogue on the state of doing business in Tanzania, held in Dar es Salaam on Tuesday. Participants at the dialogue asserted that clearing goods at the port for transit to DRC takes far too long (two to three months) under the SCT system, at severe cost to businesses in terms of lost revenue and storage charges. As a result, they said, many clients have stopped using the port and choose instead to pass their goods through competing ports, particularly Durban, Beira and Mombasa. Under the SCT arrangement, Tanzania and DRC had adopted a destination model of clearance of goods where assessment and collection of revenue was done at the first point of entry - Dar es Salaam. The system was established in hopes of increasing efficiency in clearing Dar port cargo, and curbing tax evasion. But its implementation has been rocky, resulting in an increase in the number of days for clearing cargo.
Dar Port efficiency pays off (Daily News)
Despite an unprecedented drop in the number of ships arriving at the Dar es Salaam Port, Tanzania Ports Authority’s monthly revenue collection continue to increase, as efficiency and transparency equally go up. TPA Director General, Engineer Deusdedit Kakoko told the Parliamentary Public Accounts Committee that as of June 2017, the authority had collected 728bn/- above the 623bn/- target for the financial year ending June 30, 2017. The number of ships arriving at the port has gone down after TPA sealed all loopholes and corrupt elements that made some business people to evade tax, he said. Engineer Kakoko, however, said that despite the decrease in the number of ships, revenue collection continued ballooning. The number of ships plus Gross Registered Tonnage (GRT) according to him was 2,132 in 2012/2013 FY, with 27.998 million tonnes. In 2013/2014 TPA registered 2,329 ships with 33.517 million tonnes; 1,958 ships in 2014/2015 with 32.848 million tonnes; 1,698 ships in 2015/2016 with 33.663 million tonnes; and 1,649 ships with 30.342 million tonnes in the 2016/2017 FY.
Zambia and the IMF: two reports
(i) 2017 Article IV Consultation: The external position has been under pressure from low copper price (Text Figure 1). The current account balance turned from a 2.1 percent of GDP surplus in 2014 to a 3.9 percent of GDP deficit in 2015 and 4.4 percent of GDP in 2016, reflecting lower copper export earnings and higher interest payments. Despite the large currency depreciation in late-2015, imports in 2016 fell by only 12 percent due to higher imports of fuel and electricity to cope with the shortages in the domestic power supply. Gross international reserves declined to US$2.4 billion at end-2016 (3⅓ months of import cover) compared to nearly US$3 billion at the end of 2015 (4.5 months of import cover). With copper accounting for about 70 percent of Zambia’s export earnings, the recent steady increase in the world price has brightened prospects in the mining and external sectors, with positive spillovers to other sectors.
(ii) Selected Issues paper (pdf): Large exemptions and rising imports from regional free trade areas are contributing to the decline in trade taxes. At 1% of GDP in 2015, Zambia’s customs duty collection is below the average for SADC of 3.8% of GDP due to the existence of several exemptions or reduced rates including on import of fuels by the government, irrigation and other farming equipment. Additionally, Zambia’s trade taxes have been declining due to increased trade from regional free trade areas. According to the Zambia Revenue Authority, the Value of Imports for Duty Purposes - VIDP (i.e., the tax base for customs duties) narrowed from 24% of the total value of imports in 2014 to 19.5% in 2015.
Tripartite Transport and Transit Facilitation Programme: launch update (SADC)
The Tripartite Sectoral Committee of Ministers of Infrastructure at their inaugural meeting in Dar es Salaam officially launched the Tripartite Transport and Transit Facilitation Programme, appointing Hon. Agrey Henry Bagiire, Minister of Transport and Works, Uganda, as the Champion of the TTTFP. Ministers also made the following decisions: (i) endorsed the TTTFP which is designed to accelerate the pace of harmonisation of laws, policies, regulations, standards and systems that affect cross border road transport in the east and southern African region; (ii) noted the progress on the harmonization of cross border road transport laws, policies, regulations, standards and systems that affect drivers, vehicles and loads; (iii) urged respective ministries, government agencies and private sector stakeholders to participate in the implementation of the program; (iv) directed the COMESA, EAC and SADC Secretariats to finalise the harmonisation of outstanding instruments, standards and regulations in collaboration with national and continental stakeholders such as the African Union Commission;
Central Africa: Transport-Transit Facilitation Project update (World Bank)
The objective of the Transport-Transit Facilitation Project is to facilitate regional trade among the Member States and improve the Central African Republic’s, the Republic of Cameroon’s and the Republic of Chad’s access to world markets. The proposed restructuring is related to the completion of rehabilitation works of the Mora - Dabanga - Kousseri road (205 km), which is of critical regional importance, and is situated in an active military conflict area in the Far North region of the country. The implementation of the CEMAC TTFP continues to be rated Unsatisfactory due to:
Review of Maritime Transport: poor maritime connectivity hurting weaker, smaller nations (UNCTAD)
The Review of Maritime Transport 2017 presents key developments in the world economy and international trade and related impacts on shipping demand and supply, and freight and charter markets in 2016 and early 2017, as well as seaports and the regulatory and legal framework. In addition, this year’s Review features a special chapter on maritime transport connectivity, reflecting the prominence of physical and electronic connectivity as a priority area in the trade and development policy agenda. Missing connections: More than 80% of country pairs do not have a direct connection. This includes large trading nations that lie across the same ocean, for example Brazil and Nigeria. “A key question for trade and transport analysts is whether there are no direct connections between the two countries because there is not enough demand, or whether there is not much trade between them because the two trading partners are not well connected,” notes Jan Hoffmann, Chief of the Trade Logistics Branch of UNCTAD. The report explains that lacking a direct maritime connection with a trade partner is associated with lower export values – up to 40% lower when there is an additional trans-shipment – and that country pairs can reduce trade costs by 9% when they add a direct maritime connection.
SADC Regional RVAA (Humanitarian Response)
Compared to last year, the total number of food insecure population in the 12 Member States reporting, decreased by 19% from 31 million in 2016/17 marketing year to 25 million in the 2017/18 marketing year. This positive change is attributed to improved rainfall, national strategic interventions and subsequent harvests in almost all countries, with the exception of parts of DRC, Namibia and parts of Madagascar. National strategic interventions included input subsidies and nutritional support programmes. For countries that had poor production reasons varied from poor rainfall performance, crop and plant diseases, pest infestations, conflict and displacement of populations. [Download, pdf]
Spaces of vulnerability and areas prone to natural disaster and crisis in six SADC countries (Humanitarian Response)
To enhance the understanding of the specific disaster risks in Southern Africa, the International Organization for Migration conducted a desk review to explore key concepts of hazard, exposure, vulnerability and resilience, taking into account human mobility aspects. This report (pdf) presents the findings from the review and is divided into a global chapter, a regional overview of Southern Africa specifically focusing on the SADC, and six country chapters elaborating the findings from the six target countries of the desk review, namely, Botswana, Malawi, Mozambique, South Africa, Zambia and Zimbabwe. Each country chapter includes a hazards and vulnerability map as well as sections on hazards, development challenges and vulnerabilities, migration trends and patterns, and disaster risk management and governance systems.
AU scorecard deal shows Africa ready for agriculture revolution (Business Daily)
The African Union Commission and the NEPAD Agency have been leading the review process through the collection of data on a set of 43 indicators from its 55 member countries. With the findings of this first biennial review now set for presentation at the AU heads of state summit in January next year, it was a wholly new experience, too, to hear Mr Gates, one of the non-state world leaders and philanthropists at the meeting, comment on the enthusiasm for the scorecard concept, as he encouraged participants to move quickly to take advantage of the momentum created to secure support for the tool. The agricultural scorecard draws its inspiration from the success of similar tools, like the African Leaders Malaria Alliance Scorecard for Accountability and Action, which have seen countries across the continent act to eradicate the disease from the continent by 2020. [The author, Boaz Keizire is Head of Policy and Advocacy at AGRA]
FAO West Africa multidisciplinary team meeting: update
The two-day deliberations, led by Serge Nakouzi, FAO Deputy Regional Representative for Africa, came out with recommendations that will shape joint actions in the short, medium and long term. Among concrete actions towards strengthening regional initiatives on ending hunger and malnutrition in West Africa are a review of the Right to Food situation in West Africa; an analysis of the hunger and malnutrition trends over the last 20 years; the formulation of a strategic framework and road map for achieving zero hunger and malnutrition in West Africa by 2025; and a strengthened institutional capacity of the ECOWAS Regional Agency for Agriculture and Food.
UNIDO-ACP symposium: Boosting ACP inclusive and sustainable industrialization
An additional area for ACP-UNIDO collaboration, possibly rests on the need for “Blueing” the industrialization of developing countries so as to harness new frontiers for sustainable development of marine and maritime resources. Of great significance in this regard is the ACP Fisheries Mechanism and the recent Declaration of Ministers responsible for Fisheries and Aquaculture at their meeting the Bahamas just a month ago in September. [Related: EU-ACP roundtable - Putting partnership into practice. Various downloads are available]
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Low shipping connectivity makes weaker economies more vulnerable
In a globalized world, trade, communication and finance depend on the possibilities for people, companies and societies to connect, and there is a growing rift between the best- and worst-connected countries, a new United Nations report says.
Published on 25 October, the UNCTAD Review of Maritime Transport 2017 states that low shipping connectivity continues to undermine the access of smaller and weaker economies to global markets and that improving this requires modernizing their seaports and cabotage regimes, and reforming customs and other import-export procedures.
Many landlocked developing countries, small island developing States and least developed countries are among those most affected, given their access to fewer, less frequent, less reliable and more costly transport connections.
“Our research shows that planning and forecasts can be significantly improved if data on maritime transport networks are included in the relevant policy processes, such as negotiating trade deals and transport infrastructure development plans,” notes UNCTAD Secretary-General Mukhisa Kituyi, ahead of the report's release.
National, regional and intercontinental liner shipping services should be interconnected to the extent possible. In many countries today, domestic shipping services for cabotage transport are protected from foreign competition. Such market restrictions can lead to unnecessary inefficiencies and a loss of maritime connectivity.
Well-designed policies that allow – under clearly defined conditions – international shipping lines to also carry domestic trade or international cargo from feeder vessels can enhance both the competitiveness of a nation’s seaports and the access of importers and exporters to international shipping services.
“Fostering competition among ports is important to ensure that port operators maximize efficiency and pass on efficiency gains to their clients,” says Shamika N. Sirimanne, Director of the Division on Technology and Logistics of UNCTAD.
Inter-port competition should not be limited to national seaports, but to ports of neighbouring countries as well. Improved maritime connectivity thus also depends on effective port hinterland access through inland and multimodal transport connections. Efficient regional trucking markets, inland waterways, rail and road infrastructure, and transit regimes are all important instruments to enhance inter-port competition.
Transit can be facilitated in line with international standards and recommendations, including those of the United Nations, the World Customs Organization and the World Trade Organization.
Customs and other border agencies need to continuously modernize to speed up the movement of goods. UNCTAD work helping countries automate customs procedures and integrate other trade-related government processes shows that these efforts can reduce transaction costs, shorten cargo dwell time and increase transparency.
Regional leaders
The key nodes of the global shipping network are Malacca, Panama, the Strait of Gibraltar and Suez, and traffic is denser in general in the northern hemisphere, with exceptions such as the areas around Mauritius, South Africa and Santos, Brazil.
On the west coast of South America, Panama is the best-connected country of the subregion, thanks in part to the Panama Canal, which has encouraged the establishment of trans-shipment ports.
On the east coast of South America, Argentina, Brazil and Uruguay are served by the same lines. Although Uruguay is a much smaller economy, it accommodates the same services, not only for its own imports and exports, but also for transit cargo from Paraguay and trans-shipment services into Argentina and Brazil, where cabotage restrictions limit the trans-shipment potential of domestic ports.
In Africa, the best-connected countries are Egypt, Morocco and South Africa, benefitting from their geographical position at the continent’s corners.
On the Arabian Peninsula, the United Arab Emirates, with its hub port in Dubai, has maintained the highest liner shipping connectivity index of the subregion.
In Southern Asia, Sri Lanka has bypassed its neighbours. Colombo accommodates large container ships that are deployed on services between Asia and Europe, as well as some services to Africa and South America.
In South-East Asia, Singapore and Malaysia are largely served by the same lines in their Asia-Europe services, and their liner shipping connectivity index moves mostly in parallel.
In Eastern Asia, China boasts the highest liner shipping connectivity index, as its ports are the world’s major loading locations.
Missing connections
More than 80% of country pairs do not have a direct connection. This includes large trading nations that lie across the same ocean, for example Brazil and Nigeria.
“A key question for trade and transport analysts is whether there are no direct connections between the two countries because there is not enough demand, or whether there is not much trade between them because the two trading partners are not well connected,” notes Jan Hoffmann, Chief of the Trade Logistics Branch of UNCTAD.
The report explains that lacking a direct maritime connection with a trade partner is associated with lower export values – up to 40% lower when there is an additional trans-shipment – and that country pairs can reduce trade costs by 9% when they add a direct maritime connection.
UNCTAD has led the research on shipping connectivity since the first publication of the UNCTAD liner shipping connectivity index in 2004.
Download: Review of Maritime Transport 2017 (PDF, 11 MB)
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Trade Policy Review: Members of the West African Economic and Monetary Union (WAEMU)
The first review of the trade policies and practices of the members of the West African Economic and Monetary Union (WAEMU) takes place on 25 and 27 October 2017. The basis for the review is a report by the WTO Secretariat and a report by the Governments of Benin, Burkina Faso, the Côte d’Ivoire, Guinea Bissau, Mali, Niger, Senegal and Togo.
Report by the Secretariat: Summary
With the exception of Côte d’Ivoire, which is a developing country, the seven other member States of the West African Economic and Monetary Union (WAEMU), namely Benin, Burkina Faso, Guinea-Bissau, Mali, Niger, Senegal and Togo, are all least developed countries (LDCs). The eight member States as a whole have a GDP of around €97 billion. Depending on the member State, the informal sector accounts from between one to two thirds of real GDP. The total population, numbering 119 million in 2017, is spread over an immense region of 3.5 million km2, a large part of it desert, and is growing at an average rate of 3.1% annually.
Member States have immense natural resources, including minerals, and vast agricultural potential. Gold is mined in Burkina Faso and Mali, for which it is the most important export. Niger is one of the world’s leading producers and exporters of uranium, as is Togo for phosphates. The WAEMU members produce and export limited quantities of mineral resources. Although all eight States have agricultural potential, Côte d’Ivoire reaps the greatest benefit. Its agricultural strategy has enabled it to diversify production and become one of the foremost producers and exporters of several agricultural products such as cocoa, coffee and cashew nuts. For Benin, Burkina Faso and Mali, cotton is a major export, as are fish and shellfish for Senegal, while Guinea-Bissau relies on its exports of cashew nuts.
In most countries where they are exploited, mining resources have not so far yielded many benefits for the national economy or the population. In all eight countries, the majority of the population is essentially involved in agriculture, including raising livestock. Nevertheless, apart from hydrocarbons, animal products and cereals, particularly rice and wheat, are the principal imports and their share of imports has not decreased. The other principal imports include chemicals and transport equipment.
WAEMU’s economic growth overall has been lower than that recorded by the group of African LDCs, no doubt because of the socio-political problems in the region. Over the period 2009-2015, WAEMU’s annual economic growth was an average of 5%, driven by Côte d’Ivoire, which accounts for over one third of the Union’s GDP. Furthermore, WAEMU’s macroeconomic stability, achieved as a result of monetary discipline and, to a certain extent, the budgetary discipline imposed by membership of such a Union, has enabled it to absorb the shocks caused by sharp fluctuations in global prices for the raw materials exported.
The share of total trade (intra- and extra-community) in goods and services in WAEMU’s GDP rose by seven percentage points between 2009 and 2016 to reach 70.4%. The percentage varies from less than 60% in Guinea-Bissau and the Saharan countries (Burkina Faso, Mali, Niger) to over 100% in Togo, 75% in Senegal, 73% in Côte d’Ivoire and 70% in Benin. Over 90% of the Union’s trade in goods (amounting to €22 billion for imports and €20 billion for exports) takes place outside the community, with the European Union (EU), Switzerland, China and India as the major partners. The value of intra-WAEMU trade has increased at a slower pace than trade outside the community and represented around 10% of the total value of member States’ trade in 2015, less than the 13% recorded in 2010. It should be noted that the extent of informal trade means that statistics on intra-community trade are undoubtedly under-estimated.
Investment in the Union has the advantage of a legal framework for business law that has been harmonized by implementation of the nine uniform acts of OHADA. The Investment Codes of WAEMU members are in general liberal, with no important restrictions on foreign presence, and provide foreign investors with the usual guarantees. They have not, however, yet been the subject of harmonization at the community level and include numerous exceptions and exemptions made necessary by relatively high corporation tax, amounting to 25% and 30% of the profits, as provided in the community provisions. In addition, problems of electricity supply and its high cost are one of the major obstacles to investment within the Union.
With the exception of Guinea-Bissau, which has no permanent Mission in Geneva, all WAEMU member States take part in the WTO’s activities through their Missions. The eight member States are examining the possibility of utilizing the WAEMU delegation to become better organized and so fulfil their notification obligations and coordinate their participation in the WTO in general. Members, with the exception of Guinea-Bissau and Niger in recent years owing to their contribution arrears, have the benefit of all WTO’s technical assistance activities. Prior to this first common review of the trade policies of all eight WAEMU member States, some of these countries were first reviewed separately and then in groups of two or three. The introduction of an annual review of reforms, policies, programmes and projects in the community by the WAEMU Commission in 2013 also responds to the concern for transparency and has helped members to improve the transposition and implementation of community acts. The simultaneous existence of WAEMU and ECOWAS, each with its own Commission, has meant that overlapping has persisted, has increased costs (for WAEMU members which all belong to ECOWAS) and has slowed down the trade integration impetus, which is much stronger within WAEMU than within ECOWAS. In addition, in August 2016, Côte d’Ivoire ratified the interim Economic Partnership Agreement signed with the EU in November 2008, but by July 2017 had still not started to dismantle tariffs, as required by the Agreement.
Among the many documents required for importation and which have not yet been harmonized by the Union’s member States are the prior or advance declaration forms, the inspection certificate and the foreign exchange authorization; the export declaration by the country of origin (mandatory in Côte d’Ivoire and Niger); and the cargo tracking note (BSC) issued by private companies authorized by the governments requiring it. The BSC provides information which is usually available in other customs documents. Electronic platforms for exchanging documents, linked to the Customs electronic windows, exist in Benin, Côte d’Ivoire, Senegal and Togo. By May 2017, all WAEMU member States, except for Benin, Burkina Faso and Guinea-Bissau, had ratified the WTO Agreement on Trade Facilitation.
Several institutions are involved in import and export procedures alongside the Customs. These include the compulsory customs agents (also required for export); officials of various ministries checking whether or not the various prior authorizations required are submitted, including those from the Directorate-General of the Treasury, which issues foreign exchange commitments, and approved banks which sign them; producers’ or exporters’ associations, which register exports and sometimes tax them; Chambers of Commerce, involved in guarantees for the transport of goods in transit and weighing them; and inspection companies. With the exception of Niger, which did not renew its contract with the preshipment inspection company but still levies the inspection fee of 1% of the c.i.f value of the goods, and Guinea-Bissau, which suspended this procedure in November 2016, all the other WAEMU member States still impose preshipment inspection, sometimes involving several companies, as is the case in Benin. For all these reasons, streamlining import and export procedures is seen as a priority by all operators. Furthermore, pursuing the efforts made by member States in terms of compliance with the multilateral provisions on customs valuation could make the use of private companies for customs valuation redundant.
Despite the determination to achieve fiscal transition declared at the regional level, the taxation of trade remains an important source of government revenue for member States (around 15% in Burkina Faso to over 38% in Côte d’Ivoire, with an average of 24% for WAEMU as a whole), which hampers any initiative to try to reduce it. The ECOWAS common external tariff (CET) has been applied in all member States since January 2015, with the exception of Guinea-Bissau where it came into force in October 2016. It comprises five bands (zero, 5%, 10%, 20% and 35%) and replaced the WAEMU tariff, which had been in force since 2004. For 90% of tariff lines, the ECOWAS CET is identical to the WAEMU tariff, except that rather than the four bands in the WAEMU CET, the ECOWAS CET has a fifth band at a rate of 35% applicable to 130 tariff lines. The average rate of the ECOWAS CET is 12.3%, compared to 12.1% for the WAEMU CET. An optional supplementary measure of national application is supposed to allow member States, if needed, to adjust over a transitional period of five years until 1 January 2020.
This supplementary provision comprises an import adjustment tax, which allows tariff protection to be raised or lowered according to a country’s needs, and a supplementary protection tax (TCP). This is similar to a safeguard tax and is supposed to replace a similar provision introduced by WAEMU, namely, the special import tax, still in force in some member States (Côte d’Ivoire, Mali and Senegal). Together with its accompanying measures, the ECOWAS CET is thus more complex and involves a greater risk of variation in its application by member States than that of WAEMU.
The rates of the ECOWAS CET exceed bindings at the WTO for all member States except for Guinea-Bissau and Togo. Moreover, the numerous other duties and levies imposed by member States and described below are in fact bound at zero, posing a problem of consistency with the bound tariff lines. In addition to the CET and the two new import taxes described above, WAEMU member States also apply myriad other duties and levies which already existed in WAEMU’s tariff, namely: the community solidarity levy of 1%, imposed by WAEMU member States on imports from countries outside ECOWAS; the ECOWAS community levy of 0.5%; and the statistical tax of 1%. If need be, member States individually impose levies on certain products such as sugar in the form of “special”, “compensatory” or variable duties. In order to resolve the inconsistency between their taxation regimes and their multilateral commitments, all WAEMU member States, except for Guinea-Bissau, have reserved the right to renegotiate their bound tariffs pursuant to Article XXVIII of the GATT over the period 2015 to 2017, but this renegotiation process has not yet begun.
Within ECOWAS, and also WAEMU, trade in local products is, in principle, free of duty and import taxes. Tariff preferences for processed products require two prior approvals (of the product and the manufacturer) in addition to the certificate of origin in order to guarantee the origin of the product and the nationality of the manufacturer. Numerous problems apply to the free movement of community goods (either of origin or after release for consumption in a member State) or those in transit, related, inter alia, to each member State’s need for revenue or to the existence of fraud. Furthermore, because the security amounting to 0.5% of the c.i.f. value of goods in transit is not high enough – Guinea-Bissau imposes a 2% tax instead – and the goods are unloaded illegally in markets of member States along the route, some member States, including Côte d’Ivoire, require a second guarantee equivalent to at least the total amount of the import duties and taxes suspended, which is refunded after receiving proof that the goods have left national customs territory. Although it is now much less common, a customs escort is still compulsory on several routes, for example, between Mali and Senegal. In May 2017, pilot projects to interlink customs posts were being implemented between Burkina Faso and Togo, and among Côte d’Ivoire, Burkina Faso, Mali and Senegal.
All WAEMU member States apply internal taxes, whose regimes have been harmonized, but not the rates. These consist of VAT (Guinea-Bissau applies a general sales tax (IGV) instead), excise duty (including the single special tax on petroleum products) and the advance on profits tax (AIB); ranges are determined for their rates. Except for Niger, which only applies excise duty on imports, all other member States observe the principle of national treatment when applying VAT and excise duty. The AIB is usually only imposed on imports. Member States do not always observe the harmonized regimes (at the community level) for tax exemptions, especially internal taxes.
The export regime is still less harmonized than the import regime. Exports are subject to various taxes which have not been harmonized at the community level, while their competitiveness suffers the negative impact of high taxes on inputs, foreign exchange regulations and a number of other factors that affect the business climate, including the cost of access to energy and financing. Benin, Côte d’Ivoire, Mali, Senegal and Togo have industrial free export zones which allow companies proving that they export at least 65% to 80% of their turnover to benefit from a number of concessions. These entail costs for States which the gains from the free zone regime do not appear to cover.
Since 2010, the WAEMU Commission has been responsible for the mechanism for the adoption of technical regulations within the Union, in cooperation with the Regional Standardization, Certification and Quality Promotion Organization (NORMCERQ), on the basis of international standards and technical regulations such as those of the Codex Alimentarius and the International Organization for Standardization, to which all the member States belong with the exception of Niger, which is a correspondent member, Guinea-Bissau and Togo. The objective is to improve the quality of local or imported products. There is still room for progress, however, to bring the relevant national regimes up to the minimum international level. The West African Accreditation System (SOAC), revised in 2010, was not yet operational in May 2017.
The process of harmonizing national sanitary and phytosanitary (SPS) legislative texts, measures and practices has been going on within WAEMU for a dozen years or so. Attention should be drawn to problems in effective implementation of domestic legislation, which is obsolete in most of the countries, notably the absence or deficiencies of SPS control capacity. In countries where they exist, national SPS committees do not have the means needed to operate correctly. Closer coordination among competent structures as regards SPS control and the introduction of modern risk management approaches are required.
In February 2015, regulations on the prevention of biotechnological risks were endorsed by WAEMU, together with ECOWAS and CILSS. These will apply to any use of modified living organisms and their by-products, which might have a negative effect on the environment, especially on biological diversity or human or animal health, with the exception of pharmaceuticals. Within WAEMU, regulations to ban plastic bags and their components were being adopted; similar measures are in place at the national level. National initiatives to ban the import of some products (meat products in particular) within the Union should be noted, particularly in Senegal in the case of poultry, in Mali for beef and poultry, and in Togo for frozen beef, inter alia.
The protection of intellectual property rights (IPRs) remains a challenge, even though all WAEMU member States have signed the Bangui Agreement, whose uniform provisions are essentially consistent with the WTO’s TRIPS Agreement, and have created a common bureau, namely the African Intellectual Property Organization (OAPI). In 2013, OAPI recorded its first protected geographical indications. A revision of the Bangui Agreement in December 2015 now allows the Customs to detain ex officio goods they suspect of being counterfeit. By May 2017, Côte d’Ivoire, Guinea-Bissau and Niger had still not accepted the Protocol of Amendment to the TRIPS Agreement, ratified on 23 January 2017, and intended to facilitate access to essential medicines.
A large percentage of the working population in the Union’s member States is still employed in agriculture. Food insecurity remains a permanent feature in several States, however, exacerbated by the problem of trade in regions affected by terrorist attacks since 2010. Despite the declared objective, per capita food production did not increase to any great extent in member States (with the exception of Benin) over the period 2010-2016, and even fell in some. Nevertheless, higher prices for producers of various food crops since 2010 have led to a substantial rise in production in several States, thereby confirming that agricultural production responds dynamically to price fluctuations. The numerous taxes levied on agricultural products by some member States do not, however, encourage producers.
Overall, WAEMU’s member States did not generally utilize quantitative restrictions on imports of agricultural products during the review period. In addition to the maximum tariff protection, however, the sugar subsector is still protected by a number of trade barriers such as variable duty, as in Côte d’Ivoire; the obligation to purchase local sugar in Burkina Faso and Mali; and quantitative restrictions on imports in Côte d’Ivoire, Benin and Senegal. Livestock breeding is a priority for increased trade among WAEMU member States, as the main self-sufficient informal activity, notably in Burkina Faso, Mali and Niger, but also as the supplier of dairy products, meat, and hides and skins for export. It would appear that informal exports play a major role because of the plethora of taxes and other levies when crossing borders, despite the free trade that is in principle applied by member States.
The fisheries sector plays a key role in the economies of all member States both as regards revenue and food security, even though it is more important in countries such as Senegal and Guinea-Bissau. In general, fisheries do not appear to receive any government support. Fisheries yield substantial revenue from the sale of fishing rights, but without any obligation to unload catches or process them locally. Furthermore, problems of compliance with the health regulations in the major export markets have been noted. Two directives, which also cover (legal or illegal) over-fishing affecting most species, were adopted by the Commission in 2014, although implementing them is proving very difficult.
Except for Côte d’Ivoire, which is relatively more industrialized, the manufacturing sector in WAEMU’s other member States is little developed, with a few light industries. The availability of secure, clean and inexpensive energy remains the major handicap for industrialization and diversification of WAEMU’s economies. Less than 6% of the inhabitants in rural areas have access to electricity in Burkina Faso, Guinea-Bissau and Niger; and only Senegal and Togo have greatly increased their rural populations’ access to electricity to 28% and 33%, respectively, close to the level in Côte d’Ivoire. There is no community legislation on electric power, and the relevant domestic laws are divergent. Inefficient monopolies of transport and electricity distribution, together with price fixing mechanisms, exist in most of the countries and discourage investment. Few measures have been adopted to encourage renewable energy. There are initiatives (not yet completed) to interconnect electricity grids between Senegal and Guinea-Bissau and among Benin, Burkina Faso, Mali and Togo. The interconnection between Côte d’Ivoire and Mali has been operating since 2011. Niger has just a few links with Nigeria.
Electric power within the Union is essentially of thermal origin, even though there is only very limited production of hydrocarbons in the Union. Only Côte d’Ivoire and, since 2011, Niger, produce crude petroleum. Regulations affecting trade in petroleum products at community level are being streamlined and harmonized so as to lower the financial and environmental cost and the consequent risk of fraud. Systems for the taxation of imports of petroleum products, in particular, respond to distinct and sometimes inconsistent objectives of maximizing fiscal revenue and keeping prices affordable for the population and industries in national territory. The hydrocarbons subsector is subject to various trade measures, including taxes that have generally been harmonized at community level, consumer subsidies, private or public monopolies and quantitative import restrictions in member States which produce crude petroleum or refine it, for example in Niger.
In the mining sector, compliance with the Extractive Industries Transparency Initiative (EITI) by all member States (except for Guinea-Bissau) underlines their determination to strive to improve governance in this sector. Small-scale mining and gold panning, in particular are outside this control, however, even though they constitute a non-negligible part of such activities. The State’s right to 10% of the capital of mining companies, without payment, has now become a traditional part of mining royalties. The extent of exemptions from various taxes, duties and levies given for mining investment has seriously undermined the net gains for these States, to such an extent that in some countries, such as Niger, the fiscal provisions relating to mining are being reviewed.
Services are increasingly playing a predominant role in the economies of WAEMU member States. The areas which have recorded the best performances include mobile financial services, telecommunications and business services, following the installation of fibre optics. A liberal trade policy towards foreign suppliers of services has helped to achieve this, promoting competition and partnerships in several member States. Access to fibre optic infrastructure, however, suffers from a lack of competition, which has incited several regulators in the Union to intervene, notably by putting a ceiling on certain rates. The recent amalgamations and takeovers in the telecommunication sector, by increasing its concentration, could slow down this subsector’s performance.
In the area of air transport, the Yamoussoukro Decision of 2000 and the community provisions of 2002 opened markets up to regional companies. Prices are slow to decrease, however, because supply is limited. In member States with a coastline, maritime transport services are mostly provided by the major world shipping lines and countries do not usually have their own fleet. One of the many taxes and surcharges imposed at the ports level, the terminal handling charge, introduced in March 2016 for the benefit of shippers, was abolished in January 2017 in Côte d’Ivoire, but is still levied in some other Union ports and raises the cost of imports. As regards rail transport, the renovation and expansion of the two railways between Niamey and Cotonou and between Abidjan and Ouagadougou could boost competition in the land transport sector. Furthermore, the regional transport facilitation programme launched by the WAEMU Commission in 2009 should help to end the chaotic competition that is a feature of road transport, encourage the entry of new operators and thus allow costs to fall and improve the security and reliability of these services.
Banking and insurance in member States are open to foreign presence, which is substantial. Their activities are governed by the regulations of the West African Monetary Union (UMOA) for banking services, and the Code of the Inter-African Conference on Insurance Markets (CIMA) for insurance services. Only Benin, Côte d’Ivoire and Senegal made specific commitments on financial services (excluding insurance) under the GATS in 1994. Among recent developments was the simultaneous transposition of the regulatory provisions of “Basel II” and “Basel III” in 2016. Moreover, since 2016, any reinsurance contract assigned abroad concerning over 50% (75% prior to 2016) of a risk has required authorization. In addition, 15% and 5% of the amounts reinsured must be assigned in priority to CICA-RE and Africa-Re, respectively, two multilateral reinsurance companies.
Although persons offering most professional services must be citizens of a WAEMU member State, such services are the subject of several regulations designed to install the free movement and establishment of authorized professionals citizens of WAEMU within the community area. Under the GATS, only Côte d’Ivoire and Senegal undertook certain commitments on professional services. For accounting services, the West African accounting standards (SYSCOA) allow financial information on companies to be obtained; since 2013, it has incorporated the International Financial Reporting Standards (IFRS). In order to help companies in the informal sector to join the formal sector, professionals in approved management centres (CGA) help businessmen to create small or medium-sized enterprises and to keep their accounts according to the SYSCOA. Tax reductions for CGA members are given in some member States.
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High-level roundtable discusses ‘Partnership in practice: making EU trade work for ACP countries’
On 20th October 2017, EU Trade Commissioner Cecilia Malmström co-hosted a high-level roundtable in Brussels, entitled ‘Putting Partnership into Practice.’
At the event, participants looked at the current trade and development relationship between the EU and the 79 countries that make up the group of African, Caribbean and Pacific (ACP) countries. They also considered how to build on it so it delivers even more in future.
Ms Malmström’s other hosts were her fellow EU Commissioner Neven Mimica, the trade ministers of Jamaica Kamina Johnson Smith and of Madagascar Chabani Nourdine, and vice-president Pim Van Ballekom of the European Investment Bank.
The event also brought together businesspeople and representatives of civil society from ACP countries and the EU. It included a discussion with a panel that included the deputy executive director of Caribbean Export, the region’s export promotion agency, the director of a textiles manufacturing firm in Madagascar, an exporter of processed fish from Papua New Guinea, and the international relations adviser of BusinessEurope, a lobby group. The panel was moderated by Dr. James Zhan, UNCTAD Senior Director for Investment and Enterprise.
Participants considered EU policy tools such as:
- Economic Partnership Agreements between the EU and ACP regions
- the External Investment Plan (EIP) for Africa, and
- trade-related development programmes.
They looked at how these tools are working at the moment to help ACP countries attract more investment, industrialise, integrate into global value chains, and create jobs in the process. And they discussed lessons that could be drawn about what more the EU and ACP countries could do to facilitate trade and investment.
EPA benefits already yielding success stories
EPAs offer ACP producers fully free access to the EU market – even if part of their production takes place outside the country they’re exporting from. And the agreements are already generating some notable success stories. One example is Madagascar: in 2012 a trade agreement between the EU and Eastern and Southern Africa came into force. By 2016 exports from Madagascar to the EU had gone up by 65%.
Another such example is South Africa. In 2016 an economic partnership agreement between the EU and Southern Africa (SADC) started. South Africa’s exports of processed fish have since risen by 16%, and flowers by 20%. And in Papua New Guinea, the EPA has helped to attract investment in the country’s fisheries industry, creating tens of thousands of jobs, especially for women.]
Remaining challenges: from attracting investment to ensuring sustainability
In her remarks, the Commissioner identified some of the challenges that EU-ACP trade policy still needs to grapple with. One is around investment: “People I meet from ACP countries tell me, ‘ACP economies need to diversify and move up the value chain.’ To do so, they need investment.” But she insisted that it needs to be the right kind: “I have often spoken about the need for development, growth and investment to be sustainable. ACP countries have had their share of footloose investment and its social consequences.”
The Commissioner added that “from my point of view, EU development cooperation remains important. And today the EU is also looking at new forms of financing that can directly address the capacity shortages and the lack of access to capital that small and medium-sized enterprises face.” She also reiterated that EU trade and development policies should work together: “We need to mobilise all our tools to improve the conditions for investment and job creation.”
Another challenge is around domestic ACP policies. The Commissioner argued that “trade and development finance can only work if our ACP partners adopt the right domestic and regional policies.”
She finished by identifying a further challenge concerning EPA implementation. “I wish to insist on dialogue as a precious tool that we have… Civil society must help monitor the way we put EPAs into practice,” she said. “They know people and places that we don’t know – and how our policies affect them.”
Increasing businesses’ awareness of the EPAs’ benefits
Escipion Oliveira is Deputy Executive Director of Caribbean Export, the region’s export promotion agency. He said that the private sector often lacks an understanding of trade agreements. To this end, the Agency’s is focusing on tools to simplify the EPA so exporters can readily interpret and use it, and workshops to provide actionable information on the agreement.
He also pointed to successes in the region already. These have included: growth in the membership of Caribbean Association of Investment Promotion Agencies (CAIPA), which Caribbean Export manages, from 7 national IPAs in 2007 to 23 in 2017; the development of a Regional Investment Promotion Strategy in 2015 under the 10th European Development Fund; and a programme to help women in particular to capitalise on the EPA.
Carrying out reforms in ACP countries
Another speaker was Sofia Bournou, international relations adviser at BusinessEurope, which represents a wide range of EU industries. She said that “ACP countries are currently becoming a very attractive destination for European companies.”
But she added that in the trade and development field “there needs to be more complementarity between EU policies and tools.” And she pointed to various other measures that governments could undertake to encourage foreign investment: “regulatory reforms, including on competition, public procurement and services; infrastructure, including digital; social security systems; and the promotion of good governance and the rule of law, including the involvement of a vibrant civil society in decision-making.”
Moving up the value chain
Olivier Cua is a director at Epsilon, a textiles manufacturing firm based in Madagascar. Speaking at the roundtable, he said, “Thanks to the evolution of the partnership agreements with Europe, the Malagasy textile industry could import raw materials from all over the world, transform them into clothing and re-export them to Europe duty- and quota-free.”
All this allowed Madagascar to diversify its product range, and its know-how, he added. “It meant we could guarantee our European customers a compelling proposition for the medium and long term, which is important in business.”
Seizing the opportunities
The last speaker, Albert Carabain from the RD Fishing in Papua New Guinea, stressed the benefits of the EPA which are best felt by the tuna fishing industry, with the EU as the major market destination for processed tuna products. “Challenges remain however” according to Carabain, “since the current existing processing plants struggle to make profit”.
Opportunities need to be seized: “The tuna industry is a major economic performer providing substantial revenue and economic benefit” to the country. Thus government needs to invest in specific and well-targeted infrastructure support and logistical needs of the industry.
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First UNIDO-ACP Symposium on boosting ACP inclusive and sustainable industrialization held in Brussels
The first symposium dedicated to cooperation between the United Nations Industrial Development Organization (UNIDO) and the African, Caribbean, and Pacific Group of States (ACP) took place on Tuesday, 24 October 2017 at the ACP Secretariat in Brussels.
The Secretary General of the ACP, Dr. Patrick I. Gomes and UNIDO Director General, LI Yong, took part in the event, which focused on “Boosting ACP Inclusive and Sustainable Industrialization through job creation, value chains, and productive investment.”
UNIDO and ACP have been working together for more than 40 years to support human progress and prosperity in ACP countries through industrial cooperation and development. The event consisted of four sessions focusing on the main areas of UNIDO’s activities in ACP Countries: Accelerating job creation in ACP Countries: The Programme for Country Partnership, Transforming the ACP economies and SMEs: investments in value chain competitiveness and compliance for market access, Unlocking the potential of ACP women and youth skills for industrial jobs, and Fostering resilient industries: investing in the circular economy and sustainable energy. UNIDO experts, country representatives and beneficiaries of UNIDO’s projects were present during the event.
During the opening, Secretary General Gomes declared: “The close cooperation between UNIDO and ACP countries over the last 40 years has been very fruitful. With the growing demographic trends in most ACP countries, more substantial and strategic investments are now necessary to accelerate and scale-up the modernization of their economies and create the millions of job opportunities that ACP youth and women are looking for.”
Director General, LI Yong, commented: “In East Asia, 900 million people have been lifted out of poverty since 1990, and I strongly believe that what has been achieved in East Asia can also be replicated in countries across Africa, the Caribbean and the Pacific. Indeed, 26 African countries have already developed industrial strategies and policies.”
During the event, a brochure on the cooperation between UNIDO and the ACP “Investing in ACP Sustainable Prosperity” was launched. This brochure features information on more than 40 UNIDO operations in ACP countries. UNIDO and the ACP support inclusive and sustainable industrial development in ACP Countries, with a focus on creating decent jobs, strengthening the private sector, adding value to their products, as well as supporting beneficiary country transition to a circular economy and the use of renewable energy.
Download: UNIDO-ACP Cooperation Report: Investing in ACP Sustainable Prosperity (18.5 MB)
First ACP-UNIDO Day: Symposium on Boosting ACP Inclusive and Sustainable Industrialization
Statement by ACP Secretary General Dr. Patrick I. Gomes
I am indeed happy to welcome our good friend, Director General, H.E Mr. Li Yong to ACP House and am particularly pleased that so many have shown appreciation of the historic importance of this first ACP-UNIDO day by joining us for an interactive dialogue on the theme: “Boosting ACP Inclusive and Sustainable Industrialization through job creation, value chains and productive investments.”
This is indeed a golden opportunity to draw upon the far-reaching and forward-looking initiatives being taken by UNIDO to advance the industrial development of ACP member states.
Today the focus is on the implementation of the new ACP priorities related to industrialization and private sector development as well as climate change/ environment and energy.
Specifically, the meeting will help identify successful approaches in ACP countries and discuss their possible replicability and scalability to support ACP priorities and capacity in partnership with UNIDO and other stakeholders such as the Regional Economic Communities and the private sector
Our dialogue will also lead to joint conclusions that will serve as framework to guide subsequent industrial development interventions in ACP Countries. It is worth to be noted that the ACP and UNIDO will launch the joint brochure, entitled: “UNIDO and the ACP cooperation report: Investing in ACP Sustainable Prosperity”. A report presenting UNIDO’s activities and best practices in ACP countries.
May I also acknowledge with gratitude the efforts of UNIDO to support ACP Countries, particularly over the last 5 years, with a special focus on agro-industries for job creation and poverty eradication through competitive and environmentally friendly industries.
Indeed, in the 3 strategic policy pillars which the ACP Council of Ministers approved at its last session in May this year (2017), industrialization is closely linked to trade, investment and services in Pillar 1. Also, Science & Technology, research & Innovation, antecedent factors and drivers of industrialization, are major aspects of our Pillar 2 on Development Cooperation.
In the context of the current symposium, it is useful to highlight two principles that underlie the approach of the ACP Group that supports UNIDO’s Inclusive and Sustainable Industrial Development (ISID).
Firstly, the eradication of poverty in the ACP countries is not primarily the receipt of aid but the structural transformation of their economies so that value addition and equitable integration into global value chains become systemic and coherent.
Secondly, in this process that unleashes human potential and optimizes sustainable use of natural resources, access to affordable, efficient and sustainable energy is a pivotal factor, so clearly stated in SDG 7.
This also reinforces the necessary linkages for other SDGs - such as Health to enable productivity and safety in the workplace with decent jobs; education and skills for research & innovation and of course, to ensure Gender Equality is maintained across the industrial sectors. (SDG 5). The scope for inclusive development is very realistic.
Through the industrialization process, people have increasingly access to more qualified jobs and higher income, reaching progressively the middle-class status. Such a progress can particularly be obtained through moving-up the value chains. Research demonstrate that there is a direct correlation between industrialization and the well-being of people measured in terms of higher access to education and health services, gender equality and life expectancy, among other human development benefits.
In the last 25 years, countries that have prioritized industrialization for job creation and social progress have experienced a spectacular trajectory of prosperity moving from agrarians to emerging industrial economies. As an illustration, the East Asia region has reduced the number of poor from almost 1 billion in 1990 to less than 70 million nowadays
To make a meaningful contribution to attainment of the SDGs ACP intends to play a significant role through capacity-building and institutional strengthening.
From the inception of the African, Caribbean and Pacific (ACP) Group of States in 1975, a principal goal of this alliance of developing countries has been to attain the highest levels of prosperity through trade and industry. This aspiration remains central today and for the future.
The close cooperation between UNIDO and ACP countries over the last 40 years has been very fruitful. It has helped the ACP member countries implement industrial strategies and policies and assisted them to add value to their products with new knowledge and technologies; supported ACP enterprises to export safe, high-value products with the establishment of performing quality systems and contributed to sustainable development through cleaner and resource efficient production and energy systems.
With the growing demographic trends in most ACP countries, more substantial and strategic investments are now necessary to accelerate and scale-up the modernization of their economies and create the millions of job opportunities that ACP youth and women are looking for.
To do this, the conditions for a sustainable industrialization of ACP Countries will certainly rely on small and medium enterprises (SME), which are true value-adding creators, and are expanding all around the globe: they need very little investments to flourish but yield relatively high returns and generate several jobs compared to Multinationals. In order to respond to the rapid growth of population and the challenge of job creation for Youths, many ACP countries have adopted Industrialization master plans (PDI), many of them with the technical assistance of UNIDO. These master plans should help ACP’s economies expand by stimulating industrial growth and by enabling the countries build for themselves, a people-centred, inclusive industrial portfolio.
An additional area for ACP-UNIDO collaboration, possibly rests on the need for "Blueing" the industrialization of developing countries so as to harness new frontiers for sustainable development of marine and maritime resources.
Of great significance in this regard is the ACP Fisheries Mechanism and the recent Declaration of Ministers responsible for Fisheries and Aquaculture at their meeting the Bahamas just a month ago in September.
This brings us to exploring a link with what the ACP is doing with UNCTAD and FAO on the blue economy. The scope for interagency cooperation is certainly very promising by which the ACP, with these UN agencies, will join forces for greater impact at global, continental and regional levels.
Opportunities are plentiful for creative thinking and so it is expected that the Symposium today will lead to concrete proposals in which our ACP-UNIDO engagement will bring more tangible benefits to member states in Africa, Caribbean and Pacific.
UNIDO and ACP have sound achievements on which to build and can continue to work together within their respective mandates and programmes to promote inclusive and sustainable industrial development.
The ACP Group will spare no effort to see a deeper and stronger partnership flourish in the years ahead. We need effort and imagination, and courage, too, so that tomorrow we could transform constraints being faced today, into assets to promote job creation and productive investments.
Thank you very much.
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Official launch of the Tripartite Transport & Transit Facilitation Programme (TTTFP)
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.
These challenges cause severe delays, increase transport costs, endanger road safety and negatively affect the durability of road transport infrastructure. This has resulted in the region recording high transport costs. This state of affairs is reflected in poor and low scores for Tripartite countries in poor ranking in global and regional indices that measure performance of the transport and logistics sector. Poor road transport sector performance retards economic growth and regional integration.
The TTTFP overall strategic objective is to facilitate the development of a more competitive, integrated and liberalised regional road transport market in the Tripartite region. Its 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. The TTTFP expected results are:
Result 1: Tripartite Vehicle Load Management Strategy Implemented.
Result 2: Harmonised Tripartite vehicle regulations and standards implemented
Result 3: Preconditions for an operational EA-SA transport registers and information platform and system implemented
Result 4: Efficiency of regional transport corridors improved
The TTTFP is designed to assist the continental countries of the Tripartite (COMESA. EAC and SADC). In addition, the Djibouti, Northern, Central, Dar es Salaam, Nacala, Beira, Maputo, North South and Lobito corridors which serve the 11 landlocked/land-linked countries amongst the 21 participating countries in the Tripartite region, will also be supported.
The TTTFP is funded by the European Union under the 11th European Development Fund Infrastructure envelope. The total funding for the TTTFP is Euro 18 million. This funding comes from the soft infrastructure component of the Euro 600 million that the EU is providing to the Tripartite for infrastructure projects which includes road infrastructure.
The programme seeks to help countries close the gaps between the current status in each country relative to the Tripartite harmonisation requirements (the set of harmonised road transport policies, laws, regulations, standards and systems agreed and adopted by Tripartite Member/Partner States) as determined by baseline surveys.
The baseline survey reports prepared for each country individually indicate the extent of compliance with the baseline requirements by each of the Tripartite member countries surveyed.
The TTTFP was designed and developed to help each Member/Partner State to close the identified gaps by means of technical assistance (TA), training and capacity building to institutions provided through the programme. The gaps relate to laws, policies, regulations, standards and system regulating inter-state (cross border) transport with respect to vehicles, drivers, professional drivers and operators with respect to enabling legislation, standards, training, testing, facilities, computerised registers and systems, vehicle load management, third party insurance, voluntary compliance, law enforcement, and exchange of information.
The entire project hinges on the Tripartite states signing and implementing the Vehicle Load Management Memorandum of Understanding (VLM MOU), and the Multilateral Cross Border Road Transport Agreement (MCBRTA) as the primary legal instruments to drive the harmonisation of related regulations, standards and systems. The TTTFP will provide the technical assistance for the domestication of a range of laws and standards, such as Vehicle Dimensions and Equipment, Vehicle Load Control, Dangerous Goods, Vehicle Fitness Testing, Driver Training and Testing, and Operator responsibility for quality of operations.
The implementation of these measures will enable the Tripartite countries to create a more competitive, integrated and liberalised regional road transport market with fair competition. Furthermore, the regulation by quantity is changed to the regulation of quality of road transport in the region, with the concomitant increase in road transport efficiency and reduction in transport costs and transit times along the transport corridors.
The fact of the matter is that harmonisation cannot be introduced in absence of the supporting statutory framework in the form of enabling legislation. Consequently, the TTTFP will develop Model Laws covering spectrum of baseline harmonisation for guidance; and framework for common systems and exchange of information amongst member states. The programme will provide technical assistance to countries to assist in domestication of Model Laws or amendment of current laws so that the countries have a domesticated basis for enforcing the harmonized laws.
The following model laws will be developed under the TTTFP:
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Vehicle Load Management Model Law
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Vehicle and Driver Quality Model Law
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Cross Border Road Transport Model Law (including Liberalisation & Operator Responsibilities)
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Dangerous Goods Model Law
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Model Law on Decriminalization of Road Traffic & Transport Offences and Demerit Points System
The following support will be provided to selected member states, corridor institutions and other stakeholders:
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Training of experts
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Institutional capacity building in preparation for implementation
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Implementation of harmonized legislation, regulation, systems and procedures
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Development, implementation and commissioning of transport information management systems
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Evaluation of lessons learnt on selected corridors and making of recommendations for roll-out to other corridors.
The TTTFP principal stakeholders are:
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East and Southern Africa Member / Partner States on the continent of Africa. Ministries, regulatory agencies / government executing agencies responsible for transport policy and transport infrastructure development.
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The Tripartite REC Secretariats (COMESA, EAC and SADC).
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Public / Private Sector – regional associations of transport and logistics services providers and operators; such as the Federation of East and Southern Africa Road Transporters Associations (FESARTA), Federation of Clearing and Forwarding Associations of Southern Africa (FCFASA), Federation of East African Freight Forwarders (FEAFFA) and Port Management Association of East and South Africa (PMAESA) and Association of Southern Africa National Road Agencies, (ASANRA); and Corridor Management Institutions.
A monitoring and evaluation system has been developed based on the baseline survey. The M&E strategy and plan shall track and measure the pace of policy and regulatory convergence. The M&E reporting system shall include a Ministerial Dashboard that allows Ministers to see and evaluate the performance of their country along multiple dimensions against the performance of other Tripartite countries.
The Tripartite Sectoral Committee of Ministers of Infrastructure at their inaugural meeting on 26th October 2017, in Dar es Salaam, Tanzania officially launched the Tripartite Transport and Transit Facilitation Programme (TTTFP) and appointed Hon. Agrey Henry Bagiire, Minister of Transport and Works, Uganda as the Champion of the TTTFP. The role of the TTTFP Champion is to promote the TTTFP and raise its visibility especially in regional and international platforms and networks. The TTTFP Champion will periodically report the progress of the Programme to the Tripartite Council of Ministers (TCM) and the Tripartite Summit.
Minister also made the following decisions:
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endorsed the TTTFP which is designed to accelerate the pace of harmonisation of laws, policies, regulations, standards and systems that affect cross border road transport in the east and southern African region;
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noted the progress on the harmonization of cross border road transport laws, policies, regulations, standards and systems that affect drivers, vehicles and loads;
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urged respective ministries, government agencies and private sector stakeholders to participate in the implementation of the program;
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directed the COMESA, EAC and SADC Secretariats to finalise the harmonisation of outstanding instruments, standards and regulations in collaboration with national and continental stakeholders such as the African Union Commission.
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IMF Executive Board 2017 Article IV Consultation with Zambia
On October 6, 2017, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Zambia.
The near-term outlook for the Zambian economy has improved in recent months, driven by good rains and rising world copper price. The economy was in near-crisis from the fourth quarter of 2015 through most of 2016, reflecting the impacts of exogenous shocks and lax fiscal policy in the lead up to general elections. Low copper prices reduced export earnings and government revenues, while poor rainfall in the catchment areas of hydro-power reservoirs led to a marked reduction in electricity generation and severe power rationing. A sharp depreciation of the kwacha fueled inflation which rose from an annual rate of 7 percent in mid-2015 to nearly 23 percent in February 2016.
Tight monetary policy succeeded in stabilizing the exchange rate and slowing down inflation to 6.3 percent in August 2017, but contributed to elevated stress in the financial system evidenced by a sharp rise in nonperforming loans and a plunge in the growth of credit to the private sector. Stress tests suggest that the banks are resilient to credit and liquidity pressures, but the financial system faces considerable risks, owing to high dependence on copper exports, rising public debt and funding pressures.
Fiscal imbalances have remained high. The fiscal deficit on a cash basis reached 9.3 percent of GDP in 2015, twice the budgeted level. On a commitment basis – taking into account accumulation of arrears and delays in paying VAT refunds – the deficit exceeded 12 percent of GDP in 2015, and remained elevated at about 9 percent of GDP in 2016. The deficit on a commitment basis is projected to decline significantly in 2017, but the cash deficit will remain elevated as the government clears arrears.
Public debt has been rising at an unsustainable pace and has crowded out lending to the private sector and increased the vulnerability of the economy. The outstanding public and publicly guaranteed debt rose sharply from 36 percent of GDP at end-2014 to 60 percent at end-2016, driven largely by external borrowing and the impact of exchange rate depreciation. Increased participation of foreign investors in the government securities market has eased the government’s financing constraint but has made the economy more vulnerable to swings in market sentiments and capital flow reversals.
The medium-term outlook for the economy is contingent on policies. Real GDP growth has picked up after a marked deceleration from 7.6 percent in 2012 to 2.9 percent in 2015. Growth is projected to reach 4 percent in 2017. However, achieving sustained high and inclusive growth requires a stable macroeconomic environment as well as policies and reforms to increase productivity, enhance competitiveness, strengthen human capital and support financial inclusion for small and medium scale enterprises. Domestic risks to the outlook include delayed fiscal adjustment which would continue to crowd out credit to private sector and entrench an unsustainable debt situation, and unfavorable weather conditions which would affect hydro power generation and agricultural output. External risks include tighter global financial conditions and volatility in the world copper price.
Staff report
Context: shocks, policies, and vulnerabilities
The Zambian economy was in near-crisis in 2015Q4 and most of 2016, reflecting the impacts of exogenous shocks and lax fiscal policy. Low copper prices reduced export earnings and government revenues, weakening the kwacha. Poor rainfall led to a contraction in agriculture output in 2015, and to a sharp drop in hydropower generation. Severe power rationing contributed to a marked slowdown in the pace of economic activity. Government spending was significantly above budget while revenues underperformed. Tightened financing conditions during 2016 and lack of expenditure restraint in the lead up to general elections in August, resulted in the government accumulating substantial arrears.
Monetary policy carried the burden of policy adjustments. Tightening of monetary policy in 2015Q4 helped to stabilize the exchange rate and lower inflation. The ensuing liquidity crunch combined with government arrears and subdued economic activity put the financial system under considerable stress. Non-performing loans (NPLs) rose sharply, credit growth plunged, and the Bank of Zambia (BoZ) took over a small bank and intervened in three nonbanks in late 2016. Since November 2016, with inflation receding and the emergence of exchange rate appreciation pressures (reflecting capital inflows and weak demand for imports), BoZ eased monetary policy considerably by unwinding administrative and quantitative measures it employed to tighten liquidity in 2015.
Public debt has been rising unsustainably. It increased from 36 percent of GDP at end-2014 to 61 percent at end-2016. External debt now accounts for 60 percent of public debt, making the portfolio highly susceptible to exchange rate risk. Government securities account for about half of domestic debt, with commercial banks and foreign investors holding about 40 percent and 17 percent of the total, respectively. Public debt is crowding out lending to the private sector and making the economy vulnerable to capital flow reversals.
The government has initiated important fiscal reforms, but is ambivalent on its commitment to debt sustainability. It has reduced regressive subsidies in the energy sector and is implementing reforms to enhance the efficiency and focus of subsidies in the agriculture sector. However, the pace and scale of contracting new loans for capital projects – sometimes before appraisals are ready – are inconsistent with stated debt sustainability objectives.
The near-term economic outlook has improved, driven by good rains and rising copper price. A bumper harvest and increased hydro power generation are expected to boost real GDP growth to 4 percent in 2017 from 3.4 percent in 2016. Inflation is projected to remain within the authorities’ target range of 6-8 percent, reflecting recent appreciation of the exchange rate. Increased foreign investor participation in the government securities auctions since late-2016 has eased the government’s financing constraint and supplied foreign exchange to the domestic market. With copper accounting for about 70 percent of Zambia’s export earnings, the recent increase in the world price – from about US$5,700 per metric ton in December 2016 to nearly US$6,500 in August 2017 – has brightened the economy’s prospects.
The government has launched its Economic Stabilization and Growth Program (ESGP) and the Seventh National Development Plan (7NDP). The ESGP (2017-2019) aims at restoring macroeconomic stability and creating conditions for sustained growth, with a heavy emphasis on public financial management: enhancing resource mobilization, refocusing public spending on core public sector mandates, scaling up social protection programs, strengthening accountability and transparency in the use of public resources, and restoring budget credibility. The 7NDP outlines the medium-term strategy for creating jobs, encouraging economic diversification, and supporting human capital development, with the overarching objectives of reducing poverty and inequality.
Rising political tensions pose risks. Following closely contested general elections in August 2016, political tensions rose between the ruling Patriotic Front party and the main opposition United Party for National Development (UPND). Tensions heightened when the UPND leader was charged with treason and jailed in April 2017. Following mediation by national religious leaders and the Commonwealth Secretariat, the UPND leader was released in August, and the treason charges have been dropped. In response to a series of arson attacks on markets and electricity infrastructure, on July 5, 2017 President Lungu declared the existence of a situation that could degenerate into a state of emergency if not addressed.
Policy discussions
External Sector Assessment
The kwacha lost half of its value against the U.S. dollar in 2015. Due to a large inflation differential vis-à-vis Zambia’s trade partners, the depreciation in the real effective exchange rate (REER) has been considerably less than that in the nominal effective exchange rate. The REER has appreciated thus far in 2017, but does not seem out of line with the recent increase in the copper price.
According to the Fund’s cost-benefit approach, Zambia’s international reserves are assessed to be below adequate levels. International reserves have taken a hit since the issuance of a US$1.25 billion Eurobond in 2015, the third issuance in a 4-year period, and is assessed as below an adequate level as at end-2016. Staff advised the authorities to build reserves to a level of at least 4-4½ months of imports over the medium-term.
The need for diversification of the economy and export base remains a serious challenge. An analysis of non-price indicators underscores significant competitiveness weakness. Attaining the diversification objective requires improvement in the business climate to boost competitiveness and help attract investment beyond copper mining. Zambia’s ranking in the World Bank Doing Business indicators has deteriorated, from 83 (out of 189) in 2014 to 98 (out of 190) in 2017. Areas in need of improvement include electricity supply, trading across borders, registering property, and policy consistency. The government needs to enhance its budget spending efficiency to support investment in human capital and physical infrastructure.
The authorities have initiated some measures towards improving the business climate. These include passage of a law on the use of moveable collateral to improve access to finance. Policy consistency in the agriculture sector such as avoiding export bans of maize and allowing prices to reflect market conditions could attract private investments to take advantage of potential market from the surrounding countries with maize deficits. In addition, the move towards cost reflective electricity tariffs would attract private investments in the sector boosting domestic power supply. Enhancing transparency in petroleum product procurement and pricing, and improving efficiency to cut the underlying cost of supplying fuels would enhance competitiveness of the Zambia’s economy. Increased consultation with stakeholders on a stable mining tax regime is expected to boost investment in the sector and promote value addition.
Facilitating More Inclusive Growth
Zambia recorded strong average annual growth in the past decade and a half. At an annual average of 6.7 percent during 2001-15, Zambia’s growth rate was higher than the Sub-Saharan Africa average (5.5 percent). The mining sector grew faster than other major sectors. Agriculture which employs by far the most people, contracted by an annual average of about 1 percent.
Income distribution is highly skewed and poverty remains high. The 2015 Living Conditions Monitoring Survey (LCMS) showed that the top 10 percent of households accounted for more than half of total national income, while the bottom 50 percent of households accounted for less than 10 percent of national income. The Gini coefficient is estimated to have worsened from 0.65 in 2010 to 0.69 in 2015. The LCMS also reported an overall poverty rate of 54 percent in 2015, with a sharp divide between rural (76 percent) and urban (24 percent) areas.
To achieve inclusive growth, the authorities should focus on stable policies, improving the investment climate, promoting productivity growth, increasing financial inclusion, and strengthening the country’s human capital. Periodic trade bans (e.g., on maize exports), and market distortions caused by FRA pricing and procurement policies in recent years have discouraged private investment in commercial maize production. The government is preparing a National Financial Inclusion Strategy to address obstacles to accessing finance, especially by small and medium-size enterprises. The World Bank is providing training to financial institutions on the use of movable collateral for credit decision making. Investments in education and health are key to prepare the labor force for productive employment. Given limited resources, increasing the efficiency of public spending would help create space for human capital development.
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tralac’s Daily News Selection
Underway at the WTO: WAEMU’s Trade Policy Review (Benin, Burkina Faso, Côte d’Ivoire, Guinea-Bissau, Mali, Niger, Senegal, Togo)
Global Investment Competitiveness Report 2017-2018 (World Bank)
The report explores how FDI creates growth opportunities for local firms, assesses the power of tax holidays and other fiscal incentives to attract FDI, analyzes characteristics of FDI originating in developing countries, and examines the experience of foreign investors in countries affected by conflict and fragility. Combining first-hand investor perspectives with extensive research and data analysis, the report highlights the importance of a conducive and low-risk investment climate for multinational as well as local companies. It recommends specific reforms that can help countries attract foreign investment and maximize its benefits for development. “The Global Investment Competitiveness Report (pdf) goes beyond an examination of broad trends in foreign investment. It explores key drivers of FDI in depth,” said IFC Chief Economist Ted H. Chu. “It also offers practical and actionable recommendations to help developing countries ensure they get the most out of international investment.”
WTO Committee on Agriculture: preparing the ground for success at MC11
Report by Amb. Stephen Ndũn’gũ Karau, Chair of the Agriculture negotiations, to the meeting of the Committee on Agriculture in special session, 19 October: With that in mind, what do we need? Let me spell out seven elements which I consider as critical for our success. The first element is realism and pragmatism: The time has passed for Members to indicate their “wish list” for Buenos Aires. Our focus should be on what we think can realistically be achieved, while respecting our own “red lines” as well as those of other Members’. The second element which directly derives from the first one is prioritization and focus: As mentioned by the DG at the Informal Heads of Delegations a month ago and again at Marrakech, we need to prioritize the issues and agree on the types of outcomes that can realistically be envisaged at MC11. We do not have the luxury of time to discuss possible outcomes that remain elusive. We must concentrate our discussions on outcomes that can realistically be achieved.
WTO Sub-Committee on Least-Developed Countries: market access for products and services of export interest to LDCs
The LDCs continued to record a sizable trade deficit, which reached $92.9bn in 2016, representing a nine-fold increase compared to the trade deficit in 2005. On the positive side, the sharp reduction of prices of primary commodities in 2015 had almost come to a halt in 2016, with the exception of energy prices. The stable prices of food and beverages have helped agricultural exporters to somehow arrest negative export growth. In 2016, the top merchandise exporter within the LDCs was Bangladesh (share of 24%), followed by Angola (17%) and Myanmar (8%). While the top ten exporters represented almost 80% of LDCs’ exports in 2005, this share went down to around 76% in 2016 – indicating a slight decrease in terms of country concentration among the LDCs. The share of primary products in total exports of LDCs continued to decrease in 2016 – from 73% in 2005 down to 49% in 2016. This was mostly due to the lower value of exports of petroleum products (HS 27.09, 27.11 and 27.10), which constituted more than half of all LDC exports in 2005, but accounted for only about a quarter (26%) of LDC exports in 2016. In contrast, the share of manufactured products in LDC exports increased from 21% in 2005 to 40% in 2016. This was mainly due to a higher share of clothing products in LDC merchandise exports, which increased from 13% in 2005 to 29% in 2016.
USTR announces new enforcement priorities for GSP
US Trade Representative Robert Lighthizer has announced a new effort to ensure beneficiary countries are meeting the eligibility criteria of the Generalized System of Preferences trade preference program. This new effort includes a heightened focus on concluding outstanding GSP cases and a new interagency process to assess beneficiary country eligibility. The first assessment period will focus on GSP beneficiary countries in Asia. The Trump Administration will assess GSP beneficiary countries in other parts of the world in the second and third years of this process.
The ocean economy in Mauritius: making it happen, making it last (World Bank)
The book aims at assessing the overall potential of the Ocean Economy (OE) to contribute to Mauritius’ development, at identifying key sectoral and cross-cutting challenges to be overcome in order to seize that potential; and at evaluating ways to ensure the OE’s longer-term sustainability, addressing in particular environmental and climate change concerns. While the book discusses specific projects in selected sectors, this is intended only to illustrate opportunities and challenges (including in terms of resource mobilization); an appraisal of the technical and financial feasibility of individual projects would go beyond the scope of this work and would have to be conducted as part of separate follow-on activities. This book reflects data and information available as of March 31, 2017. Extracts (pdf): Doubling Mauritius’ ocean economy is possible and worthwhile, but it will take time. Based on a macroeconomic modeling of the country developed in partnership with the Government of Mauritius, the book finds that doubling the GDP share of the OE (the “O2” strategy) is possible; but achieving such a target is likely to take to at least 15 years. Attempts to pursue the O2 target over a shorter period may well result in undesirable economic outcomes, such as diseconomies of scale, price increases, excessive use of natural resources, and fiscal imbalances. The required investments are large but achievable. Over the next 10 years, with investments on the order of $580m per year, the O2 strategy can yield considerable growth results, including an increase in the OE GDP of 62% in absolute terms and 38% in terms of its share of the national total (rising from 12.6% to 17.5%).
Forthcoming IORA Workshops: Regional strategy to address the sustainable management and development of fisheries resources in the Indian Ocean Rim region (30-31 October, Zanzibar); Marine spatial planning: towards sustainable use of the Indian Ocean (22-23 November, Mauritus)
South Africa and IORA: New links to Indian Ocean Rim can bolster Africa’s blue economy; IORA Council of Ministers: Durban communiqué (18 October)
ECOWAS Currency Programme: updates from 4th meeting of the Presidential Task Force
(i) West African leaders plan shared currency by 2020. A group of four West African presidents said on Tuesday they planned steps to accelerate the creation of a shared currency for the 15-country ECOWAS bloc by 2020, according to a joint statement. The future currency, whose name is yet to be determined, would replace the dominant CFA Franc introduced by former colonial power France in 1945, and whose treasury still backs it. “Our region needs this unifying instrument, symbol of our shared destiny, to consolidate our customs union,” ECOWAS chairman and Togolese President Faure Gnassingbe said on Twitter. The statement was from the presidents of Togo, Ghana, Niger and Ivory Coast who form part of a task force on the envisaged currency. A committee is planned to lead the efforts, it said. But the president of the biggest economy in the region, Nigeria, urged caution, citing difficulties in the euro zone.
(ii) Nigeria wants single currency for ECOWAS slowed down. The president said domestic issues in ECOWAS member countries relating to their constitutions and dependence on aid continue to affect the framework for implementing the single currency in the sub-region. He said “although the ECOWAS Commission has anchored its pursuit of the new impetus to monetary integration on “the information presented to the Heads of State which were the basis for their recommendations”, we are concerned that we have not properly articulated and analysed a comprehensive picture of the state of preparedness of individual countries for monetary integration in ECOWAS by 2020. “In previous meetings, we had specifically raised observations on the state of preparedness of the member states, the credibility of the union if anchored on watered down criteria, and the continuing disparities between macroeconomic conditions in ECOWAS countries, amongst others. And I would like to reiterate this concerns.” The president told the Heads of State that the conditions that pushed Nigeria into withdrawing from the process in the past had not changed. [Note: The Presidential Task Force will hold their next meeting in Accra, in February 2018]
Botswana: International merchandise trade statistics, July 2017 (pdf, Statistics Botswana)
Botswana recorded a trade deficit of P1, 006.0 million in July 2017. The deficit was influenced by the decrease in diamonds exports. During July 2017, total exports were valued at P4, 791.7 million, showing a decrease of 15% from the June 2017 value of P5, 635.0 million. This decrease was mainly due to the decrease of 19.8% in diamond exports, from P5, 187.3 million in June 2017 to P4, 160.2 million in July 2017. During July 2017, total imports were valued at P5, 797.7 million showing an increase of 29.2% from the June 2017 value of P4, 489.0 million. This increase was mainly attributed to the increase in imports of commodities such as fuel, machinery and electrical equipment and chemicals and rubber products to mention but a few. SACU was the major source of imports into Botswana, accounting for 71% of total imports during July 2017. South Africa was the main source of imports within the Union, with a contribution of 70% to total imports during the month under review.
Yash Ramkolowan: What is fair SACU customs compensation to the BLNS? (DNA Economics)
So, what does this all mean for SACU? Considering the current deadlock in SACU negotiations (particularly around the revenue sharing arrangement and the creation of a regional tariff board), it does need to be acknowledged that the BLNS have been more than fairly compensated for the externalisation of their tariff policy. Acceding to this point may finally ensure that the BLNS are able to play a greater role in determining SACU’s trade and industrial policy. The analysis also suggests that the transparency and clarity of revenue distribution for “compensation” and “development” purposes can be improved. This could finally move SACU beyond a short-term and narrow focus on fiscal compensation, and toward a regional agenda that is more substantively concerned with the common and long-term development needs of all SACU member states.
Green foreign direct investment in developing countries (UNEP)
Beyond the government policy sphere, technological innovations (e.g., in fintech) and new market practices (e.g., in green banking and regarding disclosures of climate-related risks) are generating opportunities and expanding demand for green FDI. These developments present promise for a sustainable economy, but raise new governance challenges that will need to be addressed. In summary, there is reason to be hopeful about the potential contributions of green FDI; but real progress requires a more accurate and robust definition of “green FDI”, and stronger commitments across different layers of government and by private sector actors to ensure FDI helps address modern environmental challenges. This paper attempts to aid the effort by taking stock of where we are and highlighting potential ways forward.
The ‘new’ digital economy and development (pdf, UNCTAD)
This technical note adopts the term NDE to frame a set of technologies and processes that most prominently include: 1) advanced production equipment, robotics and factory automation, 2) new sources of data from mobile and ubiquitous Internet connectivity, 3) cloud computing, 4) big data analytics, and 5) artificial intelligence. These technologies and processes are mainly based, in one way or another, on advanced information and communications technology (ICT). They seem poised to dramatically reduce demand for routine tasks and transform the location, organization, and content of knowledge work. Broad policy questions include:
International Debt Statistics 2018 (World Bank)
IDS 2018 presents statistics and analysis on the external debt and financial flows (debt and equity) of the world’s economies for 2016. It provides more than 200 time series indicators from 1970 to 2016 for most reporting countries. The new IDS format includes aggregate tables detailing the debtor and creditor composition, maturity structure, and debt burden, in relation to GNI; export earnings for each country and relevant regional and income groups; and a user guide. Extracts: A doubling of bilateral lending, driven by BRICs, notably China: New loan commitments from bilateral creditors to low- and middle-income more than doubled in 2016 to $84 billion. This rise was driven by financing from other low- and middle-income countries, primarily the BRICs, and notably China with its “One Belt One Road” initiative to build an integrated international economic corridor encompassing more than 60 countries in various regions. Foreign direct investment fell to its lowest level in 8 years: Traditionally, FDI has been the largest and least volatile component of external financial flows to low- and middle-income countries but 2016 showed that it is not immune to adverse developments in the global economy. FDI inflows fell 10% to $481bn - a level not seen since 2009.
Today’s Quick Links: EAC Development Partners Forum: update DG Azevêdo: Flexibility and pragmatism essential ahead of MC11 Exporting to South Africa: USDA Exporter Guide |
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Reducing risks in developing countries is key to spur investment and growth
How developing countries can get the most out of direct investment
A stable business environment, effective regulations, and political stability are among the key drivers of foreign direct investment (FDI) into developing countries, according to a new survey released today by the World Bank Group.
The Global Investment Competitiveness Report 2017-2018, the first of a biennial series exploring the drivers of investment competitiveness in developing countries, combines a survey of 750 multinational investors and corporate executives with detailed analysis and recommendations concerning FDI in developing countries.
The report concludes that, on balance, FDI benefits developing countries, bringing in technical know-how, enhancing work force skills, increasing productivity, generating business for local firms, and creating better-paying jobs.
Co-authored by the World Bank Group’s International Finance Corporation (IFC) and the Trade & Competitiveness Global Practice (T&C), the report considers developing countries as both sources and recipients of FDI. The analysis examines the ability of developing countries not only to attract private investment but to retain and leverage it for inclusive and sustainable growth.
The question examined in the report is when and under what circumstances are these benefits of FDI most likely to occur. The report finds that international investors prioritize political stability, security, macroeconomic conditions, and conducive regulatory environment when deciding where to make investments that can spur growth and create jobs.
The investor survey shows that political stability and security along with a stable legal and regulatory environment are the leading country characteristics considered by executives in multinational corporations before they commit capital to a new venture. These considerations far outweigh such issues as low tax rates and labor costs.
Investment incentives may help attract FDI but are generally effective only when investors are wavering between similar locations as a new base for their exports. When investment is motivated by a desire to access a domestic market or extract natural resources, incentives are generally ineffective.
Of far greater importance, the report finds, is the level of legal protections against political and regulatory risks, such as expropriation of property, currency transfer and convertibility restrictions, and lack of transparency in dealing with public agencies. Reducing these risks at the country level is a foundation without which reducing project-level risks will not lead to increased investment and growth in developing countries.
“A business-friendly legal and regulatory environment – along with political stability, security, and macroeconomic conditions – are key factors for multinational companies making investment decisions in developing countries,” said Anabel Gonzalez, Senior Director of the World Bank Group’s Trade & Competitiveness Global Practice. “Combining a survey of global investors with analysis of investment policy issues makes this report a powerful contribution to our understanding of how developing countries – including fragile states – can de-risk their economies and unlock FDI.”
The report explores how FDI creates growth opportunities for local firms, assesses the power of tax holidays and other fiscal incentives to attract FDI, analyzes characteristics of FDI originating in developing countries, and examines the experience of foreign investors in countries affected by conflict and fragility. Combining first-hand investor perspectives with extensive research and data analysis, the report highlights the importance of a conducive and low-risk investment climate for multinational as well as local companies. It recommends specific reforms that can help countries attract foreign investment and maximize its benefits for development.
“The Global Investment Competitiveness Report goes beyond an examination of broad trends in foreign investment. It explores key drivers of FDI in depth,” said IFC Chief Economist Ted H. Chu. “It also offers practical and actionable recommendations to help developing countries ensure they get the most out of international investment.”
In examining the contribution of foreign investment to local economies, the report finds that most of the research and empirical evidence demonstrates that FDI helps foster development in recipient countries. For example, the analysis finds that local high-growth firms in developing countries benefit the most from increased FDI in their markets through business linkages and introduction of new technologies and know-how.
FDI flowing outward from developing countries (OFDI) is one of the emerging storylines covered in the report. This kind of investment has increased 20-fold in the last two decades and by 2015 made up one fifth of total global FDI flows. While much of this investment comes from the so-called BRICS (Brazil, the Russian Federation, India, China, and South Africa), about 90 percent of developing countries are now reporting outward FDI.
Both the report and survey find that while investors in developing countries weigh similar factors in their decision-making, investors from developing countries are more willing to target smaller and often higher-risk regional economies as part of a stepping-stone strategy. This is a key consideration, particularly for countries coping with conflict and fragility looking to attract more and more diversified investment. The report recognizes that governments must have a nuanced understanding of investor motivations to best unlock the benefits of FDI for local economies and that each type of FDI brings its own set of potential challenges and rewards.
This publication comes in a global development context heavily focused on the importance of the private sector in achieving poverty alleviation, equitable growth, shared prosperity and other benefits laid out in the Sustainable Development Goals. Yet despite the abundant evidence of development benefits of FDI, the prospects for sustained global economic growth are clouded by the risks of trade and investment protectionism and other geopolitical pressures.
The report was launched on October 25th at the Investment Competitiveness Forum. The Forum brought together corporate executives, donor partners, and academics, and senior policymakers of developing countries that have implemented significant investment policy reforms. The effort to increase FDI flows into developing countries reflects the importance of the private sector in meeting global development goals. The scale of private sector activity far surpasses public development funding worldwide, the report notes, and some of the most promising investment opportunities are centered in developing countries.
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Economic Partnership Agreements should support regional integration – Deputy Minister Magwanishe
The Deputy Minister of Trade and Industry, Mr Bulelani Magwanishe has emphasised the importance of ensuring that the Economic Partnership Agreements concluded between the African, Caribbean and Pacific (ACP) States and the European Union (EU) contribute to regional integration.
Deputy Minister Magwanishe was speaking at the 15th Joint ACP-European Union (EU) Ministerial Trade Committee meeting (JMTC) in Brussels, Belgium.
He said “that the member states, which include South Africa, of the Southern African Customs Union (SACU) managed to keep the custom union together as all the Members of the Union are part of the EPA thus safeguarding the common external customs tariff”. He further stressed that the “EPAs should support regional industrialisation and the development of regional value-chains”.
The EU has been negotiating Economic Partnership Agreements (EPAs) with the ACP countries, in different regional configurations, since 2002. The SADC-EU Economic Partnership Agreement (SADC EPA), of which South Africa is part, is the first full EPA to be concluded and it provisionally entered into force on 10 October 2016.
The JMTC meeting also discussed the EU’s proposal for a Multilateral Investment Court. Deputy Minister Magwanishe indicated during the discussion that it may be premature to support the establishment of the Court as the reform of investment policy, including discussions on an appropriate dispute settlement mechanism are on-going globally.
“In our view the best way to attract investment is to clearly identify list of investment projects, provide targeted incentives, promote policy coherence and facilitate investment through, for example, a one stop shop. In this regard South Africa has established Invest South Africa that operates as a one stop shop for investors into South Africa,” added Deputy Minister Magwanishe.
The EU and ACP countries also exchanged views on the upcoming 11th World Trade Organisation (WTO) Ministerial Conference (MC11) that is scheduled to take place from 10-13 December 2017 in Buenos Aires, Argentina. In this regard, the meeting reaffirmed the crucial role of the rules-based multilateral trading system, and the importance of enhancing trade for achieving inclusive and sustainable growth and development. They further agreed on the objective of ensuring that the WTO functions as an efficient and effective negotiating forum covering issues of interest to its Members with development at the centre of negotiating outcomes.
Earlier the Minister of Trade and Industry, Dr Rob Davies, highlighted the need to assist SMMEs to make use of the market openings created by the SADC EPA, especially to enable them to meet the Sanitary and Phytosanitary (SPS) and standards requirements to enter the EU market. Minister Davies attended the 20th ACP Ministerial Committee meetings also in Brussels, Belgium. The ACP consists of 79 countries from the African, Caribbean and Pacific regions.
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WTO Committee on Agriculture: Preparing the ground for success at MC11
Report by Amb. Stephen Ndũn’gũ Karau, Chair of the Agriculture negotiations, to the meeting of the Committee on Agriculture in special session, 19 October 2017
Introduction
Since our last meeting on 13 September, I have held room E type meetings on Public Stockholding for Food Security Purposes (PSH), Domestic Support and Export Restrictions on 21 September, 22 September and 4 October, respectively. I also held a Quad Plus meeting on Cotton on 13 October.
I have also had bilateral consultations with Members and held meetings in various configurations, including one meeting with Group Coordinators on 6 October.
Last but not least, I attended the Marrakech Mini-Ministerial meeting on 9 and 10 October. The meeting was very useful and characterized by a high level of engagement by Ministers who all supported a successful 11th Ministerial Conference in Buenos Aires.
Discussions on PSH and the Special Safeguard Mechanism (SSM) will take place in dedicated sessions of the CoA Special Session tomorrow, Friday 20 October.
Substance
Let me now report in detail issue by issue on my consultations thus far.
Domestic Support
Domestic Support remains the priority for the vast majority of Members. It is the pillar that has received a lot of attention in all our meetings thus far, as well as in my consultations with Members. It was also one of the main issues discussed at the Marrakesh Mini-Ministerial meeting. This engagement is yet reflected again by two more submissions that will be introduced today, namely the one by the ACP Group in document JOB/AG/112 and the one by New Zealand, Australia, Canada, Chile and Paraguay in document JOB/AG/114.
Nevertheless, important gaps still remain in the positions of Members on the negotiating issues, which are well known to you all. Members remain broadly divided between:
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those that favour an overall limit on trade-distorting support, whether based on a percentage of the value of production or on a monetary ceiling; and
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those that consider that the AMS should be eliminated first – notably because it allows for product-specific subsidy concentration – and that at least some steps should be taken in that direction.
In addition, several Members consider that efforts should be proportional and the burden should not be put more on some Members than others. They consider that new disciplines based on the current elements – AMS and de minimis – would be more appropriate and cautioned against a one-size-fits-all-type of solution.
While acknowledging the usefulness of the proposal by the EU/Brazil and co-proponents, several Members regretted the absence of disciplines on product-specific support and/or immediate disciplines on the Blue Box. Some Members reiterated their sensitivities regarding Article 6.2 and de minimis entitlements.
Some Members stressed the need for all Members to make a contribution. Calls were also made to recalibrate expectations and to be realistic and flexible.
Cotton
The C4 proposal containing a draft ministerial decision on Cotton was circulated on 11 October 2017 in document TN/AG/GEN/46. It will be introduced today and Members will subsequently have the opportunity to react to it.
The C4 proposal received preliminary comments from Quad Plus participants during a brief meeting on 13 October. Some of the Members who provided comments regretted the high level of ambition, while others requested the C4 to clarify some elements of the proposal, including the proposed treatment of developing country Members.
Let me also remind the Membership that there are other proposals on the table aimed at making progress on Cotton Domestic Support including, in particular, the proposal by Brazil, the European Union, Colombia, Peru and Uruguay in document JOB/AG/99.
Finally, we should also keep in mind the fact that, as referred to in the C4 proposal, the issue of Cotton includes other components, including the development assistance dimension which merits our continued focus.
Export Restrictions
The discussions thus far have confirmed that many Members support a limited outcome, mainly focused on enhancing transparency in Export Prohibitions and Restrictions.
Many Members welcomed the latest proposal by Singapore in document JOB/AG/101 and considered that it was now time to engage in text-based negotiations on this issue.
Some Members sought clarification of certain provisions in the Singaporean proposal. Singapore recognized that some parts of the proposal, in particular paragraph 2, might need some re-drafting for greater clarity.
Some Members highlighted the usefulness of Export Restriction measures, particularly seasonal measures, for developing country Members. Several Members cautioned against making the notification requirements too burdensome for developing country Members.
Some Members, however, expressed the view that some elements not captured in Singapore’s proposal should also be considered in the discussions, and that any limited outcome at MC11 should be complemented by a post-MC11 work programme.
In this regard, I note the submission by Israel, Japan, Republic of Korea, Switzerland and the Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu in document JOB/AG/115, which will be introduced today by the proponents.
It should also be highlighted that most Members consider that an outcome on Export Prohibitions and Restrictions could not be envisaged in the absence of a more comprehensive outcome in the agricultural negotiations overall.
This latter point is well noted. It is fully understood by all of us that Members’ engagement on this issue and, I should add here like on any other issue, is entirely without prejudice to their positions on the overall Buenos Aires outcome.
In other words, the progress on this issue, like on any other issue, will be assessed by the Membership in the context of the overall state of play on the various agricultural issues under negotiations.
Market Access
In Market Access, there is acknowledgement among the Members, including the proponents, that a substantive outcome in Market Access may not be feasible at MC11. Simultaneously, I have not heard any Member questioning the importance of Market Access reforms.
The best possible outcome that may be expected at MC11 would be a detailed post-MC11 work programme. And, the challenge for us in the limited time available is to draft such a work programme that is acceptable to all to guide the post-MC11 market access negotiations. Some Members have already cautioned against any selective approach that might potentially lead to “pick and choose” among the various Market Access issues.
The issue of elimination of SSG has also been raised specifically by some Members. In this regard, I note the submission by the Russian Federation in document JOB/AG/116 which was circulated this morning and will be introduced today.
Export Competition
On Export Competition, I have nothing new to report. As mentioned earlier, some Members have expressed the view that Export Competition was still an unfinished business and that this point should be recognized in a post-MC11 work programme.
For some Members, the priority for the time being is the implementation of the December 2015 Decision on Export Competition.
Sanitary and Phytosanitary (SPS) measures
On Sanitary and Phytosanitary measures, my understanding is that the proponents are still consulting on the best way forward, but that this is not considered as a candidate for a substantive outcome at MC11.
Conclusion
Let me now conclude my report with some comments of a general nature.
The Marrakech Mini-Ministerial meeting was very useful and gave us a welcomed impetus to press ahead at this critical juncture.
We will be hearing more from Minister Malcorra this afternoon.
A lot of work, however, remains to be done given that we are only seven weeks away from MC11 which, in principle, means that there are only five working weeks still available.
It is now time to translate the engagement demonstrated in Marrakech by our Ministers and the shared willingness to have success at MC11 into concrete actions.
What does it mean more specifically?
To prepare the ground for success at MC11, it should be our objective to submit to Ministers a limited number of issues for their consideration. This implies that we need to intensify our work here in Geneva and close as many gaps as possible in the negotiating positions of Members on the issues. Experience has taught us that the agenda for Ministers must be manageable if results are to be obtained.
Put differently, our objective should be to submit to Ministers a clear understanding of what can be envisaged as agricultural outcomes at MC11, with as few points as possible left open for negotiation by Ministers.
Depending on the issue, the envisaged outcome could be a substantive one, a post-MC11 work programme or a combination of the two.
With that in mind, what do we need? Let me spell out seven elements which I consider as critical for our success.
The first element is realism and pragmatism: The time has passed for Members to indicate their “wish list” for Buenos Aires. Our focus should be on what we think can realistically be achieved, while respecting our own “red lines” as well as those of other Members’.
The second element which directly derives from the first one is prioritization and focus: As mentioned by the DG at the Informal Heads of Delegations a month ago and again at Marrakech, we need to prioritize the issues and agree on the types of outcomes that can realistically be envisaged at MC11.
We do not have the luxury of time to discuss possible outcomes that remain elusive. We must concentrate our discussions on outcomes that can realistically be achieved.
Where a substantive outcome does not seem to be within reach for MC11, we should engage without any further delay in defining what could be a possible post-MC11 work programme. This discussion will also require time and will understandably be difficult.
In this regard, I call on proponents to make suggestions on what could constitute elements of a possible work programme and engage with other Members to build consensus around their ideas.
The third element is balance: We need to see an approach where everyone is prepared to make some kind of contribution.
The fourth element is flexibility and imagination: We all need to leave our comfort zones and enter into the “what if” zone in order to be able to bridge the gaps and move towards convergence.
The fifth element is sense of urgency: As I mentioned to you we have only five working weeks left. It means we will have to accelerate our negotiation process. This implies being in a position to react quickly to ideas put forward by other Members.
The sixth element is transparency and inclusiveness: Inherently linked with the previous element, this one is of utmost importance for our process and will continue to guide our work.
Last but not least, the seventh element is the sense of collective ownership: The WTO Multilateral Trading System is ours. Success in Buenos Aires will collectively be ours. There is no way out and we must all keep this in mind and work together to achieve success.
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WTO Sub-Committee on Least-Developed Countries: Market access for products and services of export interest to LDCs
Document prepared by the WTO Secretariat for the Formal Meeting of the Sub-Committee on Least-Developed Countries held on 3 October 2017, as revised
Over the period 2005-2016, LDC exports of goods and services grew by an annual average of 6.4%, slightly more than the exports of other developing economies (6.1% average). Most of this average growth, however, stems from distinctly higher growth rates in the first part of the period. During 2010-2016, average annual export growth of LDCs’ exports was even slightly negative (-0.02%).
In 2016, LDC exports of goods and services decreased by 3.9% to US$187 billion. The share of LDCs in world exports of goods and commercial services stood at 0.91% in 2016, compared to 0.93% in 2015.
Merchandise exports of the LDCs decreased by 6% in value terms in 2016, declining more than world exports which fell by 3%. The share of LDCs in world merchandise exports stood at 0.94% in 2016, dropping further from 0.97% in the previous year.
The LDCs continued to record a sizable trade deficit, which reached US$92.9 billion in 2016, representing a nine-fold increase compared to the trade deficit in 2005. On the positive side, the sharp reduction of prices of primary commodities in 2015 had almost come to a halt in 2016, with the exception of energy prices. The stable prices of food and beverages have helped agricultural exporters to somehow arrest negative export growth.
In 2016, the top merchandise exporter within the LDCs was Bangladesh (share of 24%), followed by Angola (17%) and Myanmar (8%). While the top ten exporters represented almost 80% of LDCs’ exports in 2005, this share went down to around 76% in 2016 – indicating a slight decrease in terms of country concentration among the LDCs.
The share of primary products in total exports of LDCs continued to decrease in 2016 – from 73% in 2005 down to 49% in 2016. This was mostly due to the lower value of exports of petroleum products (HS 27.09, 27.11 and 27.10), which constituted more than half of all LDC exports in 2005, but accounted for only about a quarter (26%) of LDC exports in 2016. In contrast, the share of manufactured products in LDC exports increased from 21% in 2005 to 40% in 2016. This was mainly due to a higher share of clothing products in LDC merchandise exports, which increased from 13% in 2005 to 29% in 2016.
In 2016, the European Union was the top destination for LDCs’ merchandise exports (share of 31%), followed by China (21%) and the United States (11%). The top 10 importers accounted for 88% of LDCs’ total exports in 2016, which was slightly higher than the respective share of 87% in 2005.
In the period 2005-2016, LDCs’ services exports expanded by 12% on average per year, compared to 8% in other developing economies and 5% in the developed group. Following a decade of sustained growth, LDCs’ exports of commercial services have slowed down since 2014. This downward trend accentuated in 2016, when services exports fell by 4% to US$32 billion. In 2016, LDCs’ participation in global exports of commercial services stood at 0.7%, up from 0.4% in 2005.
Services trade in LDCs remained concentrated within a few economies, an unchanged pattern since 2005. In 2016, the top ten leading exporters (e.g. Myanmar, Cambodia, Tanzania, Ethiopia) accounted for almost 70% of the group’s services receipts. Imports were equally concentrated with the first five importers, led by Angola, representing around half of LDCs’ total commercial services payments.
Over recent years, the number of international tourist arrivals to LDCs multiplied, rising from over 10 million arrivals in 2005 to more than 28 million in 2015. Increasing inflows of foreign tourists and their purchase of goods and services in the countries they have visited has boosted LDCs’ travel revenue. In 2016, travel revenue reached US$17 billion compared with US$5 billion in 2005. As a result, LDCs’ share of world travel exports has doubled in ten years, reaching 1.4% in 2016.
Progress has continued in advancing market access opportunities for the LDCs. From a global perspective, the proportion of duty-free tariff lines has risen from 49% in 2005 to 65% in 2015 for LDCs, which signifies the commitment of Members to grant preferential market access to the LDCs. Average tariffs levied by developed Members on products originating in LDCs are close to 0%, with the exception of clothing and textiles.
Most of the developed Members accord either full or nearly full duty-free and quota-free (DFQF) market access to LDC products. A number of developing Members have significantly expanded their DFQF coverage over the last decade and now offer almost comprehensive DFQF market access to LDC products. Notable progress has been made in the implementation of the Nairobi Decision on Preferential Rules of Origin for LDCs. There has also been an incremental progress in the number of notifications regarding preferential treatment for services and services suppliers from LDCs. By the end of September 2017, a total of 24 Members have submitted notifications pursuant to the LDC Services Waiver.
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ECOWAS leaders reaffirm commitment to meet 2020 deadline for common currency
ECOWAS member states have made firm commitments towards the acceleration of the processes leading to the use of the single currency by 2020.
This came to light at the 4th meeting of the Presidential Taskforce on a common currency for the West African Monetary Zone (WAMZ) held in Niamey, the capital of Niger.
The meeting was attended by the members of the Presidential Taskforce, namely President of Ghana, Nana Addo Dankwa Akufo-Addo; the President of the Federal Republic of Nigeria, Muhammadu Buhari; the President of the Republic of Cote d’Ivoire, Alassane Ouattara; and the host, Mahamadou Issoufou, President of the Republic of Niger.
Chairperson of the Economic Community of West African States (ECOWAS), His Excellency Faure Essozimna Gnassingbé, President of the Togolese Republic, was also present, and took part in the proceedings.
In a communiqué issued at the end of the 1-day meeting, on Tuesday, October 24, 2017, the members of the Taskforce took note of the report of the Ministerial Committee meeting held earlier, and acknowledged the quality of the conclusions as well as the relevance of the recommendations made, whose substantive parts relate to the measures for the acceleration of the ECOWAS single currency programme.
The Taskforce appreciated the progress made by all ECOWAS institutions involved in the conduct of ECOWAS Single Currency Roadmap activities, and reaffirmed its commitment to the pursuit and the acceleration of the economic, financial and monetary integration agenda of ECOWAS.
In endorsing the main recommendations of the Ministerial Committee, the Taskforce urged the Member States to pursue the structural reforms of their respective economies, to help them deal with fluctuations in the prices of raw materials, and enable their economies to be more resilient to exogenous shocks.
Additionally, the Taskforce urged Member States to take the necessary measures, including the attainment of the convergence criteria, necessary for the creation of the ECOWAS single currency by 2020.
The Communiqué noted that the Taskforce has “instructed the Ministerial committee to meet within three months to propose a new roadmap to accelerate the creation of the single currency by 2020. In this framework, a gradual approach can be undertaken, where a few countries, which are ready, can start the monetary union, whilst the other countries join later.”
The Presidential Task Force will hold their next meeting in Accra, in February 2018.
Background
It will be recalled that at the Extraordinary Summit of Heads of State and Government on 25th October, 2013, the Presidents of Ghana and Niger were appointed to oversee the creation of the single currency in a timely manner.
The two Presidents constituted a Task Force, whose membership included representatives of the President of Ghana and Niger; Ministers of Finance of Ghana and Niger; Governors of the eight Central Banks of ECOWAS member States; ECOWAS and UEMOA Commissions; West African Monetary Agency (WAMA) and the West African Monetary Institute, to advise them periodically on the monetary integration programme.
The membership of the taskforce was reviewed in 2015 to include the Presidents of Cote d’Ivoire and Nigeria, as well as the Ministers of Finance of the two countries.
The inaugural meeting of the Presidential Taskforce was held on 20th and 21st February, 2014 in Niamey. Subsequently, two other meetings were held in Accra on 7th and 8th July, 2014, with the last meeting held in Niamey from 4th to 6th February, 2015.
The main objectives of the third meeting were to examine the revised roadmap on the realisation of the ECOWAS single currency by 2020; a proposal from the ECOWAS Commission on the creation of an ECOWAS monetary Institute by 2018; and the concern raised by the WAMZ Convergence Council on the revised macroeconomic criteria adopted by the 45th Ordinary Summit of the Heads of State and Government held in Accra on 10th July, 2014.
After the third meeting, it was agreed, amongst others, that the Central Bank financing criterion be reclassified as a primary criterion because of its strategic importance to monetary and price stability. The revised roadmap on the realisation of the ECOWAS single currency by 2020 was to be costed, and sources of funding identified.
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tralac’s Daily News Selection
tralac’s Annual Report 2016-2017 is posted. Based on a review of the 2016-2017 work programme, and feedback from our stakeholders, our priority focus areas are: Global trade governance developments: implications of Brexit and the new US Administration, the future of multilateral trade governance; Africa’s regional integration agenda: (i) ongoing trade and regional integration negotiations (TFTA, CFTA); (ii) trade in services – regulatory issues; (iii) standards – especially SPS measures; (iv) trade facilitation and NTBs; (v) trade remedies and safeguards; and (vi) dispute resolution; A sustainable development agenda for Africa: trade and climate change, the environment, the blue economy, gender and youth development. [tralac’s latest weekly e-Newsletter]
Underway, in Niamey: ECOWAS Task Force on Common Currency. Related perspective, by ECA’s Dr Dimitri Sanga: ECOWAS single currency ‘might not be’ by 2020
Intra-ECOWAS trade should be first priority, not signing EPA (The Point)
“This is a very good thing on paper but effectively, you have to have something to sell; if you don’t have manufacturing sector that is well prepared to produce a variety, what are you going to export to the EU,” Dr Dimitri Sanga, West Africa director of ECA, said. “So if you are not well prepared, even if the market of Europe is open to you more than 100%, you will only sell 2 or 3 commodities; you wouldn’t be able to reap the maximum benefit from that agreement. So going for such agreement at this stage doesn’t make sense.” On the other hand, Dr Sanga said, the European entrepreneurs will send to ECOWAS all the products from soft drinks to rice, to cassava.
He said even if ECOWAS member states managed to have small industries that produce and pack some very good products for export; there are phytosanitary laws in the EU that have to be respected for the products to enter the European market. “So on paper, they tell you the market is open 100% but those barriers created by the phythosanitary laws will not help you to tap the market 100%,” he said. The ECA official said their advice to ECOWAS and other countries is that if ever they decide to go in for the EPA, they have to negotiate with the EU to make sure that capacity building component is part of the agreement. “That will help to bring our industries at a level to meet up the phytosanitary measures of the EU,” he said. “In that case, they could go in for the agreement knowing that they will benefit from the capacity building to enhance their standards.”
Sub-standard goods: Envoy wants Chinese industries in Nigeria (Punch)
Nigeria’s Ambassador to China, Baba Ahmad Jidda, has said that there is a need for Chinese industrialists to establish manufacturing plants in the country in order to produce quality products at rates that will not be too exorbitant for Nigerians to buy. The envoy, who spoke to our correspondent in Beijing on Saturday, noted that the establishment of Chinese manufacturing plants in Nigeria would eliminate the flooding of the market with substandard products from the Asian nation. Jidda, who blamed Nigerian traders for coming to China to ask that the quality of products meant for the local market should be deliberately lowered in order to make much profits, said one of the ways to check this was the localisation of manufacturing plants in the country by Chinese industrialists and investors. This, according to him, will eliminate the need to source for foreign exchange with which to import goods from China, including the cost of freight, duty and other associated costs that add up to the prices of such goods.
COMESA policy organs meetings begin this week: Towards Digital Economic Integration
The Committee on Administrative and Budgetary Matters will be the curtain raiser and takes place 26 – 28 October 2017. It will be followed by the IC and the Council of Ministers meeting (2-3 November). The theme for the meetings is ‘COMESA Towards Digital Economic Integration’. It seeks to refocus attention on the need to harness the potential of information communication technologies in addressing the existential challenges of regional integration. It comes at a time when the COMESA Secretariat has embarked on a digitization drive that has so far transformed all its meetings to paperless. Further, it has introduced software to capture small scale trade data using smart phones to promote e-business; launched a Short Messaging Service for reporting trade barriers and working on a digital Free Trade Area Application that will incorporate e-Commerce, e-Legislation and e-Logistics.
Africa needs more private investment: here’s how to make it happen (WEF)
To help bridge this information gap, the German G-20 Presidency has asked the International Finance Corporation to create a simple toolbox with straightforward and accessible information about the many programs available to investors, firms, and governments looking to engage with the G20 Compact with Africa countries. These countries include Cote d’Ivoire, Ethiopia, Ghana, Morocco, Rwanda, Senegal, and Tunisia - with more to follow. Improving the conditions for private investment in Africa, with an emphasis on infrastructure, is central to the Compact. And the goal of the toolbox is to provide an accessible overview of where to go for financing and support of private investments. The toolbox - which is an inventory of available instruments - is based on substantial inputs from all the multilateral development banks engaged in the region, as well as the International Monetary Fund and the Association of European Development Finance Institutions. It was compiled with the twin goals of providing transparency and closing the information gap facing governments, investors and businesses. The toolbox also outlines the relevant knowledge platforms related to scaling up infrastructure in the Compact with Africa countries.
Uganda: AfDB’s Country Strategy Paper 2017-2021 (pdf, AfDB)
The proposed Uganda new CSP 2017-21 intends to support realization of the NDPII objectives. The CSP has the following two strategic pillars: (i) Infrastructure development for industrialization and (ii) Skills and Capacity Development. The rest of the Country Strategy Paper (CSP) 2017-2021 is organized as follows: Section II reviews and assesses the salient features of the country context; Section III discusses strategic options, portfolio performance and lessons learnt; Section IV presents Bank Group Strategy 2017-21; while Section V draws conclusions and presents recommendations for senior management.
East Africa: How a payments platform is driving cross-border trade, economic growth (New Times)
Transaction times have also been significantly reduced. While a payment used to take up to two days, it can now take place in only a few hours. By using SWIFT, EAPS also benefits from the highest levels of security, resiliency, standardisation and automation. The ambition for EAPS is that it will be the platform of the future, enhancing efficiency, continuing to reduce settlement times and lower transaction costs, thereby encouraging greater levels of trade within the region and furthering economic growth. Currently, four EAC member countries are connected to EAPS, and Burundi is scheduled to join the platform later this year. [The author, Denis Kruger is head of Sub-Sahara Africa at SWIFT]
South Sudan Economic Update, 2017: taming the tides of high inflation (World Bank)
Which stabilization path for South Sudan? (pdf): Although there is a clear agreement that South Sudan needs to reform, vested interests and rent seeking behavior from the politically connected who have access to foreign currency at the official rate are preventing or delaying the reform process. There is also a lack of agreement on the specifics of the reform to support lower inflation. For example, it is not clear whether the country would be most suited to adopt a currency board approach or a full dollarization or continue with a floating regime. Finally, reforming the monetary regime involves a major change in the economic environment, and a major shock for the economy. The uncertainty surrounding the impact may add to the reluctance of the reform process. [Reducing poverty through improved agro-logistics in a fragile country: findings from a trader survey in South Sudan]
Mozambique expects natural gas reserves to double (Club of Mozambique)
Minister of Mineral Resources and Energy Letícia Klemens says prospects for new discoveries are encouraging, and by 2030 the country is expected to know about twice the current 180 billion cubic feet found in the Rovuma basin off the north coast of Mozambique. Speaking at an international conference on the production and consumption of liquefied natural gas in Tokyo, Japan, Minister Klemens said: “Our location is strategic for the Asian, Pacific and Atlantic markets,” and “increasing opportunities in the Middle East and the Indian subcontinent.” Mozambican gas is of excellent quality, which gives it a competitive advantage in terms of costs,” she added. A consortium led by Italian oil company Eni announced its final decision to invest in the sea to the north of Mozambique in June, becoming the first major natural gas project to move into the implementation phase. The floating extraction and liquefaction platform is under construction and the operation in Rovuma Area 4 is expected to start within five years.
Green approach to closing Africa’s huge infrastructure gap has immense benefits says ECA’s Mofor (UNECA)
In remarks at an event at the just-ended Global Green Growth Week 2017, which was held under the theme “Unlocking Africa’s green growth potential”, Mr. Mofor presented the Africa Climate Resilient Investment Facility (AFRI-RES) - a joint initiative of the ECA, the World Bank, the AUC, the AfDB and the Nordic Development Fund, that is hosted in the ACPC - as an example of how infrastructure can be made greener. He said AFRI-RES was put in place with the aim of strengthening the capacity of African institutions, as well as the private sector to plan, design and implement infrastructure investments that are resilient to climate variability and change in selected sectors. [African countries urged on green growth agenda]
Carlos Lopes: Africa’s impala-like leap into a green industrial economy (The Guardian)
Many policy directives and incentives are needed to foster this transformation. Amongst them are: adopting green urban policies to promote compact, connected, and coordinated cities; strengthening “export push” policies, including support for green exports by identifying markets and improving certification and standards; and investing in sustainable infrastructure and increased infrastructure efficiency. If we get the policies right, we can have fuel-efficient stoves in every village, dynamic industries built on recycled inputs, and urban sanitation that provides clean power for all. Africa is already growing, and fast. Whether it can grow based on a sustainable, inclusive economy depends upon whether we can harness this change and propel ourselves into green industrial revolution. It’s time for us to leap like an impala, into the future.
International Centre for Settlement of Investment Disputes: 2017 Annual Report (World Bank)
Today, ICSID is the acknowledged world leader in investor-State dispute settlement. It has administered more than 70% of all known international investment proceedings. Over the past year alone, ICSID administered 258 cases, the most in any single year of its history.
Today’s Quick Links: CMAG: Cement from Nigeria violates World Trade Organization rules West Africa Clean Energy Corridor Initiative: update Quality Infrastructure Programme for Central Africa soon to be fully implemented IFC: Women and tourism - designing for inclusion North Africa: South Africa’s next prime export market? As Africa’s need for food grows, Mali’s rice turnaround shows a way forward |
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Green approach to closing Africa’s huge infrastructure gap has immense benefits, says ECA’s Mofor
Following a green approach to closing Africa’s huge infrastructure gap can create public and private value with co-benefits across a diverse range of stakeholders and goals, says Linus Mofor, Senior Environmental Affairs Officer for Energy, Infrastructure and Climate Change at the ECA’s African Climate Policy Centre (ACPC).
In remarks at an event at the just-ended Global Green Growth Week 2017, which was held under the theme “Unlocking Africa’s green growth potential”, Mr. Mofor presented the Africa Climate Resilient Investment Facility (AFRI-RES) – a joint initiative of the ECA, the World Bank, the African Union Commission, the African Development Bank and the Nordic Development Fund, that is hosted in the ACPC, as an example of how infrastructure can be made greener.
He said AFRI-RES was put in place with the aim of strengthening the capacity of African institutions, as well as the private sector to plan, design and implement infrastructure investments that are resilient to climate variability and change in selected sectors.
“Thus enabling those investments to reap the resilience dividend,” said Mr. Mofor, adding such a facility can assist authorities to make good infrastructure investment decisions to ensure performance and return on investment in a changing climate.
He said greening infrastructure means ensuring resource efficiency to reduce the intensity of inputs and emission; compliance with environmental safeguards and standards to ensure environmental and social sustainability; and resilience to natural disasters, as well as weather and climate change and variability.
The event titled, “The What, Why and How of Making the Transformation of Africa’s Infrastructure Greener”, was organized by the ECA in partnership with the Global Green Growth Institute and Dalberg as part of the Global Green Growth Week 2017.
Unlocking Africa’s potential
In opening remarks on behalf of Ms. Fatima Denton, Director of the Special Initiatives Division of the ECA, Mr. Nassim Oulmane, Head of Green Economy and Natural Resources at the ECA, stressed the urgency to unlock Africa’s enormous potential for green growth to drive social and economic transformation to meet the development goals set out in the African Union’s Agenda 2063 and the UN 2030 Agenda for Sustainable Development.
He said for this to happen concerted efforts among all key stakeholders were needed to tackle the historical and structural constraints holding back the continent, and to leverage growth towards a green economy trajectory.
Mr. Dauda Suma, Senior Industrial Advisor at the Global Green Growth Institute, speaking on behalf of Mr. Robert Mukiza, GGGI Country Representative in Ethiopia, said Africa’s rapid urbanization has presented both a dynamic opportunity and a challenge to Africa.
“On the one hand, urbanisation is predicted to deliver stronger economic growth rates for Africa. On the other hand, urbanisation also underlines the huge infrastructure gap in Africa, especially in energy and transportation,” Mr. Mukiza said.
He said the establishment of GGGI regional hub in Addis Ababa in the near future will strengthen its support to African countries to achieve green infrastructure successfully.
Resilience
Mr. Jordan Fabyanske, Associate Partner at Dalberg Global Development Advisors, moderating the session and speaking on behalf of Dalberg, said; “More than half of the infrastructure the world will have by 2070 hasn’t been built yet, and the fraction is even larger in Africa. We have a once-in-a-lifetime opportunity to ensure Africa’s infrastructure contributes maximally to more climate resilient, green and inclusive African economies.”
Partnerships, he said, are required to seize this opportunity, especially the resources and expertise of the private sector.
“It also requires a shift in how we as development partners think and plan. It requires new tools for designing more holistic and integrated infrastructure solutions, improved measurement of the many co-benefits of infrastructure projects, and new means and methods of capturing the economic value of those co-benefits.”
Mr. Gareth Phillips, Chief of Green Growth and Climate Change at the African Development Bank, said; “It is essential to ensure that we build assets which can continue to operate under conditions of changing climates but it is also vital to ensure assets can remain profitable in future policy environments.”
Deputy Director Mr. Ian de Cruz of Global Strategy and Partnerships at the New Climate Economy said changing global trends were creating new opportunities for economic transformation and green industrialization in Africa.
“African countries can serve as global leaders in pioneering these new economic transformation pathways,” he said.
Investors
Mr. Magnus Asbjornsson, Executive Director, Reykjavik Geothermal Ltd, said; “Africa has an incredible wealth of renewable energy resources, and we have seen huge appetite among private investors around the world to invest in clean energy on the continent. The bottleneck is to find projects that combine high quality sponsors, strong and genuine government support, a secure off-taker, a clear and stable legal framework and risk-commensurate returns.”
He praised Ethiopia’s “pioneering vision and wholehearted support that has led us to the verge of signing the twin 500 MW, US$ 2 Billion Corbetti and Tulu Moye geothermal projects, and we believe it will serve as an example of how private investment can be mobilized to make the continent’s infrastructure greener.”
Mr. Atnafseged Kifle Demeke, an advisor in the Ethiopian Ministry of Transport said for mass rapid transit systems to contribute to a climate-resilient, green and inclusive economy, the continent must break the vicious circle of private car use in urban areas.
The main objective of the event was to engage high level public and private sector leaders, experts, influencers and investors to deliberate and provide insights and key policy messages to inform and influence transformative thinking, planning and partnership for accelerated climate-resilient and resource-efficient infrastructure development in Africa.
Africa needs more private investment: Here’s how to make it happen
We know the story all too well: Africa needs to scale up private investment – rapidly.
We also know the numbers. The continent will require some $100 billion in new infrastructure each year going forward if it is to close its infrastructure gap. Yet less than half of that is currently financed. And with a labor force that is expanding by 20 million people a year, and rapid urbanization along with it, Africa’s infrastructure needs are only poised to grow.
The backstory is also familiar: Africa holds enormous potential for private investors. Since the turn of the millennium, it has been among the world’s fastest growing regions. And although growth in some parts of Africa is fragile for the moment, the continent has an improving business environment, expanding internet connectivity, rising incomes, and shifting consumption patterns. These enduring trends have created an abundance of commercial opportunities across the continent, transforming it into a market and opportunity that investors cannot afford to ignore.
Piecing together the puzzle
So, with all the opportunities for growth, and the need for much more investment, why is there still a shortage of private sector investments in Africa? Why do institutional investors remain hesitant to break new ground and invest full scale in African infrastructure? And why has foreign direct investment to the continent fallen off, from around 6 percent of the world’s FDI stock four decades ago to just 3 percent today?
Finally, why don’t more private investors use the instruments offered by Development Finance Institutions?
For reference see
pdf
The G-20 Compact with Africa: A Joint AfDB, IMF and WBG Report
(1.65 MB)
There are no easy answers to these vexing questions.
One part of the puzzle is simple, however, and it involves an information gap. Investors looking to get involved in emerging markets often encounter – and are discouraged by – a general lack of information. They don’t know what to expect, what instruments from Development Finance Institutions are available to support them, and how to get help in preparing projects for investment.
And while significant support exists that can help overcome these obstacles, many potential investors are unaware of - or even confused - about where and how to obtain this support. Development Finance Institutions provide much of it, yet to many investors these institutions and their many programs remain a jumble of abbreviations.
Development Finance Institutions have a multitude of financial products geared to lending, investing, mitigating risk, blending commercial with concessional funds, providing advisory services, and supporting project preparation. But the challenge for the private sector and other willing investors – simply put – is to obtain an overview of just what is available This is difficult terrain even for development experts.
A simple toolbox
To help bridge this information gap, the German G-20 Presidency has asked the International Finance Corporation to create a simple toolbox with straightforward and accessible information about the many programs available to investors, firms, and governments looking to engage with the G20 Compact with Africa countries. These countries include Cote d’Ivoire, Ethiopia, Ghana, Morocco, Rwanda, Senegal, and Tunisia – with more to follow.
Improving the conditions for private investment in Africa, with an emphasis on infrastructure, is central to the Compact. And the goal of the toolbox is to provide an accessible overview of where to go for financing and support of private investments.
The toolbox – which is an inventory of available instruments – is based on substantial inputs from all the multilateral development banks engaged in the region, as well as the International Monetary Fund and the Association of European Development Finance Institutions. It was compiled with the twin goals of providing transparency and closing the information gap facing governments, investors and businesses.
The toolbox also outlines the relevant knowledge platforms related to scaling up infrastructure in the Compact with Africa countries. Engaging with platforms such as the Sustainable Development Investment Partnership is critical to closing the information gap. By doing so, private investors and multilateral development banks can create and maintain a strategic dialogue about the key issues for mobilizing private finance for sustainable infrastructure.
Three steps for the future
At the end of day, all actors share the same agenda – to facilitate private investments in Africa. Only strong African leadership and ownership can create enabling environments and scale investments, but development partners can have an important supportive role.
Going forward, at least three steps are necessary to further transform African infrastructure into a truly tradeable asset class.
First, investors need to be provided with better insights into the performance of assets in the infrastructure space, including credit default rates. Knowledge about asset performance is essential for investors to assess the balance of risk and return that guides all private investments.
Second, Development Finance Institutions need to work to standardize and simplify their products. Naturally, standardization should not limit financial innovation, but there is substantial room to make products easier to access for both current and future clients. Increased user friendliness of products is a common responsibility, and one that can bring significant benefits to Africa.
Third, there is a need to work upstream to create a policy environment that promotes commercially viable projects. Without bankable deals, investments will simply not flow at a sufficient scale.
Platforms like the Sustainable Development Investment Partnership, with its unique membership of public and private actors, can be critical to moving this three-fold agenda forward. The G-20 emphasis on the Compact with Africa provides an excellent basis for common action.
Morten Lauridsen is Principal Economist, Economics and Private Sector Development, International Finance Corporation. The views expressed in this article are those of the author alone and not the World Economic Forum.
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COMESA Policy Organs meetings begin this week
Top ranking government officials led by Ministers from the 19 COMESA Member States will be converging in Lusaka, Zambia in the next two weeks for the annual decision-making meetings. They will be taking part in the 37th COMESA Council of Ministers’ meeting, the Intergovernmental Committee (IC) and the Committee on Administrative and Budgetary Matters.
The Committee on Administrative and Budgetary Matters will be the curtain raiser and takes place from Thursday to Saturday 26-28 October 2017. It will be followed by the IC from Monday 30 October to Wednesday 1st November 2017 and the Council of Ministers meeting on Thursday and Friday 2nd and 3rd November 2017.
The theme for the meetings is ‘COMESA Towards Digital Economic Integration’. It seeks to refocus attention on the need to harness the potential of information communication technologies in addressing the existential challenges of regional integration. It comes at a time when the COMESA Secretariat has embarked on a digitization drive that has so far transformed all its meetings to paperless.
Further, it has introduced software’s to capture small scale trade data using smart phones to promote e-business; launched a Short Messaging Service (SMS) for reporting trade barriers and working on a digital Free Trade Area Application that will incorporate e-Commerce, e-Legislation and e-Logistics.
Delegates in the Committee on Administrative and Budgetary Matters will deal with budget of the Secretariat including Member States assessed contributions. It is expected to come up with innovative ways of financing regional integration programmes given the challenges that some member States have in meeting their financial obligations to the Secretariat and its institutions.
The Intergovernmental Committee will bring together Permanent or Principal Secretaries designated by each of the 19 Member States. It is responsible for the development of programmes and action plans in all fields of co-operation except in the finance and monetary sector. The IC will review various status reports on the implementation of regional integration programmes.
The recommendations of the IC meeting which will incorporate that of the administrative and budget matters will be presented to the Council of the Ministers for decision making. The decisions taken by the Council will be binding to all the Member States and will also constitute the work programme for the COMESA Secretariat in the coming year and beyond.
Development partners that support COMESA programmes will attend some of the sessions.
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Taming the tides of high inflation: Policy options for South Sudan
Economic developments – Soaring inflation, poverty, and food insecurity
The Republic of South Sudan emerged in 2011 from decades of conflict as the world’s newest independent country, with huge state and peace building challenges, and extreme institutional and socio-economic deficits. Six years after independence, South Sudan remains one of the world’s most conflict-affected and fragile countries, unable to emerge from cycles of violence. The escalation of the war generated large displacements of population – most notably since November 2016. The famine declared in February 2017 underscores the severity of the humanitarian crisis. By July 2017 about 6 million (about 50 percent of the population) had been food insecure, 1.9 million had been internally displaced, and 2 million had fled the country.
By August 2016, South Sudan displayed all the signs of macroeconomic collapse, with output contracting, and inflation and parallel exchange market premium spiraling. While the lack of reliable information makes it difficult to assess the current state of the economy, GDP is estimated to have contracted by about 11 percent in FY2016/17 due to conflict, oil production disruptions and below-average agriculture production. On the demand side, exports and household consumption declined, while government consumption increased due to spending on defense and security operations.
The fiscal deficit remained high, although its exact magnitude is difficult to estimate given the lack of real time data. Based on the 2016/17 budget, the fiscal deficit is estimated at about 14 percent of GDP. The 2016/17 budget allocated about 42 percent of the total domestically financed budget to salaries, 19.5 percent to operating and capital expenditure, 19 percent to transfers to states and counties, and about 14 percent to peace and security.
The financing situation is dire. Not only is the government financing itself through accumulated arrears to civil servants – many of whom have not been paid for months and are probably no longer working; moreover, the government has accumulated large contingent liabilities on its balance sheet. Sources of deficit financing have dried up. Deficits associated with the war and security spending are requiring the government to cover its costs by printing money, driving inflation.
Monetization of the fiscal deficit explains to a large extent the high inflation, although there are some indications that borrowing from the Bank of South Sudan had been limited in recent months. The annual Consumer Price Index (CPI) increased by 480 percent in 2016 and by 155 percent during July 2016-June 2017, according to the latest official statistics. Notwithstanding the recent downward trend, the very high inflation continues to put many households in both urban and rural areas in a very difficult position, as they are unable to afford the minimum food basket.
The current account deficit is estimated to have narrowed to about 1.6 percent in FY2016/17 from about 6.1 percent of GDP in FY2015/16. Export revenues decreased due to declining oil prices and lower oil production. Oil production is estimated to have decreased to about 120,000 barrels per day in 2016 down from 165,000 barrels per day in 2014, itself less than half of the peak production before independence in 2011. However, imports also decreased by more than exports, narrowing the current account deficit.
The South Sudanese Pound (SSP) continued to depreciate. Following the move to a more flexible exchange rate arrangement in 2015, the South Sudanese Pound (SSP) depreciated on both the official and the parallel market. On the parallel market, it depreciated from SSP 18.5 per dollar in December 2015 to SSP 70 per dollar by August, 2016 and SSP 172 per dollar by August 2017. Political events drove the volatility of the SSP: the pound initially appreciated on the parallel market when the Government of National Unity came into place, but it later depreciated steadily, in particular after the new fighting erupted in July 2016. It has continued to depreciate steady since as instability across the country continues.
Restoring peace, including reform of the security sector, followed by efforts to rein in public sector borrowing to levels that avoid printing money are necessary preconditions for any stabilization program. The only way to halt the economic devastation is to put in place a consistent and credible macroeconomic program, with transparent administration and external support both for financing and credibility purposes.
The FY17/18 National Budget aims to restore macroeconomic stability, but lacks credibility. It puts special emphasis on controlling public expenditure, increasing non-oil revenues, encouraging investment and economic diversification and removing subsidies to the national oil company (Nilepet). The Budget also aims at refraining from borrowing from the Bank of South Sudan to bring down inflation and prevent further depreciation of the currency. Although the FY17/18 Budget foresees a two-fifth cut in expenditure in dollar terms compared to the 2016/17 budget, it is unlikely that enough cash will be available to execute all budgeted items. While it is difficult to predict the prioritization of expenditures, it is likely that the government will continue to protect security spending and core executive functions. Thus, the population will become even more dependent on humanitarian relief and donor funded development projects for access to services. Even if the economy showed some recovery starting in 2018, projections suggest that poverty will continue to rise through 2019 as economic growth is likely to be surpassed by population growth.
Taming the tides of high inflation: policy options for South Sudan
A key policy priority for South Sudan is to curb inflation. What can the country do in this regard? Countries have historically tamed extreme inflationary situations using Exchange-Rate -Based Stabilization (ERBS) plans or Money-Based Stabilization (MBS) plans. Monetary or inflation targeting has been popularly adopted by many central banks around the world as a strategy for monetary policy with the expectation that the adoption of such a monetary regime would help control money supply and reduce inflation and inflation volatility. Alternatively, an exchange rate anchor, in combination with a broader set of stabilization programs that combine fiscal prudence with a tighter monetary regime of varying forms may be another option to control inflation.
Political will is critical to pursue any stabilization plan. Peace and security remain a crucial precondition for any macro stabilization. Moreover, any reform plan requires credible commitment to take concrete steps to address the economic issues. Effective programs have sequenced the initial stabilization programs with structural and institutional reforms. The latest economic and security developments in South Sudan seem to indicate that despite the urgent need for fiscal consolidation and exchange rate adjustment, the Government continues to focus on conflictrelated policy choices that delay any meaningful reforms. Without clear political commitment, any stabilization plan will be meaningless.
Which stabilization path for South Sudan? Although there is a clear agreement that South Sudan needs to reform, vested interests and rent seeking behavior from the politically connected who have access to foreign currency at the official rate are preventing or delaying the reform process. There is also a lack of agreement on the specifics of the reform to support lower inflation. For example, it is not clear whether the country would be most suited to adopt a currency board approach or a full dollarization or continue with a floating regime. Finally, reforming the monetary regime involves a major change in the economic environment, and a major shock for the economy. The uncertainty surrounding the impact may add to the reluctance of the reform process.
The main challenge for developing economies, particularly for countries emerging from conflict, is to establish credibility of the chosen monetary regime through a nominal anchor. The empirical evidence is not conclusive on whether this can be done more successfully through inflation targeting or a hard currency peg or a crawling peg with a narrow band. Monetary policy becomes more effective when the central banks are successful in leading inflation expectations and can credibly alleviate the traditional short-term trade-off between inflation and unemployment. The success of any monetary regime is directly associated with forward-looking behavior, which, in turn, highlights the relevance of credibility. This aspect is particularly relevant for developing and post-conflict economies. A strong and credible commitment to maintaining low inflation through any monetary regime credibility thus fosters an environment that stimulates output growth.
Under South Sudan’s current managed floating exchange rate regime, a monetary policy regime (without an exchange rate anchor) would require an explicit and clearly understood alternative nominal anchor. Theoretically, the country could initially implement a plan based on targeting the growth rate of money and then, over time, transition to inflation targeting. Compared to inflation targeting, using the growth rate of money as the nominal anchor can be implemented by a central bank with relatively less independence. Targeting the growth rate of money imposes some limits to the discretionary actions of the central bank because it requires this institution to follow a specific rule. The public can easily observe the compliance of this rule so any deviation would result in an increase in inflation expectations and the collapse of the plan. This suggested path was followed by some countries in Latin America, such as Mexico or Peru, which started targeting the rate of money growth and after a few years moved to inflation targeting.
If South Sudan decided to adopt MBS, it would need to ensure that the exchange rate regime is compatible with macroeconomic fundamentals and closes the gap between the official and the parallel rate.
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Trade liberalization without enhanced production is a recipe for disaster
Speaking at the official opening of the Ad-hoc Expert Group Meeting (AEGM) on 23 October 2017 in Bulawayo, Zimbabwe, UN Economic Commission for Africa (ECA) regional director for Southern Africa, Mr. Said Adejumobi, said that without production, trade and market liberalization is meaningless.
The AEGM was held on the theme, “Deepening Regional Integration in Southern Africa: The Role, Prospects and Progress of the Tripartite Free Trade Area (TFTA).”
A developmental approach to regional integration was adopted by the TFTA anchored on three main pillars namely; market integration, industrial and infrastructure development.
Mr Adejumobi said the industrial pillar seeks to boost the productive capacity of member-states, promote value addition and benefication, and enhance economic diversification.
He said the infrastructure component is aimed at easing the challenge of doing business, and allowing the free flow of goods and services.
“The TFTA (apart from the CFTA) represents the most ambitious attempt at integrating African economies in creating a free trade area for 26 African countries of 632 million people, representing 51 percent of Africa’s GDP and constituted by three regional economic communities – COMESA, SADC and the EAC,” Mr. Adejumobi added.
Mr Adejumobi also noted that the TFTA provided the architecture of development that would be crucial in realizing the aspirations of Agenda 2063 and Agenda 2030.
“The TFTA, if well implemented, has the capacity to promote trade, enhance production, spur economic competition and thereby improve the quality of goods and services across the regions, encourage creativity and innovation, create more jobs, reduce poverty and ensure that nobody is left behind in the development train with better economic opportunities for all,” he said.
He emphasized the need for the industrial pillar of the TFTA to promote the development of indigenous capitalist or entrepreneurial class that would increasing assume a multinational character.
He noted the need to prioritize the small and medium scale enterprises as they are usually the hubs for job and wealth creation in developing economies; and need for greater harmonization in the industrial policies of the three RECs.
He further added that the SADC Industrialization Strategy and Roadmap of 2015, the COMESA Industrialization policy and EAC industrial policy agenda must all coalsce together to avoid discontinuities in the industrial focus of the three organizations and their member-states.
He also noted the need to extend the free movement for business persons in the TFTA to include all citizens of the TFTA of all the three regional blocks. He called for deconstructing of Africa’s national borders which will not only make for good economics but also good social and political re-engineering of our Continent as contained in the Pan-African ideals.
Meanwhile, the Government of Zimbabwe is committed to regional integration and that its current economic blue print, the Zimbabwe Agenda for Sustainable Socio-Economic Transformation, recognizes the importance of industrialization and trade in transforming its economy.
Secretary, Ministry of Finance and Economic Development, Willard Manungo, said regionalism is an important trend in the modern world as it contributes to the opening of markets, enhancing the development of regional value chains, and increases intra trade, stimulating economic growth and lifting people out of poverty.
He expressed confidence that Prospects and Progress of the Tripartite Free Trade Area was moving in the right direction, though at a slow pace.
Mr Manungo further noted that regional integration in Southern Africa is built on three pillars of industrial development, infrastructure development and market integration.
However, Mr Manungo noted that the region has suffered from a critical deficiency in infrastructure, particularly, regarding access to electricity, transport, information and communication technology, water and sanitation and irrigation, among others.
“To bridge the funding gap for infrastructure, the Government of Zimbabwe established a Joint venture unit housed in my Ministry to facilitate public-private partnership initiatives and is currently putting a framework to implement Special Economic Zones in pilot areas such as Bulawayo, Sunway City in Harare and Victoria Falls,” he said.
Mr Manungo said that at regional level, the Government of Zimbabwe was involved in cross border infrastructure collaboration, notable projects include; rehabilitation of the Kariba Dam Wall Governments of Zimbabwe and Zambia, jointly mobilized resources; and the opening of the One Stop Border Post at Chirundu.
He commended ECA and the Inter-Governmental Committee of Experts (ICE) for championing the agenda for deepening regional integration through trade facilitation and infrastructure development. He hoped that the deliberations were going to proffer concrete, focused and workable recommendations on developing infrastructure that would facilitate smooth trade, thereby strengthening the regional integration agenda.
Participants at the AEGM include experts in regional integration, senior government officials and representatives of regional economic communities, research institutions, civil society organizations and the private sector, who will deliberate on the theme and identify the opportunities from enhanced integration.
Recommendations towards addressing the challenges regarding the implementation of the TFTA milestones will be made.