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High-level event on the Third Industrial Development Decade for Africa: Joint communiqué
“Third Industrial Development Decade for Africa (2016-2025): From Political commitments to actions on the ground” – 21 September 2017, New York
One of the biggest challenges that many African countries are facing today is that the benefits of economic growth are not shared by all members of society. Even in economies that record impressive rates of growth compared to the rest of the world, poverty, hunger and unemployment persist. Youth, women, rural populations, and the urban poor are particularly affected. This situation can largely be explained by a lack of industrial transformation of African economies.
Cognizant of these circumstances, on 25 July 2016, the United Nations General Assembly (UNGA) adopted Resolution A/RES/70/293, which proclaimed the period 2016-2025 as the Third Industrial Development Decade for Africa (IDDA III). The proclamation builds on the understanding that inclusive and sustainable industrialization is essential to generate jobs, wealth and income for all, to eradicate absolute poverty, and thereby to achieve sustainable development. The proclamation also demonstrates the readiness of the international community to continue and enhance its partnership with African countries to support the continent’s industrial transformation.
IDDA III is the latest initiative by the international community in support of Africa’s industrialization. It complements other key development initiatives, such as the African Union’s (AU) Agenda 2063: The Africa we Want that recognizes the centrality of industrialization in driving the continent’s socio-economic structural transformation, the 2030 Agenda for Sustainable Development that highlights the need for inclusive and sustainable industrialization in Sustainable Development Goal 9, and several other continental, regional, multilateral and bilateral initiatives, including the Action Plan for the Accelerated Industrial Development of Africa, the Africa Mining Vision, the Programme for Infrastructure Development in Africa, and the Comprehensive Africa Agriculture Development Programme.
In order to ensure the successful implementation of IDDA III, we – the African Development Bank (AfDB), the African Union Commission (AUC), the Regional Economic Communities (RECs), the United Nations Economic Commission for Africa (UNECA), the United Nations Industrial Development Organization (UNIDO), and the United Nations Office of the Special Adviser on Africa (UN-OSAA) – as key partners in the implementation of the Decade and conveners of this high-level event:
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Reaffirm our commitment to support the efforts led by the AU and its member states towards industrialization. In this regard, we reiterate our strong commitment to working hand in hand towards achieving the continent’s development goals, as encapsulated in the AU Agenda 2063 and its First Ten-year Implementation Plan, and the 2030 Agenda for Sustainable Development, focusing on developing infrastructure, advancing innovation and technology transfer, diversifying production, agribusiness value chain development, building production capacity, and quality infrastructure for market access, promoting renewable energy and energy efficiency, promoting an enabling business environment to attract investment, upgrading industrial policy, developing special economic zones and industrial parks, mitigating climate change, and developing institutions and human capital.
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Recognize the abundance of natural resources and the large African youth population as assets for Africa’s structural transformation and pillars for the continent’s sustainable industrialization. We also recognize the importance to foster inclusiveness, with a special focus on the empowerment of women, youth, rural and urban poor.
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Recognize that the magnitude of the undertakings under the Decade necessitates a broad-based international partnership. Hence, we declare our commitment towards the development of effective partnership mechanisms and modalities, to guide and facilitate a smooth implementation of the activities of the Decade. We also agree to undertake and implement joint programmes for an increased developmental impact. In addition, we agree to develop appropriate operational modalities for the implementation of IDDA III, including a clear delineation of the roles of implementing partners with agreed time frames.
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Commend the innovative approach taken by UNIDO in its Programmes for Country Partnership (PCPs) and support the scale up of the PCPs in order to serve more countries in the context of IDDA III. The PCP approach provides a platform for multi-stakeholder partnership for the promotion of inclusive and sustainable industrial development. It builds on partnerships with various stakeholders, including development finance institutions (DFIs) and the private sector, to mobilize large-scale resources and achieve a greater development impact. The implementation of the Industrialize Africa Strategy by the African Development Bank, in collaboration with UNIDO, UN-OSAA and UNECA, could also help to maximize the resource efficiency and impact of IDDA III.
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Commend the leadership of UNECA in designing and advocating a transformative industrial policy for Africa, and the AfDB for supporting its implementation in partnership with UNIDO, UN-OSAA and UNECA.
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Acknowledge that the implementation of the ambitious goals of the Decade will require the mobilization and deployment of a significant amount of resources. The range of development funders and funding options include, but are not limited to, domestic fiscal resources, public investments, private investments, diaspora remittances, and philanthropic finance. Also, international public finance, including North-South, South-South and Triangular Cooperation, will continue to complement the efforts by African countries in line with international commitments. We encourage bilateral, regional, sub-regional, multilateral, and other funding institutions to significantly increase their contributions to the development of the industrial sector in Africa. Likewise, we reiterate our call to all financial institutions to ensure full support to the implementation of IDDA III at the country, sub-regional, and continental levels.
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Recognize the importance of strengthening private sector engagement, in view of public partnerships, with its fundamental role in driving economic growth, creating jobs, generating income and wealth, and contributing to fiscal revenue. Public resources, appropriately and effectively deployed, can mobilize significant private investment that is needed to achieve the aspirations of IDDA III. In this regard, we recognize the critical role of public-private partnerships.
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Acknowledge that the process of African industrialization must be properly and comprehensively managed. Hence, we commit to devising the necessary governance mechanisms and linking them to existing ones so as to guide the design, implementation, monitoring, evaluation, and reporting of the roadmap for the implementation of the Decade. This is necessary to ensure that development interventions produce the desired impact. It is also necessary to ensure the timely preparation and submission of progress reports to the UNGA on the Decade’s implementation, as directed by Resolution A/RES/70/293.
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Count on the concerted support of the United Nations System towards the effective mobilization of adequate resources to enable the full implementation of IDDA III.
President of the African Development Bank (AfDB)
Chairperson of the African Union Commission (AUC)
Executive Secretary of the United Nations Economic Commission for Africa (UNECA)
Director General of the United Nations Industrial Development Organization (UNIDO)
United Nations Acting Special Adviser on Africa (UN-OSAA)
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2017 African Prosperity Conference: Update on the Continental Free Trade Area negotiations
‘Africa needs the CFTA to prosper economically’
President of the Ghana National Chamber of Commerce and Industry, Nana Dr. Appiagyei Dankawoso I, has stated that Africa needs the Continental Free Trade Area (CFTA) in order to prosper economically.
Speaking at the 2017 African Prosperity Conference on the theme “The Continental Free Trade Area (CFTA) – Exploring Possibilities for Business Engagement across Africa” at the Kempinski Hotel Gold Coast City in Accra on September 12, Nana Dankawoso I said the CFTA constitutes a unique opportunity to drive Africa’s transformation and development so it is his dream to secure a high-quality trade that delivers real results.
According to him, the implementation of the CFTA will create jobs, boost income and prosperity and also put Africa on the world stage.
He further indicated that there is so much to gain from free trade, therefore urging businesses to take advantage of it by working hard in the export sector.
The Continental Free Trade Agreement (CFTA) is a key African initiative aiming to urgently take forward the continent’s long-standing integration and development agenda. The CFTA represents a significant opportunity to redress the vulnerabilities of Africa’s economies within the global economic order that have been manifest in and deepened by the imbalances of the World Trade Organisation as well as other multilateral and bilateral trade agreements.
The establishment of the CFTA aims to create a continental market for goods and services in Africa covering over a billion people and a GDP of over USD 3 trillion.
The two-day conference, which ended on the 13th of September 2017, was organised by the Pan African Chamber of Commerce and Industry and hosted by the Ghana National Chamber of Commerce and Industry. It was supported by the African Union and the United Nations Economic Commission for Africa.
The Conference was opened by Ghana Minister of Trade and Industry Honorable Alan Kyeremanten; Mr. Albert Muchanga, Commissioner for Trade and Industry at the African Union Commission; and PACCI President Nana Dr. Appiagyei Dankawoso. He was followed by Dr. David Luke, coordinator of the African Trade Policy Center at UNECA.
Mr. Prudence Sebahizi, Chief Technical Advisor on the CFTA and Head of the CFTA Unit at the African Union Department of Trade and Industry, provided an update on the status of the CFTA negotiations.
Update on the Continental Free Trade Area negotiations
Extracts from the presentation by Mr. Prudence Sebahizi, African Union Commission
Opportunities of the CFTA
The CFTA seeks to combine the economies of 55 African states under a pan-African free trade area comprising 1.2 billion people in a market with a combined GDP of $2.19 trillion.
Africa is the world Second largest and second most populous continent with about 1.2 Billion people and by 2050 Africa’s population is projected to reach 2 billion. About 70% of Africans are under 30 years of age and over half are females.
It is envisaged that the Continental Free Trade Area will double intra-African trade from 12% (2012) to 25% (in 2022).
Africa has approximately 30% of the earth’s remaining mineral resources. The Continent has the largest reserves of precious metals with over 40% of the gold reserves, over 60% of cobalt, and 90% of platinum reserves.
Africa is the world’s poorest and most underdeveloped continent with a continental GDP that accounts for just 2.4% of global GDP and accounts for only 4% of global Trade. In addition, Africa accounts for around 60% of the world’s uncultivated arable land.
The CFTA will result in total welfare gains of US$16 billion (+0.97% GDP and +1.17% employment).
Challenges of the CFTA
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Different speed and priorities and membership in different Regional Economic Communities;
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Overlapping Membership, Most African countries are parties to more than one REC, and convergence between different RECs should be made compatible with the goals and timelines set for the CFTA;
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Multitude and varied trade commitments undertaken by African countries.
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Institutional, organizational, and productive Capacities;
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Sensitive issues such as RoO, Level of ambition, Services Regulations, etc.
Background to the Establishment of the CFTA
The Continental Free Trade Area (CFTA) initiative is in line with the Abuja Treaty (signed on 3rd June 1991) – the Treaty Establishing the African Economic Community.
The 18th Ordinary Session of the AU Assembly held in January 2012 in Addis Ababa, adopted an Action Plan for Boosting Intra-African Trade (BIAT) and agreed on a roadmap for the establishment of a CFTA by 2017.
Reaffirming its commitment to continental market integration as provided under the Abuja Treaty, the AU Assembly launched the CFTA negotiations at the 25th Ordinary Summit of Heads of State and Government on 15 June 2015 in Johannesburg, South Africa.
At the same time, the Summit also adopted the and Endorsed the following documents:
- The Objectives and Negotiating Principles for the CFTA
- Institutional Arrangements for the CFTA negotiations
- The Terms of Reference for the CFTA-NF
- The Indicative Roadmap for the CFTA negotiations.
The 27th Ordinary Summit of the AU Heads of State and Government that took place in Kigali, July 2016, reaffirmed its commitment to fast tracking of the CFTA by 2017.
The 28th Ordinary Session of the AU Heads of State and Government, held in Addis Ababa, Ethiopia, in January 2017 mandated H.E Mahamadou Issoufou, President of the Republic of Niger to champion the process of the CFTA to ensure that the deadline of the end of 2017 is reached and report on measures taken to the next ordinary session of the Assembly in July 2017.
The 29th Ordinary Session of the AU Heads of State and Government, held in Addis Ababa, Ethiopia, in July 2017 received the Progress Report on the CFTA from the Champion:
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Appreciated the progress made so far;
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Approved the modalities and reaffirmed the commitment to conclude negotiations of the CFTA by 2017.
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Called upon Member States to undertake nationwide stakeholder sensitization activities so that all citizens of African countries are fully aware and own the process of establishing the CFTA.
Update on the establishment of the CFTA
Since the June 2015 launch of the negotiations, much progress has been made to prepare the ground:
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Analytical Studies to inform negotiations;
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Study on NTBs Elimination Mechanism;
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Capacity Building of Negotiators;
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Establishment of the CFTA Negotiations Support Unit;
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Drafting of the CFTA Model Text;
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Establishment of 7 Technical Working Groups;
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Raising awareness of Stakeholders;
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Appointment of a Presidential Champion on the CFTA, etc.
In November – December 2016, the AUC organized Africa Trade Week that brought together more than 300 stakeholders (CSOs, Private sector, Academia, Researchers, etc.) to discuss the CFTA and culminated into the High Level Trade Facilitation Forum.
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Nine Meetings of the CFTA Continental Task Force to prepare working Documents for the CFTA Negotiating Institutions.
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Six meetings of the CFTA Negotiating Forum (CFTA-NF) were held in February, May, October, November 2016 and March 2017 at the AU Headquarters in Addis Ababa, Ethiopia. The 6th Meeting was hosted in Niamey, Niger by the Champion in June 2017.
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Three meetings of the Technical Working Groups in February (Kigali), April (Nairobi) and August (Durban) 2017.
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Three Meetings of Senior Trade Officials (May, November 2016 and June 2017).
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Three meetings of African Union Ministers responsible for Trade (May, November 2016 and June 2017).
Update on the CFTA: Objectives
Achieve a comprehensive and mutually beneficial trade agreement among the Member States of the African Union.
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Enhance competitiveness at all levels and more specifically at the industry and enterprise level through exploiting opportunities for scale economies, reducing business costs, continental/global market access and better reallocation of resources including through the development of trade-related infrastructure;
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To overcome dependence on exportation of primary products and promote social and economic transformation for inclusive growth, industrialization and sustainable development in line with Agenda 2063;
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Resolve the challenges of multiple and overlapping memberships and expedite the regional and continental integration processes;
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Realize the potential to expand and accelerate the growing diversification and dynamism of intra-African trade including the aim to increase by 50% trade among African countries by 2022 through better harmonization, coordination and implementation of trade liberalization and facilitation regimes and instruments across RECs and across Africa in general; and
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In the context of boosting intra-Africa trade and realizing the transformational potential of increased trade among African countries, to create a freer market for goods and services, building upon the trade agreements within the regional economic communities and associated commitments and thus pave the way for accelerating the establishment of the Continental Customs Union.
Update on the CFTA: Negotiating Principles
The Continental Free Trade Area negotiation process shall be guided by the following overarching principles:
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The CFTA negotiations shall be AU Member States/RECs/Customs Territories driven with support of the African Union Commission and its structures.
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RECs FTAs as building Blocs for the CFTA
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Preservation of Acquis
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Variable geometry
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Flexibility and Special and Differential Treatment
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Transparency and disclosure of information
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Substantial liberalisation
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MFN Treatment
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National Treatment
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Reciprocity
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Decisions shall be taken by consensus.
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Adoption of Best Practices
Update on the CFTA: Key Milestones
Conclusion
It should be emphasized that besides establishing the Continental Free Trade Area, among the fundamental drivers of trade are development of productive capacity and industrial sophistication because a country cannot trade effectively unless it can produce and add value to its raw material endowments.
Trade-related infrastructure and services along with other trade facilitation measures such as removal of non-tariff barriers, simplification of customs procedures and documentation, and flawless operations of Africa’s transport and transit corridors are also fundamental to Africa’s internal trade.
Lastly, given the imbalances in the levels of development in African countries, it would be a remise to talk about creating the CFTA without ensuring equitable outcomes for Member States through compensation mechanisms to address adjustment costs to greater trade opening, and help smaller and weaker countries build their production and trade capacities.
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African Union Commission, Member States and RECs urge the implementation of Trade Facilitation measures
The African Union Commission in collaboration with the Mauritius Revenue Authority organized the 3rd African Union Customs Experts’ Trade Facilitation Forum from 20-22 September 2017 at the Custom House, Mer Rouge in Port-Louis.
The three-day forum was organized in line with the Action Plan for Boosting Intra-African Trade, endorsed by the African Union Assembly of Heads of State and Government through their 2012 pdf Decision on Boosting Intra-African Trade and fast tracking the establishment of the Continental Free Trade Area (34 KB) (CFTA) by 2017 as an indicative date, as well as taking into account the coming into force of the WTO Trade Facilitation Agreement (TFA) on 22 February 2017.
The ultimate objective of the forum was to assist African Union Member States in their endeavor related to the simplification and harmonization of customs procedures including their documentation and regulations to boost intra-African trade within the context of the Agenda 2063 ten-year implementation plan.
The meeting was attended by delegates from nearly 30 (thirty) AU Member States, representatives of Regional Economic Communities (RECs), Private Sectors, and experts from the African Union Commission. Mr. William Murashwa Gadzikwa of Zimbabwe Revenue Authority Chaired the meeting in Zimbabwe’s capacity as chair of the AU Sub-Committee Director General of Customs. Due to his delayed arrival, Mr. Gasper Konneh delivered an address in his capacity as Vice-Chair of the AU Sub-Committee of Director General of Customs of Cameroon.
Director General of Mauritius Revenue Authority, Mr. Sudhamo Lal, welcomed all the participants to the Forum and indicated that the implementation of trade facilitation measures will bring numerous benefits to the African Continent through improvements in the areas of Transparency and fairness, good governance and modernization of the trade supply chain. Mr. Lal highlighted some of the achievements of the MRA customs department in terms of trade facilitation and tax administration reforms.
After thanking the Government of Mauritius and Mauritius Revenue Authority for organizing the Forum, Mr. Gasper Konneh, Vice Chair of the AU Sub-Committee of Directors General of Customs, said: “It’s our hope that the quality of the outcomes of this Forum will be commensurate with our high expertise in the various issues and with the high expectations placed on us by our various countries and organizations who have invested their limited resource to ensure the effective participation of delegates in this forum”.
Addressing the participants, Mrs. Treasure Maphanga, Director of Trade and Industry, extended her gratitude to the Government and People of the Republic of Mauritius for hosting the meeting and thanked the participants for responding positively to the invitations to attend the meeting.
“The Commission of the African Union is in the process of developing a draft AU Trade Facilitation Strategy for the consideration of African Union Member States and we believe that it will facilitate the implementation of both the WTO TFA and the AU’s BIAT Program,” she said.
Mrs Treasure applauded Africa’s customs Administrations for undertaking various modernization programs in respective countries so as to ease the way of doing business on the continent. “What we are talking about shall undoubtedly contribute to the attainment of our common vision for Africa in Agenda 2063, but what we need to keep in mind is that we need to act on it with the urgency required as if we were implementing Agenda now,” she concluded.
In his speech, Mr. Vivekanand Ramburun, Director, Customs Mauritius Revenue Authority (MRA), welcomed the participants to the Mauritius Multilingual Regional Training Center for the meeting and raised the importance of the Trade Facilitation Agreement (TFA) that entered into force in February 2017. He emphasised that the implementation of TFA measures is mandatory and no longer a choice.
In addition, Mr. Ramburun urged customs Administrations to be more forceful in various forums where trade facilitation is on agenda. He welcomed the opportunity to share experiences in order to move forward together.
The Report of the outcome of the Meeting will be submitted to the Director Generals of Customs in November for consideration and adoption.
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In this week’s tralac’s e-Newsletter: Talkmore Chidede discusses a recent suit filed by Zimbabwe invoking the SADC Finance and Investment Protocol
Yesterday’s African Union G7 Ministerial (CFTA) Consultative Meeting in New York: tweeted updates
(i) @TradeOfficeNG (Nigerian Office for Trade Negotiations): CFTA consensus-building informal consultations by Minister Enelamah (Nigeria), Chairman of African Ministers of Trade; (ii) @ChieduOsakwe1 (Ambassador Chiedu Osakwe, Chief Trade Negotiator Nigeria): Meeting in New York on resolving differences raised by some countries on CFTA modalities on liberalization in trade, goods and services; (iii) @Ccikokwu (Constance ikokwu, Adviser to Nigeria’s Minister of Industry, Trade & Investment): Djibouti, Ethiopia, Madagascar, Malawi, Sudan, Zambia, Zimbabwe, Niger, Nigeria had an open discussion on reservations on modalities of CFTA trade and goods liberalization earlier raised during negotiations. Meeting is aimed at resolving differences in order to enable conclusion of CFTA negotiations. Deliberation was chaired by Nigeria’s Minister Okechukwu Enelamah.
From last week’s African Union trade finance and trade information systems conference: recommendations, background papers
Recommendations: In trade finance, workshop participants stressed the need for financial institutions to find appropriate means of mitigating trade finance risks by allocating and pricing each type of risk to those better positioned to deal with them. Participants also suggested that financial institutions should leverage ICT tools to reach a larger sector of the African trading community. On issues relating to trade information, particularly regulatory aspects, participants recommended that providers of trade information ensure that information is presented in a user-friendly manner that is accessible and understandable by all levels of the private sector. To further pan-African uptake of recommendations on trade information and trade finance, workshop participants suggested that the AUC collaborate with pan-African business councils and chambers of commerce to develop proposals for implementation. These proposals could then be sent to partners for consideration, including USAID, UNECA, RECs and development financial institutions.
Trade finance background paper (prepared by Kefa Nyakundi): This report has attempted to chronicle the challenges affecting the financing of intra-Africa trade. It has attempted to benchmark with other regions to show that it is feasible to increase intra-Africa trade. Some of the recommended actions variously captured in the body of this report include, but are not limited to: (v) On regulatory collaboration: For intra-Africa trade to flourish, the regulatory regime across the continent needs harmonization within the Basel framework. This will ensure that Banks that have a ‘home’ regulator face less onerous requirements from the ‘host’ regulator.
Trade information systems background paper (prepared by Daniel J. Plunkett): Building a coherent and effective system will in fact require the participation and bringing-up-to speed of all African countries. In addition, each of the RECs will need to ‘up their game’ in terms of collecting statistics from Member States, organizing them into REC-wide aggregates, transmitting the information to the African Union Commission, and working on areas of weakness and “gaps” such as in trade in services. Figure 1 provides a graphic display of how the system ideally would work. The initiative to improve Africa’s trade information system, as represented by the African Charter on Statistics and creation of the AU’s Trade Information Observatory, appears to be gaining momentum. The harmonization process inherent to negotiation of the Tripartite FTA is another strong factor promoting modernization of each country’s statistical systems. But the AU’s efforts represent a “top-down” approach that will only truly lead to a better system if the “bottom-up” actors do their part. Table 4 provides some discussion of national-level institutions involved in the collecting, validating, analyzing, disseminating and using trade-related information.
Comoros joins Afreximbank as participating state; Chad, South Sudan conclude ratification
Membership of Afreximbank has moved closer to full coverage of the African continent with the decision by the island of Comoros to join the continental multilateral trade finance institution as a participating state. Comoros activated its membership as Afreximbank’s 46th participating state on 12 September when Said Ali Said Chayhane, the Minister of Finance and Budget, signed the instrument of accession to the Agreement Establishing the Bank, committing Comoros to take all necessary steps for the ratification of the Agreement. In a related development, Chad and South Sudan have completed their Afreximbank membership procedures with their ratification of the Agreement Establishing the Bank. Current Afreximbank participating states include: [Africa can buck protectionist trend and thrive: Afreximbank’s Oramah]
South Africa: Business’ input to the Nedlac Trade and Industry Chamber Strategic Session 2017 (AbBiz)
The Nedlac Trade and Industry Chamber held its annual strategic session with Minister Rob Davies on 22 September 2017. The strategic session focuses primarily on the Industrial Policy Action Plan and the trade environment. Dr John Purchase (CEO of Agbiz and as Convenor for Business in the Trade and Industry Chamber), presented the Business position on challenges in both the IPAP space and trade environment. Extract from the latter:
Current trade negotiations – additional considerations: (i) Business broadly supportive of TFTA and CFTA process and encourages the DTI to further publicise information relating to developments so as to position SA business to take advantage of opportunities. EPA an example, but early publicising important. Often, large capital and /or marketing commitments are required on the part of businesses. (ii) To take advantage of opportunities upon conclusion of TFTA and eventually CFTA, many companies have requested export credit guarantees. More affordable export credit insurance offered by State would solve problem of expensive credit insurance (particularly onerous for emerging and / or small business. (iii) In many cases, companies cannot buy export insurance on sales to certain African countries due to high country and customer risk profiles. Limits potential for export growth.
Customs fraud and illegal imports: (i) Trade and industrial policy, protection of domestic industry and maintenance of policy space is only as effective as its enforcement. This is particularly apparent in customs fraud & illegal imports. It is critical for enforcement agencies and the DTI to pick up on potential early signs of customs fraud. (ii) One example, and which requires examination is in clothing imports: In January-June 2017, volumes have grown 5% but averages prices have declined by 18%. The total value of clothing imports declined by 14% to R10.7 billion – a significant change from trends in recent years where volumes were declining and average prices rising. (iii) Cooperation of SARS customs in enforcing strict monitoring through risk engine critical. In this regard, business eagerly awaits the commencement of the work of the Nedlac task team on customs fraud & illegal imports.
AMREC: Development of an African mineral resource classification system now underway (Rwanda News Agency)
The workshop that will bring about the establishment of AMREC will be held 2-6 October in Cairo. The meeting is set to bring together professionals from African extractive industries and international experts in resource classification. The meeting is also expected to: (i) encourage robust discussion and proposals in harmonizing, adapting, implementing, and developing unifying system for the classification and reporting of fossil energy and mineral reserves and resources in Africa based on the UNFC; (ii) frame the requirements of developing detailed guidance for application of UNFC in Africa in line with the requirements of AMV; (iii) set up modalities for the setting up of Pan African Competent Person system, including the elaboration of a training programme; (iv) reach out to functional professional bodies in mineral, petroleum and renewable industries in Africa for collaborations on the proposed activities.
Income inequality trends in SSA: divergence, determinants, consequences (UNDP)
This book is timely and long overdue. Indeed, with rare exceptions (Anyanwu, Erhijakpor and Obi, 2016), as in the case of the typical debate on the ‘rural-urban income gap’, the inequality issue in SSA has received limited attention historically from a research, policy and political perspective. As elsewhere, in the early post-independence decades, the policy imperative was to modernize the economy and grow, whereas in the 1980s and 1990s, the focus shifted to managing the foreign debt and stabilising the macroeconomy. More recently, with the adoption of the Millennium Development Goals (MDGs) in 2000, priority shifted to reducing poverty and meeting the predominantly social MDGs. In addition, in September 2015, reducing poverty and inequality became the overarching goal of the 2030 Agenda for Sustainable Development. Yet, interest in income and asset distribution increased gradually over the course of the 2000s, including in Africa, for a variety of reasons. What explains this change in focus for both research and policy design? The editors: Ayodele Odusola, Giovanni Andrea Cornia, Haroon Bhorat, Pedro Conceição] [Downloads: 17 chapters, in English and French]
Development and poverty in sub-Saharan Africa (UNU-WIDER)
Our paper discusses where SSA has come from, and where it might now be going. It is structured as follows. After this introduction, Section 2 sets the scene by presenting some of the trends in SSA’s economic growth, and reviews what has come to be known as the ‘poverty-growth inequality triangle’. This is followed in Section 3 by an overview of a selected set of non-monetary welfare and human development indicators. Section 4 turns to the structural weaknesses in the region’s development process to date. Section 5 addresses the evolving governance, economic policy, and general societal framework of SSA. In Section 6, we identify and discuss a set of core challenges for the future, while Section 7 concludes on an optimistic yet cautious note. [The authors: Tony Addison, Ville Pikkarainen, Risto Rönkkö, Finn Tarp]
Third Industrial Development Decade for Africa: Industrialization can drive growth, sustainable development in Africa, stress UN officials
“We all have to acknowledge a simple fact: Africa is growing,” Miroslav Lajčák, President of the General Assembly, said at a high-level event focusing on the Third Industrial Development Decade for Africa. Mr Lajčák noted that this is true for the continent’s economy, with successive growth recorded since the early 2000s. It is also true for its population, particularly in relation to its youth. By 2050, Africa will be home to 38 out of the 40 youngest countries in the world. “This growth presents great opportunity. It could lead to the eradication of poverty and an improvement in livelihoods. But, for this to happen, growth must be inclusive. And it must be sustained,” he stated. “Industrialization has the potential to drive this kind of growth.”
A unified and assertive Africa Union will benefit everyone – Kagame (New Times)
President Paul Kagame who is currently leading the African Union reforms process called for support towards the initiative noting that a more effective and efficient African Union is not only ideal for the continent but international partners as well. Kagame was speaking at the Brookings Institution, a Washington DC based think tank which conducts research on topics such as economics, governance and foreign policy. Understanding the objectives of the reforms, he said will put to an end some efforts and attempts that have been seen to derail the process. “Efforts that we have seen to stall or even derail the reform process are counterproductive and should be reviewed. One concrete example is the attempt, through official channels, to characterise the 0.2 per cent levy on eligible imports as a violation of World Trade Organisation commitments, which is not true,” he said.
Zimbabwe shelves Botswana pipeline sharing deal (NewsDay)
Zimbabwe has effectively shelved plans to extend its Feruka pipeline to Francistown, Botswana, citing viability concerns over the project, an official has said. The deal had been proposed in attempt to make the pipeline, which runs from Beira to Harare, more profitable by opening it up to the region and increasing traffic volumes. In January, the government reduced the pipeline tariff from 8,05 cents to 6,50 cents per litre to lure fuel dealers who otherwise opted to use road transport. “We are in talks with Botswana, but the deal is not happening anytime soon. The (Botswana) market is not that big to warrant the deal,” Energy and Power Development permanent secretary, Partson Mbiriri said yesterday.
WCO-SACU Connect Project: update
Under the auspices of the WCO-SACU Connect Project financed by Sweden, monitoring and evaluation visits were carried out from 20th July to 4th August 2017 in South Africa, Namibia, Botswana, Lesotho, and Swaziland. The monitoring and evaluation visits were conducted according to the Project’s Annual Work Plan for 2017, and were in line with decisions taken at the Project’s Steering Committee meeting held in November 2016, which outlined a number of activities to be undertaken to plan, implement, monitor and evaluation the WCO-SACU Connect Project towards delivery on the set objectives, results and outcomes. The outcomes of these monitoring and evaluation visits will serve to inform the Project’s Progress Report that will be presented at the next Steering Committee meeting due to take place in November 2017.
Fourth round of political consultations between Chinese, African foreign ministers: joint communiqué (MoFA)
Bearing in mind the new situation of transformation and upgrading of China-Africa cooperation, the two sides agree to actively explore multiple forms of cooperation, including PPP and BOT, to promote China-Africa cooperative development and the progress of industrialization and economic diversification in Africa. The Chinese side encourages African countries to make use of the favourable financing model as pledged at the Johannesburg Summit of FOCAC. The African side appreciates the positive progress made by China in developing industrial parks and special economic zones in several African countries.
The two sides believe that the improvement of Africa’s agricultural value chain and agricultural processing are essential in the promotion of agricultural modernization in Africa. The two sides agree to strengthen agricultural cooperation, support implementation of the Comprehensive African Agriculture Development Programme, help Africa promote agricultural industrialization and modernization and enhance its capacity for food security. The two sides will strengthen capacity building cooperation on African livestock development especially in the related areas such as feed, health and quarantine. The two sides express their concerns over the serious drought in parts of Africa caused by El Nino. The African side expresses appreciation to the Chinese side for its timely food assistance to affected African countries.
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Recommendations from the AU Boosting Intra-African Trade workshop
The USAID East Africa Trade and Investment Hub supported a “Boosting Intra-African Trade Workshop,” in Dar es Salaam, Tanzania on 13th-15th September, 2017 to strengthen knowledge exchange and networks among African trade practitioners. The focus was on best practices in trade information and trade finance.
By the end of the workshop, participants put forward a series of recommendations and best practices for the Commission of the African Union (AUC) to consider.
In trade finance, workshop participants stressed the need for financial institutions to find appropriate means of mitigating trade finance risks by allocating and pricing each type of risk to those better positioned to deal with them. Participants also suggested that financial institutions should leverage ICT tools to reach a larger sector of the African trading community.
On issues relating to trade information, particularly regulatory aspects, participants recommended that providers of trade information ensure that information is presented in a user-friendly manner that is accessible and understandable by all levels of the private sector.
To further pan-African uptake of recommendations on trade information and trade finance, workshop participants suggested that the AUC collaborate with pan-African business councils and chambers of commerce to develop proposals for implementation. These proposals could then be sent to partners for consideration, including USAID, United Nations Economic Commission for Africa (UNECA), Regional Economic Communities (RECs) and development financial institutions.
AU BIAT Workshop on Trade Finance and Trade Information in Africa: Recommendations and the Way Forward
Trade Finance
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There is need for financial institutions to find appropriate means of mitigating trade finance risks by among others allocating and pricing each type of risk to those better positioned to deal with them.
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There is need for African Union Member States to develop and strengthen SMEs by organizing them in cooperatives so that they can approach lenders as groups.
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There is need for financial institutions to leverage on ICT by developing applications that would enable them to reach out to a larger sector of the African trading community
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There is need to resolve issues on payments by creating regional settlement systems in local currencies, which will go a long way in solving issues of inconvertibility of currencies.
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Financial Institutions should consider partnering with Regional Business Councils and Associations in building capacities of SMEs and raising their awareness on issues of Trade Finance.
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Financial institutions should consider developing alternative and diversify trade finance products that are better suited for the African situation.
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African union member states should consider adopting policies aimed at promotion, development and Financing Regional values chains and other light manufacturing through the establishment of Special Economic Zones (EPZs).
Trade Information
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Providers of Trade Information especially concerning regulatory aspects should ensure that it is presented in a user friendly manner so as to afford accessibility and availability to the private sector at all levels.
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Trade institutions and trade related associations should be empowered so that they can effectively collect, analyze and disseminate trade information to their wider membership.
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There should be synergies in the collection and dissemination of trade information especially among the public sector agencies.
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There is need for collective investment into trade Information, such as on data bases and communication infrastructure, to ensure that there is availability of quality information.
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There is need to strengthen data collection and aggregation at the national and regional levels.
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There is need to establish Trade Information Centers in African Union Member States where they do not exist.
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There is need to create a Pan African Platform where information should be available and easily accessible.
The Way Forward
Streamline, disaggregate, categorize and disseminate the recommendations of the workshop to all the relevant stakeholders to ensure their implementation and where necessary, refer such issues to the relevant policy organs of the African Union for further guidance and political Support;
Development of proposals for a Collaborative (AUC, DFI, FI, RECs, Regional and Pan African Business Councils and Chambers of Commerce, USAID and UNECA) Pan African Program on Trade Information and Trade Finance for Consideration by partners.
Objectives of the program will, among others, be as follows:
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Sensitization and advocacy among trade policy makers on issues of trade information and Trade Information
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Implementation of specific actions aimed at dealing with access and availability of Trade Information and Trade Finance
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Assist Member States in the creation of a regulatory policy environment that supports availability and accessibility to Trade Information and Trade Finance
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Assist is creating synergies among the various stakeholders on issues of Trade Information and Trade Finance
Where necessary, development of policy papers based on the Workshop’s recommendations on issues of Trade Information and Trade Finance for consideration by relevant policy Organs such as:
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African Ministers of Trade (AMOT)
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The AU Specialized Technical Committee on Trade, industry and Mineral resources
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Pan African Parliament Committee on Trade, Customs and Immigration.
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AU Specialized Committee on Finance, Regional Integration
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AU Specialized Technical Committee on Finance, Monetary Affairs, Economic Planning and Integration
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Association of African Central Banks
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Network of African Investment Promotion Agencies
Working Paper on Trade Information Systems in Africa
Trade information is critical to the exchange of goods and services across borders as price and quality differentials must be sufficient to offset the cost in terms of time and transport. Modern trade information systems around the world provide importers, exporters, retailers and investors with up-to-date and profit-making knowledge that helps grease the wheels of globalization. Those with access to greater knowledge can make higher profits and raise their standard of living.
In Africa, trade information systems have traditionally been oriented toward the exterior, to Europe, the Americas, the Middle East and Asia. Intra-African trade has gone largely unrecorded, in part due to the informal nature of the exchange of foodstuffs and handicrafts. Trade relying upon paying bribes to corrupt uniformed officials goes unrecorded as well. With modern information communications technologies (ICT), and a growing push for closer regional economic integration throughout Africa, the next decade could see prodigious leaps in access, availability and quality of trade information systems. The result will inevitably be brisk increases in trade between African countries and between far-off regions within Africa, precisely the goal behind the African Union’s initiative to Boost Intra-African Trade (BIAT), a key element of the foreseen Continental Free Trade Area (CFTA).
African trade information systems must of necessity take into account the series of efforts to upgrade the quality, reliability, periodicity and availability of statistical information in general in Africa. Whether macroeconomic data such as balance-of-payments statistics, demographic and other socio-economic data related to the Millennium Development Goals, drought early warning and famine early warning systems, there is a roadmap already in place for “the proper way” to collect, validate, analyze and disseminate statistical information in Africa. The different United Nations bodies have played a foundational role in these efforts, as have the African Union Commission and the African Development Bank.
Trade information systems in Africa have come a long way since the 1990 Addis Ababa Plan of Action for Statistical Development, aided by innovations in Information Communications Technologies (ICT), greater economic and political transparency, advances in primary, secondary and tertiary education, and the catalytic push for closer African integration. Africa’s youth, in particular, have embraced the nourishing culture of ‘open information’ that represents a clear break from the past. There remains a cargo load of work to be done to bring all African countries up to speed in terms of providing trade information.
Building a coherent and effective system will in fact require the participation and bringing-up-tospeed of all African countries. In addition, each of the RECs will need to ‘up their game’ in terms of collecting statistics from Member States, organizing them into REC-wide aggregates, transmitting the information to the African Union Commission, and working on areas of weakness and “gaps” such as in trade in services.
The future for trade information systems in Africa is highly promising. The Continent is getting organized, inspired by the momentum of the Tripartite Free Trade Area, the EAC Common Market Scorecard, and the nascent ECOWAS Trade Liberalization Scheme Scorecard. Sticking to the principles of sound statistical methodology, with an eye towards what type of information do businessmen and businesswomen need, is the recommended approach, along with the absolute necessity to avoid the “politicization” of trade statistics.
This report was prepared by Daniel Plunkett, a consultant to Development Alternatives International (DAI) on behalf of the AUC Department for Trade and Industry as a key input for edification and discussion at the AU BIAT Workshop.
An Analytical Review of the state of Trade Finance in Africa
Trade is “…a basic economic concept involving the buying and selling of goods and services, with compensation paid by a buyer to a seller…” The buyer and seller could reside in the same or different countries. This remit of this assignment is restricted to cross border trade which has various benefits to both exporting and importing countries including, but not limited to creation of variety for consumption; creation of efficiencies through the concept of comparative advantages; creation of employment opportunities and therefore alleviation of poverty and economic inclusion; regulation of prices as countries strive to remain competitive; increased foreign exchange earnings; and fostering peace owing to economic interdependence, among others.
The importance of trade as the cornerstone of economic development to Africa is exhibited by such countries like Botswana, Mauritius and Namibia who have catapulted themselves from low income to middle income countries by improving their ability to trade in regional and global markets. Increasing trade therefore has the potential to significantly change the economic order globally. According to WTO, however, while global trade has been responsible for generating growth and employment in many developing markets, progress has, in most cases, ultimately been secured by improving links with regional neighbours.
Intra-Europe is recorded at 66%, intra-Asian trade at about 52% and intraNorth American trade at 50%. In contrast, intra-African trade is recorded at about 15% which corroborates the fact that intra-regional trade leads to greater economic development. The Asian success story further accentuates the fact that for faster economic development, intra-regional trade (in addition to trade with the rest of the world) is a necessary ingredient.
Unlike in the developed countries, banks are relatively more conservative about supporting local exporters and importers; local banks lack the capacity, knowledge, enabling regulatory environment, international network and/or foreign currency to supply import- and export-related finance. Equally, traders are largely not aware of the available products, or of how to use them efficiently. That most African exports rely on Bank-intermediated finance than other regions (German Development Institute (DI, 2015) helps to put matters into perspective. This overreliance on bank-intermediated trade finance, against a background of capacity-challenged Banks with small balance sheets which are further constrained by prudential regulatory guidelines is a significant impediment for intra Africa Trade.
Research by AfDB shows that the value of Bankintermediated trade in Africa is approximately 350Billion which is equivalent to a third of total African trade. Of this value, the share devoted to intra-Africa trade is around 68 Billion. Given that the share of intra-African trade is 74 Billion or 19% of the total African trade, it is instructive that Africa needs to address the trade finance-related challenges in order to improve trading within the continent. One observation is that Banks finance about 30% of the trade finance need in Africa (globally this has declined to well below 20%). This implies that 70% or more of trade in Africa is on open account. This presents the best opportunity to improve intra-Africa trade and significantly impact the continent.
This report was prepared by Kefa Nyakundi, a consultant to Development Alternatives International (DAI) on behalf of the AUC Department for Trade and Industry as a key input for discussion at the AU BIAT Workshop.
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Industrialization can drive growth, sustainable development in Africa, stress UN officials
While much of Africa has achieved impressive economic growth, United Nations officials on Thursday, 21 September 2017 encouraged countries on the continent to take further action to advance inclusive and sustainable industrial development.
African leaders, UN officials, and representatives of international finance institutions and of the private sector met yesterday at the United Nations Headquarters to reaffirm their commitment to a broad-based international partnership to industrialize Africa in a socially inclusive and environmentally sustainable manner.
Unemployment and poverty are serious concerns for the continent, where more than 70 percent of the working age population is unemployed or has no job security, prompting the UN to declare 2016-2025 as the Third Industrial Development Decade for Africa (IDDA III).
“We all have to acknowledge a simple fact: Africa is growing,” Miroslav Lajčák, President of the General Assembly, said at a high-level event focusing on the Third Industrial Development Decade for Africa.
Mr. Lajčák noted that this is true for the continent’s economy, with successive growth recorded since the early 2000s. It is also true for its population, particularly in relation to its youth. By 2050, Africa will be home to 38 out of the 40 youngest countries in the world.
“This growth presents great opportunity. It could lead to the eradication of poverty and an improvement in livelihoods. But, for this to happen, growth must be inclusive. And it must be sustained,” he stated. “Industrialization has the potential to drive this kind of growth.”
During Thursday’s meeting, African leaders and development partners reiterated the importance of industrialization to eradicate poverty and to ensure that Africa’s fast-growing population yields its demographic dividend. Ethiopia’s Prime Minister Hailemariam Desalegn said, “The lack of skills is the major problem in Africa. With an integrated industrial strategy, African states will hopefully mobilize funds, build the capacity of local employment and promote small, medium enterprises with domestic development projects.”
Speaking at the meeting, the African Union’s Commissioner for Trade and Industry, Albert M. Muchanga, said, “Let me stress that, in line with the theme of this event – from political commitment to action on the ground – and the underlying principle of inclusiveness, it is my expectation that resources mobilized under the Third Industrial Development Decade will be deployed so as to significantly show benefits accruing to the ordinary Africans on the ground through decent employment, and access to high-quality, safe and affordable manufactured goods that are made in Africa, among other direct and tangible benefits.”
UN Deputy Secretary-General Amina Mohammed highlighted some achievements, including the fact that 16 African countries were among the world’s top 30 fastest growing nations. In addition, last year, the 10 fastest growing African economies posted GDP growth rates exceeding 5 per cent.
At the same time, continued commodity-dependence – coupled with fluctuations in commodity prices – makes African economies vulnerable and hampers their ability to create decent jobs and effectively tackle poverty, she noted.
“Hence the need for African countries to take further action to advance inclusive and sustainable industrial development.”
She appealed to all partner institutions to use their influence and expertise to promote industrialization and inclusive sustainable development that will benefit all the nations and people of Africa.
The United Nations Industrial Development Organization (UNIDO), which is tasked with leading the implementation of IDDA III, proposed to implement its new innovative approach to bring about the necessary structural transformation. The approach is based on a country-owned model known as the Programme for Country Partnership (PCP) that leverages financial and non-financial resources, promotes regional integration and mobilizes co-operation among Africa’s development partners.
UNIDO Director General, LI Yong, said, “It is high time to move the IDDA III agenda steadily forward in order to foster inclusive and sustainable industrial development in Africa. Today’s presence of high-level participants from the public and private sectors, development financial institutions, the United Nations system, and bilateral and multilateral institutions confirms that Africa’s industrialization is of global importance.”
A joint communiqué signed by leaders of UNIDO, the African Union Commission, the African Development Bank (AfDB), the UN Economic Commission for Africa (UNECA), and the Office of the UN Special Advisor on Africa (OSAA) acknowledged that the implementation of the ambitious goals of the Decade will require the mobilization and deployment of significant amounts of resources and expressed their support for scaling-up the PCP in the context of IDDA III.
Amadou Hott, AfDB Vice-President, Power, Energy, Climate and Green Growth, said, “The African Development Bank recently adopted an ambitious ‘Industrialize Africa’ strategy, developed together with UNIDO and UNECA, which aims at more than doubling industrial GDP of the continent within the next decade. We strongly believe that partnering with governments, the private sector, regional organizations and other development partners is key to address the major bottlenecks in the area of industrialization for a more prosperous Africa.”
The World Bank Group also announced its strong support for the implementation of the Decade.
Participants also agreed on the importance of strengthening private sector engagement, in view of its fundamental role in driving growth, creating jobs, generating income and wealth, and contributing to fiscal revenue.
Key statement by Ambassador Albert M. Muchanga, AU Commissioner for Trade and Industry
Joint UNGA High-Level Side Event on IDDA3: From Political Commitments to Actions on the Ground
Your presence, Your Excellences, signals the strong political will that you have for the industrialization and sustainable development of Africa. You convey to Africa and the rest of the world, the message that the issue of African industrialization receives focus from the highest levels of government like all issues that are critical to nation-building.
Africa remains the poorest region in the world; with the highest number of Least Developed Countries, even beyond 2025, when the Third Industrial Development Decade for Africa will come to an end.
With this situation comes economic vulnerability, low income and low human development levels among our people across the continent.
Industrialization is key to meeting all the three challenges. It is for this reason that industrialization is an element of the 2030 United Nations Sustainable Development Goals.
From the outset, let me say that the 2030 United Nations Sustainable Development Goals and the African Union Agenda 2063 are in alignment. As a result of this alignment, the two programmes of action have a single reporting template on the African side. For us, progress in one of them is also progress in the other.
Mobilizing partnerships for Africa’s industrialization with a strategic focus on raising adequate resources for the implementation of the Third Industrial Development Decade for Africa is key to enabling us make focused interventions that are necessary for the rapid industrialization of Africa. It is our hope that this High Level Event will; inter-alia, assist in this regard.
Let me also stress that in line with the theme of this Event: from political commitment to action on the ground and the underlying principle of inclusiveness, it is also my expectation that resources mobilized under the Third Industrial Development Decade will be deployed so as to significantly show benefits accruing to the ordinary Africans on the ground through decent employment, access to high quality, safe and affordable manufactured goods that are made in Africa, among other direct and tangible benefits.
Let me also state that beyond this Joint High Level Event, we see the African diaspora, foreign direct investment, and internally generated resources within Africa as part of the package of resources to be used in the implementation of the commitments in the UNGA resolution on the Third Industrial Development Decade for Africa. In this connection, broader stakeholder engagement in support of Africa’s industrialization will be required and I would like to affirm our commitment in this direction.
Africa is committed to industrialization. An increasing number of African countries are designing and implementing pro-active industrial policies.
Beyond policy design, there are also on-going industrialization programmes and projects across Africa in areas ranging from capacity building for industrialization to manufacture of garments and footwear as well as motor vehicles; among others. These have assisted us in registering a rise in manufacturing value added.
Although Africa currently accounts for less than 1% of global exports of manufactured goods, these efforts reflect the fact that the spirit of the African people to industrialize is alive and working.
The task ahead is to give it greater dynamism through timely and effective implementation of the commitments of the Third Industrial Development Decade for Africa.
May I now outline what we are doing in the African Union to promote industrialization.
We have the Action Plan for the Accelerated Industrial Development of Africa (AIDA) published in 2007. AIDA has seven programme clusters; sixteen (16) programmes and forty-nine (49) projects. AIDA is complemented with regional industrialization strategies of regional economic communities.
Complementary strategies and programmes, either already developed or under development, include the African Mining Vision adopted by the African Union Heads of State and Government in 2009 to promote added beneficiation from the continent’s vast mineral resources.
In 2012, the African Union Heads of State and Government adopted the Action Plan on Boosting Intra-African Trade (BIAT) with seven clusters, one of which is focused on developing productive capacities as well as addressing supply side constraints.
We are also in the process of designing a commodities strategy to accelerate value addition.
Furthermore, we are in the process of designing a small and medium enterprises strategy to mobilize the entrepreneurial spirit of our people, especially the youth and women. With adequate incubation and policy support, some of the SME businesses can transform into globally competitive enterprises.
We aim to roll out the commodities and SME strategies by January, 2018.
As a way of creating a large and globally competitive African market, as well as operationalizing the Action Plan on Boosting Intra-African Trade, we are also in the process of finalizing negotiation of a legal instrument by December this year to facilitate establishment of the Continental Free Area which will create an integrated market of 1.2 billion people with aggregate GDP of about US$3.4 trillion.
The Continental Free Trade Area will, among others, create policy space for Africa’s industrialization and structural transformation. Currently, a large component of intra-African trade is in manufactured goods like motor vehicles, cement, fertilizers, cleaning preparations, essential oils for perfume materials, and iron and steel.
There is also thriving cross-border informal trade in a wide range of products like processed foods and drinks which we will be regularized under the Continental Free Trade Area.
Building on these intra-African trade exchanges, a key element of the Continental Free Trade Area programme is the development of regional value chains which will promote intra-African trade in both intermediate and manufactured goods.
The development of regional value chains will in turn promote, among others, further development of agro-processing, mineral beneficiation, development of pharmaceuticals and energy resources, inter-alia.
Let me stress that enhanced success in agro-processing would progressively transform Africa from being a net food importer to a net food exporter. Currently, Africa’s food import bill stands at US$35 billion per annum.
I am sure you will all agree with me, Your Excellences, that agro-processing and other aspects of industrialization will over time, greatly contribute to generation of decent jobs and in the process, lead to poverty reduction and human development on the African continent.
We are planning to make the Continental Free Trade Area more attractive by coming up; beginning in 2018, with annexures to the legal text that will deal with issues of competition, intellectual property rights and investment. With a large and attractive market, and a growing African middle class, we expect increased African and Foreign Direct Investment in textiles, electronic and other consumer goods and; inter-alia, manufacture or assembly of motor vehicles,
I would also like to add that when implemented, the Continental Free Trade Area will increase Africa’s share of global trade from the current level of 3% to 6%, within a decade, which was the global share that Africa had in 1964.
We are also pursuing win-win outcomes in the Continental Free Trade Area. This, in itself, is a process of inclusiveness, which is a core element of both the United Nations Sustainable Development Goals and African Union Agenda 2063.
The African Union interacts with, and listens to the African private sector. It is our key partner in sustainable development and a source of investment, innovation and jobs, among others.
In September this year, we co-sponsored a meeting on the Continental Free Trade Area with the Pan African Chamber of Commerce and Industry.
We shall have a similar event with the Afro-Champions Initiative which works to increase the presence of leading African enterprises in African countries and other parts of the world.
We are also working with the African Export Import Bank to revive the All-Africa Trade Fair as a means of bringing African manufactured goods closer to the African people.
Furthermore, we have the African Economic Platform, whose inaugural meeting was held in March this year in Mauritius. The Platform brings together African governments, the private sector, civil society and academia to discuss leading issues on African development such as meeting training and skills development challenges and making such training and skills development more responsive to the needs of business on the continent.
As a continuing process of private sector engagement, the African Development Bank will inaugurate the African Investment Forum before the end of this year.
We are in discussions with our sister organization to come up with an arrangement where these two events will in future be held back to back; with the African Economic Platform serving as the dialogue segment while the African Investment Forum will be the transactions segment.
This arrangement, if realized, will save time and money for both the organizers and participants.
Before concluding, let me make two quick points.
The first one is that the industrialization of Africa and its attendant sustainable development is positive in many aspects. It will also contribute in stemming the tide of illegal migration by our youth and the related danger of their exposure to being victims of human trafficking. In addition, it will consolidate Africa’s efforts in promoting peace, stability and security on the continent.
The second point is that we fully recognize that industrialization requires supportive investments in transport and communications, logistics, e-commerce, training and skills development, research and development; among others. A partnership among governments, the private sector and training and educational institutions is key to developing and sustaining these investments. These are areas where Africa will also require support.
In a spirit of partnership, we call upon the international community to support financing and implementation of the UN General Assembly Resolution on the Third Industrial Development Decade for Africa.
I thank you all for your kind attention.
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UNDP launches study on income inequality in sub-Saharan Africa
Landmark publication stresses that addressing income disparities in the region will be key to reaching SDGs
It is only by addressing the challenge of income inequality that African countries can achieve decisive progress towards poverty reduction and the Sustainable Development Goals (SDGs), according to the United Nations Development Programme’s (UNDP) study, Income Inequality Trends in sub-Saharan Africa: Divergence, Determinants, and Consequences.
The publication, the first of its kind on Africa, was officially launched on 21 September 2017 during a high-level event on the margins of the 72nd session of the United Nations General Assembly.
The launch was hosted by Mr. Abdoulaye Mar Dieye, UN Assistant Secretary-General, UNDP Assistant Administrator and Regional Director for Africa. In attendance were H.E. President Roch Marc Christian Kaboré President of Burkina Faso; H.E. Pravind Jugnauth Prime Minister of the Republic of Mauritius; H.E. Mrs. Hirut Zemene, State Minister for Foreign Affairs of the Federal Republic of Ethiopia, and Dr. Mukhisa Kituyi, UNCTAD Secretary-General.
The study indicates that in spite of solid economic progress over the last 25 years, illustrated by robust GDP growth of about 5.0 percent, poverty level remains very high in Africa – 41 percent compared to other developing regions. It further states adds that although sub-Saharan Africa (SSA) achieved an average reduction in its unweighted Gini coefficient – from about 0.47 to 0.43 between 1991 and 2011 – the region remains one of the most unequal in the world – with 10 its counties listed among the 19 most unequal in the world.
According to the study, income inequality in African countries stems from a highly dualistic economic structure, where high income sectors, such as multinational companies and the extractive sector, offer limited capacity to generate employment compared to the informal sector, and where most of the workforce earns far lower incomes; a high concentration of physical capital, human capital, and land, especially in Eastern and Southern Africa; and the limited distributive capacity of the State, which often manifests in a ‘natural resource curse’, an urban bias of public policy, and ethnic and gender inequalities.
Building on an Integrated Inequality Dataset for sub-Saharan Africa (IID-SSA) the study explores the dynamics and complexities of income inequality to assert that seven outlier countries (South Africa, Botswana, Namibia, Zambia, Central African Republic, Comoros and Lesotho), all of which are marked by the concentration of land and socio-economic assets in the hands of a few, are leading the continent in income inequality, making the Africa’s Gini coefficient significantly higher than the global average.
On the other hand, Burkina Faso, Mali, Niger, Burundi, Guinea, appear to be performing better and rank among the most equal in the world. These countries are characterized by communal land ownership and egalitarian access to land, features which accelerate use of land for productive engagement, especially in agriculture.
Underscoring the timeliness of the study UNDP Regional Director for Africa said: “The book helps to crystalize the indivisibility of the SDGs and the centrality of addressing low income inequality in accelerating the achievement of the 2030 Agenda for Sustainable Development and in helping operationalize SDG 10 in Africa”.
Warning that there is no one-size-fits-all approach to addressing income disparities in the region, the authors of the book recommend a series of target policy approaches aimed at:
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Improving distribution of human capital (particularly secondary education) to positively affect inequality;
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Increasing direct taxation and efficiency of tax administration, as well as increasing well-targeted social expenditures;
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Enhancing productivity in the agricultural sector, which is seen as key to reallocating labour to other sectors of the economy and reducing rural poverty, rural poverty gaps, and income inequality; and
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Implementing structural transformation.
“The key message from the book is that there is no silver bullet for addressing inequality in the continent. You have to take countries’ context into consideration and realize that policies that accelerate the reduction of poverty may not necessarily be the same policy that reduces inequality,” said Ayodele Odusola, Head of Strategy and Analysis and Chief Economist for UNDP Africa, and lead editor of the study.
Planting the seeds of equity
Urging African policymakers to “plant and nurture the seeds of equity” the study recommends a far-reaching development strategy, symbolized by a Tree of Equity. Its 4 main ‘branches’ (population, macro-economic fundamentals, human development, and growth) are intended to facilitate Africa’s demographic transition; the adoption of macroeconomic policies to reverse deindustrialization; and greater productivity in the informal sector.
Income Inequality Trends in sub-Saharan Africa: Divergence, Determinants, and Consequences, is the product of research spanning over a period of two years. It was co-edited by Ayodele Odusola, Head of Strategy and Analysis and Chief Economist for UNDP Africa; Professor Andrea Giovanni Cornia of the University of Florence; Professor Haroon Bhorat of the University of Cape Town; and Pedro Conceicao, Director of Strategic Policy at UNDP’s Bureau for Policy and Programme Support.
Download the book (available in English and French) on the UNDP website.
A unified and assertive Africa Union will benefit everyone – Kagame
President Paul Kagame who is currently leading the African Union reforms process called for support towards the initiative noting that a more effective and efficient African Union is not only ideal for the continent but international partners as well.
Kagame was speaking at the Brookings Institution, a Washington DC based think tank which conducts research on topics such as economics, governance and foreign policy.
During the session moderated by Brahima Sangafowa Coulibaly, a senior fellow at the Africa Growth Initiative, Kagame presented highlights of the African Union reforms process.
The reforms will put to an end decades long challenges such as over reliance and dependence on external donors which has seen little in serving members’ interests.
“A more effective African Union is not only good for Africa but for everybody else as well. You may know that the African Union is mostly financed by external partners. In fact, our programmes are in the range of 97 per cent donor-funded. This reality makes no sense for anyone involved. Africa’s interests, including ownership, get lost; and I doubt that the interests of donors are being adequately addressed either. It is also unsustainable,” he said.
Among the impact the reforms are set to have on a regional and international perspective, are better coordination in addressing security concerns, economic growth and improved international trade.
According to him, the process would however require stakeholders (including international partners) to make some adjustments on how they relate to the continent.
“This will require some accommodation and adjustment in terms of how we do business with each other, but it should be seen as a positive evolution, not a challenge to the existing order. A more unified and assertive Africa will, for example, mean improved coordination on common security challenges, where Africa already shoulders a significant share of the burden,” President Kagame said.
Integration of a common market which the process is set to achieve will among other benefits create growth opportunities for Africa and the rest of the world.
“Partners, such as the United States, would do well to take the long view, as Africa itself is doing,” he said.
Understanding the objectives of the reforms, he said will put to an end some efforts and attempts that have been seen to derail the process
“Efforts that we have seen to stall or even derail the reform process are counterproductive and should be reviewed. One concrete example is the attempt, through official channels, to characterise the 0.2 per cent levy on eligible imports as a violation of World Trade Organisation commitments, which is not true,” he said.
Some international organizations and countries had early this year written to some AU member countries citing that the move is not compatible with international trade principles.
“What should never get lost is that we are working together in good faith, for the benefit of everyone, and with renewed determination, to build a more stable and prosperous world,” Kagame pointed out.
Progress so far
Sharing some progress in the process, the head of state said that a reform implementation unit has been established in the Office of the Chairperson of the African Union to drive implementation over the next year and a half.
The body has also instituted a mechanism to ensure that legally binding decisions are respected and honoured by AU member states.
Other advancements in the process include the implementation of the 0.2 per cent levy for eligible imports by over 10 countries while other prepare themselves by adjusting their country’s legal framework towards the levy’s implementation.
The reforms process are grouped into thematic areas including; focus on fewer priorities that are continental in scope, ensuring AU institutions are able to deliver against priorities and connect AU to its citizens.
Other aspects of the reforms include managing AU business efficiently (politically and operationally) and financing the African Union sustainably.
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WTO upgrades forecast for 2017 as trade rebounds strongly (WTO)
The estimate for growth in world merchandise trade volume in 2017 was raised to 3.6%. The previous estimate for 2017 was 2.4%, though this was set within a range of 1.8%-3.6%, reflecting the high level of economic and policy uncertainty. The new estimate puts the focus on the top end of that range. Growth of 3.6% would represent a substantial improvement on the lacklustre 1.3% increase in 2016. Reflecting the continued forecast risk arising from deep uncertainty about near-term economic and policy developments, the range of estimates for world trade growth has been adjusted to 3.2% - 3.9%. Stronger growth in 2017 was attributed to a resurgence of Asian trade flows as intra-regional shipments picked up and as import demand in North America recovered after stalling in 2016.
Egypt: Exports seen up 10% for year, China fastest growing investor (Reuters)
Egypt’s exports should grow about 10% this year to reach $22bn, Trade Minister Tarek Kabil said on Tuesday, as the country lures foreign investors keen on setting up manufacturing following economic reforms. Egypt has been looking to plug a gaping trade deficit that stood at $42.64bn last year but which has been narrowing in recent months, helped by a currency float that halved the pound currency’s value, making Egyptian goods cheaper abroad and buying more expensive. Earlier, he told a Euromoney financial conference that the trade balance this year had been reduced by 37%, with imports down 23% to almost $30bn and exports growing by 11.5% to $15 billion.
Algeria: Energy earnings boost cuts trade deficit (Reuters)
Algeria’s trade deficit fell to $7.32bn in the first eight months of 2017, down 40% from a year earlier due to a rise in energy earnings, but the imports bill remained high despite restrictions, official data showed on Wednesday. The deficit fall pushed up the coverage of imports by exports to 76% from 61% in the January-August period of 2016, according to customs figures. Oil and gas exports, which accounted for 94.71% of total sales abroad, were up 22.11% to $22.27bn in the first eight months of 2017, the figures showed. The value of overall exports rose 21.12% year-on-year to $23.51bn, while imports declined 2.56% to $30.84bn.
Zimbabwe: New customs sealing regulation hit Zimbabwe trade (IRU)
The implementation of new regulations on national customs seals in Zimbabwe is causing significant and costly delays at borders, with trucks waiting for up to five days. A multilateral, mutual recognition transit system would avoid the need for restrictive national procedures. IRU and FESARTA encourage Zimbabwe to consider harmonised international conventions, such as TIR, which would achieve the necessary customs controls, without jeopardising regional trade facilitation and the national economy. Unless the Zimbabwe Revenue Authority takes action, the country’s transporters and associated sectors risk losing out to competitors in Botswana, which offers an alternative route along this corridor. [FESARTA updates: SADC border chaos, 10km truck queue at Machipanda Border Post]
Uganda: Government enters Shs2b trade information portal deal (Daily Monitor)
The initiative is funded by TMEA with support from its partners such as UNCTAD and the International Trade Centre to the tune of about $500,000 for two years. It will, among other things, allow the ministry to control and manage a one-stop portal with information about export, import and transit. According to the TMEA-Uganda country director, Mr Moses Sabiiti whose organisation secured the $500,000 grant, to achieve the full benefit of the portal, it should be integrated with the Electronic Single Window which allows traders to clear their goods online.
Bridges Africa has posted its latest edition, on the theme Building an inclusive Continental Free Trade Area. Our profiled article, by David Luke, Jamie MacLeod: Bringing the CFTA about – key factors for success
With the imminent release of the latest edition in the Assessing Regional Integration in Africa report series, this article draws out key messages and recommendations to inform the design and implementation of a “win-win” CFTA. We commend them to African negotiators and policy makers, to stakeholders at all levels, and to our development partners. There are six key components of the CFTA that are especially important to “get right”: (i) non-tariff barriers, (ii) rules of origins, (iii) investment and cross-border movement of persons, (iv) services in general, (v) trade remedies, and (vi) monitoring and evaluation.
To get non-tariff barriers right, a NTB mechanism should be included in the CFTA. Rather than duplicating the existing NTB mechanisms of the RECs, the CFTA mechanism should build on their successes by expanding their operations across Africa to include trade between and within all RECs. In particular, the successful Tripartite NTB mechanism could be expanded to cover trade across the continent. For investment and the cross-border movement of persons - which are often treated within the services section of a trade agreement - fully-fledged, standalone chapters in the CFTA Agreement are recommended. This would enable the comprehensive coverage of all aspects related to the supply of services through the establishment of commercial presence. Regarding the cross-border movement of persons, negotiators should design an approach that does not take away from African entrepreneurs what they already have in their RECs, while creating new opportunities for inter-REC movement.
CFTA governance: The current restructuring of the AU – as part of the AU reform – provides an opportunity for the AU to be reshaped so that flagship projects like the CFTA can be better institutionalised and implemented. However, designing an institutional framework for the CFTA will be challenging if the main aspects of the AU reform have not been finalised. Nevertheless, five principles can guide the formation of the CFTA’s institutions: use the Abuja Treaty as the backbone to the CFTA institutional form; use and empower existing structures of African integration where available; ensure that the institutions of the CFTA are accessible to the African people; support the joint implementation of the BIAT Action Plan alongside the CFTA; and develop practical institutional forms, rather than idealistic ones.
The Third Investing in Africa Forum (25-27 September, Dakar)
The third IAF will also mark the official debut of the “Investing in Africa Think Tank Alliance”, a platform to synergize the intellectual capabilities of research centres and the capital strengths of development finance institutions to promote sustainable and inclusive development in Africa. The IATTA was initiated at the first IAF in Addis Ababa in 2015 and launched at the second IAF in Guangzhou in 2016. This year, with the signing of the MoU and the launch of its first Report on the Drivers and Constraints of Technological Adoption and Innovation that will identify knowledge gaps and propose practical policy guidance on how to spur leapfrogging in African countries, the IATTA will take practical steps to place knowledge generation and dissemination of potentially transformative ideas at the centre of investment strategies and operations on the continent.
Leapfrogging: the key to Africa’s development – from constraints to investment opportunities (World Bank)
This book argues that it is time to go back to basics of development, think big, and foster the environment for more innovation and technology adoption, to provide the chance for Africa to experience major positive transformations. This is not a new idea; to the contrary, it is what economic theory and history teach. While it has become customary in the development practice to highlight and quantify constraints to investing in Africa, this book argues that those constraints must be and transformed into investment opportunities. Several factors, such as skills, service delivery, access to finance, energy, to name the few, are often pointed out as constraints to investment. Treating those constraints as investment opportunities, attracting the private sector, both domestic and foreign, and creating a conducive environment for technological diffusion is precisely how Africa will harness innovation toward its prosperity. Under the overarching theme of Leapfrogging, the book discusses the following six topics: (a) agriculture, (b) education, (c) energy, (d) finance, (e) governance, and (f) information and communications technologies. [Note: The six topics are the themes covered in next week’s third Investing in Africa Forum]
Trouble in the making? The future of manufacturing-led development (World Bank)
Shifting the attention from high-income countries, this report takes the perspective of developing countries to ask: (i) If new technologies reduce the importance of low-wage labour, how can developing countries compete? (ii) Do countries need to industrialize to develop? (iii) How can countries at different levels of development take advantage of new opportunities? Development strategies need to broaden. Different manufacturing sub-sectors can still provide productivity growth or jobs; fewer can deliver both. Many of the pro-development characteristics traditionally associated with manufacturing – tradability, scale, innovation, learning-by-doing – are increasingly features of services. With faster diffusion of technology, it will be all the more important for countries to improve the enabling environment, remain open to trade, and support capabilities of firms and workers to ensure future prosperity is shared. [The authors: Mary Hallward-Driemeier, Gaaurav Nayyar]
Today’s Quick Links: Over 100 nations back India-China plan on farm subsidies before WTO meet Namibia’s Q2 GDP 2017 report was released this morning: download (pdf) 6th EU-Nigeria Business Forum: preview Afreximbank appoints Kwabena Ayirebi Director of Banking Operations UNECA stakeholders discuss model law for transboundary infrastructure development UNSC Peacekeeping Reform debate: summary of statements, text of resolution UNGA: Southern African leaders call for levelling the economic playing field |
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Bringing the CFTA about: Key factors for success
How can African negotiators and policymakers ensure that the CFTA will be successful? With the imminent release of the latest edition in the Assessing Regional Integration in Africa report series, this article draws out key messages and recommendations to inform the design and implementation of a “win-win” CFTA.
The Continental Free Trade Area (CFTA) is the first flagship project of the African Union’s (AU) Agenda 2063 and a key initiative in the industrialisation and economic development of Africa. It is an ambitious endeavour spanning 55 member states across a diverse continent. Matching this ambition with implementation will be a critical challenge, which is why the report Assessing Regional Integration in Africa VIII (ARIA) turns to the question of how to “bring about” the CFTA. For this, the ARIA series is well placed, with a history of driving the agenda on regional integration in Africa. Notably, the recommendations of ARIA V helped trigger the decision to launch the CFTA negotiations alongside the adoption of the AU’s Action Plan for Boosting Intra-African Trade (BIAT). In keeping with this history, we hope ARIA VIII will be effective in shaping the implementation of the CFTA.
This article summarises the key messages and policy recommendations of ARIA VIII that aim to inform the design and implementation of a “win-win” CFTA. We commend them to African negotiators and policy makers, to stakeholders at all levels, and to our development partners.
A win-win approach to the CFTA through the BIAT Action Plan
Sharing the benefits of the CFTA is important, not only for reasons of equity, but also to ensure that the agreement actually works for countries at different levels of development. Trade agreements that are not win-win tend to remain unimplemented or unravel because partner countries have little interest in their implementation.[1]
African countries span a diversity of economic configurations and are accordingly expected to be affected by the CFTA in divergent ways. There is, however, as much variety within as there is between African countries. As such, it will be as important to ensure that the wide array of stakeholders within and between African countries – and especially vulnerable or sensitive groups – all benefit from the CFTA.
Fundamentally, the CFTA is expected to generate significant economic opportunities. Liberalising trade between two or more countries generally has positive welfare effects for those countries and leads to economic growth and poverty reduction.[2] Empirical analyses of the CFTA identify such gains: Mevel and Karingi estimate that intra-African trade will increase by 52.3 percent (US$34.6 billion), compared to a baseline scenario without a CFTA, by 2022;[3] Chauvin et al. estimate large and positive long-run impacts, with the CFTA boosting Africa’s welfare by 2.64 percent by 2027.[4]
Certain countries may require further support in realising these opportunities. The BIAT Action Plan provides the framework that member states can use to prioritise the policy reforms required to derive the full benefits of the CFTA. The BIAT Action Plan was endorsed by the same 2012 AU Assembly decision that decided to establish the CFTA and identifies key flanking policies such as trade facilitation, productive capacity, trade-related infrastructure, and trade finance.
Box 1. Summary of the seven priority clusters of the Boosting Intra-African Trade Action Plan
The implementation of the BIAT Action Plan is key. This will require an implementing institutional structure, which may combine with that of the CFTA to avoid institutional duplication; a continental framework for monitoring and evaluation, which can also be combined with the CFTA’s; and resources for the BIAT initiatives.
Tariff revenue and the effects of structural adjustment on vulnerable groups
The CFTA will reduce tariff revenues collected by African countries on intra-African trade. However, tariff revenue losses due to the CFTA are estimated to be modest and can be more equitably balanced across countries by allowing for flexibilities, such as exclusion lists, though these exclusions must not be so large as to undermine the gains from the CFTA.
The CFTA will imply structural adjustment costs in the short run as economies undergo structural change, with factors of production shifting across sectors to align with new trading opportunities and competition. Special measures are required for vulnerable groups that could be hurt by such adjustments. The CFTA and its accompanying measures should ensure that these groups share the gains of the CFTA and are protected where necessary.
Smallholder farmers (around 53 percent of Africa’s agricultural producers) can be supported by measures to promote their integration into larger value gains, such as simplified rules of origin requirements and help for them to meet sanitary and phytosanitary export standards. Such farmers may also require capital and reskilling to focus their production on export opportunities.
By reducing tariffs, the CFTA will make it more affordable for informal cross-border traders to operate through formal channels. The CFTA can further support this group with trade facilitation and trade information measures, along the lines of the Simplified Trade Regime implemented in COMESA, which simplifies clearing procedures and the requirements to qualify for preferential duties for a common list of products.
Women can be supported through their explicit involvement in the design and processes of the CFTA, including through national consultations and by including more female negotiators. In Africa, women account for approximately 70 percent of informal cross-border traders and can be supported here with improvements to storage facilities, illuminated border areas, and hygiene facilities. Women can also benefit from initiatives to connect female agricultural workers to export food markets.
For youth, the CFTA will help to drive the structural transformation that is required to generate new job opportunities, absorb new entrants into the labour force, and shift African economies from capital-intensive commodities towards labour-intensive sectors. Supporting Africa’s youth will require improved access to credit and initiatives such as tech incubators and accelerators, as well as revamped policies in education and skills development.
As a second-best option to the abovementioned accompanying measures, exclusion list provisions and safeguards can also be used to protect vulnerable groups where necessary. For example, a sufficiently accessible mechanism for adopting safeguards can help countries react to any trade flows that might threaten such groups. These groups will require close monitoring and evaluation to track the impact of liberalisation measures.
A win-win approach to the CFTA: Six critical components
There are six key components of the CFTA that are especially important to “get right”: (1) non-tariff barriers, (2) rules of origins, (3) investment and cross-border movement of persons, (4) services in general, (5) trade remedies, and (6) monitoring and evaluation.
To get non-tariff barriers (NTBs) right, a NTB mechanism should be included in the CFTA. Rather than duplicating the existing NTB mechanisms of the regional economic communities (RECs), the CFTA mechanism should build on their successes by expanding their operations across Africa to include trade between and within all RECs. In particular, the successful Tripartite NTB mechanism could be expanded to cover trade across the continent.
Getting rules of origin right will require balancing the desire of more-advanced countries for product-specific rules with the preference of less-advanced countries for more accessible rules of origin. Product-specific rules should be limited to only the most controversial or sensitive products, with simple rules applied as far as possible. If product-specific rules are to take an excessively long time to negotiate, negotiators can follow the example of the Pan-Arab FTA and lock in the benefits of the CFTA with simple rules of origin over a transitionary five-year period, during which more complex rules can be refined. Lastly, preferential rules of origin can be designed to help make it easier for Africa’s less-developed countries to satisfy rules of origin requirements – these would entail easier criteria for qualifying countries.
For investment and the cross-border movement of persons – which are often treated within the services section of a trade agreement – fully-fledged, standalone chapters in the CFTA Agreement are recommended. This would enable the comprehensive coverage of all aspects related to the supply of services through the establishment of commercial presence. Regarding the cross-border movement of persons, negotiators should design an approach that does not take away from African entrepreneurs what they already have in their RECs, while creating new opportunities for inter-REC movement.
Getting services right requires an approach that builds on the existing achievements and challenges of the RECs in services liberalisation and regulatory cooperation. For liberalisation, member states should build on commitments already made in the RECs but be prepared to go further as required by the modalities for services liberalisation that have been agreed. For regulatory cooperation, this involves deploying the most appropriate mechanism – formal or informal – based on sector-specific variables. It may entail harmonisation in certain sectors, mutual recognition agreements in others, treaties, or more informal approaches.
Trade remedies are a crucial fail-safe for countries wary that competition could damage certain domestic industries. Getting them right in the CFTA will require regional investigating authorities, which will help extend remedies to small and less-developed African countries.
Finally, monitoring and evaluation is needed to ensure each country’s compliance with the CFTA, to track progress in the implementation of the BIAT Action Plan, and to ensure that the CFTA is contributing to Africa’s development goals. A self-assessment monitoring and evaluation “scorecard” is recommended, as is the collection of data by gender and vulnerable group.
Financing for bringing the CFTA about
Financing in Africa has to be increasingly based on domestic public and private resources. This will help to overcome the challenges related to official development assistance (ODA), including risks with perpetuating donor-driven, rather than Africa-led initiatives, and fostering donor “signalling” – whereby actions are taken superficially to satisfy donor obligations rather than drive development. Self-financing will help to improve ownership and responsibility for projects, and in turn drive implementation.
One innovative method of self-finance is the AU’s proposed 0.2 percent levy on imported goodsinto Africa. Currently, only 44 percent of the AU budget is provided by member states.[5] The levy would help raise an estimated US$1.2 billion a year to fully fund the AU’s operational budget, finance 75 percent of its programme budget, 25 percent of its peace and security operation budget, and the peace fund.[6] Care should, however, be taken to ensure that the levy is WTO-compliant. The CFTA can ensure that the levy complies with WTO rules regarding the MFN principle, as they permit derogations from MFN treatment in order to form regional FTAs, but there could remain an issue of sequencing if the levy were imposed before member states have implemented the CFTA. The levy could face further WTO compatibility challenges with regard to WTO tariff-binding schedules, though ad hoc measures could address the violation of the binding schedules. Against all these issues, African countries may also apply for a WTO waiver.
Nevertheless, aid for trade will remain important for bringing the CFTA about, particularly for Africa’s poorest countries with little access to private finance and low levels of domestic resources. It may also remain important for Africa’s lower-middle-income countries over the short run as they mobilise their own domestic resources. Aid for trade – and especially regional aid for trade – is the vehicle of choice for leveraging ODA towards the CFTA. Aid-for-trade disbursements to Africa have reached US$14 billion in 2015, more than twice the annual average during the 2002-2005 baseline period, and have particularly targeted economic infrastructure and productive capacity building.
CFTA Governance
The current restructuring of the AU – as part of the AU reform – provides an opportunity for the AU to be reshaped so that flagship projects like the CFTA can be better institutionalised and implemented. However, designing an institutional framework for the CFTA will be challenging if the main aspects of the AU reform have not been finalised.
Nevertheless, five principles can guide the formation of the CFTA’s institutions: use the Abuja Treaty as the backbone to the CFTA institutional form; use and empower existing structures of African integration where available; ensure that the institutions of the CFTA are accessible to the African people; support the joint implementation of the BIAT Action Plan alongside the CFTA; and develop practical institutional forms, rather than idealistic ones.
But first things first: each CFTA partner state should designate a ministerial level agency as responsible for implementing and communicating on CFTA issues. This follows the successful approach used in EAC, in which lead agencies for each country were charged with coordinating implementation and application of EAC commitments at the national level.
Over the longer term, the CFTA should work to streamline and rationalise Africa’s overlapping “spaghetti bowl” of REC FTAs. Such a process will enable Africa to economise the resources now required to undertake trade policy activities in each of the RECs. It is expected that the RECs will then contribute to continental trade policy through their roles in the CFTA institutional architecture.
In terms of dispute settlement arrangements, it is recommended that member states first use non-litigious method to resolve disputes. This would include direct diplomatic negotiations followed by mediation and conciliation through CFTA institutions. Where non-litigious methods fail to produce an outcome within six months, a CFTA Dispute Settlement Committee could be charged with resolving the dispute. Appeals may then be heard by the African Court of Human and Peoples’ Rights, which would either convene a commercial chamber or establish specialist ad hoc committees for this purpose.
Phase 2 negotiations: Competition, intellectual property rights and e-commerce
Competition and intellectual property will be part of the second phase of CFTA negotiations – expected to be launched after the conclusion of negotiations on goods and services – and there is scope for also introducing issues of e-commerce.
To prevent anti-competitive practices, a regional approach is needed for dealing with cross-border cartels, mergers, acquisitions, and abuses of dominant market positions. The CFTA can be used as a vehicle to address such cross-border competition issues and can also help countries with no competition laws to enact some in conformity to an agreed approach as envisaged in a continental competition framework.
In the area of intellectual property, any approach must be considerate of the fact that innovation in Africa is different, occurring mostly in the informal sector and in the absence of strong intellectual property institutions. An agreement regarding intellectual property must address overlapping subregional IP organisations and the proliferation of IP matters in RECs, while ensuring alignment with the continent’s overall development goals. This can be done by addressing the particular demands of African innovation with appropriate procedural and substantive principles.
E-commerce and the rise of the digital economy is causing a shift in traditional economic sectors and the emergence of new digital products and services. An African digital industrial strategy is recommended to address the opportunities and disruptive challenges entailed by the digital economy. The CFTA should provide a platform for consolidating a common stance on e-commerce rules and for integrating a market for Africa’s own digital businesses.
Conclusions
The CFTA provides an exceptional opportunity for Africa to harmonize its continental trade environment and boost intra-African trade. However, the CFTA must be designed such that it is “win-win” for all Africa’s diverse range of countries and especially for vulnerable groups. Seizing this opportunity will require careful approaches to a range of substantive topics within the CFTA. It will also require the effective implementation of the Boosting Intra-African Trade (BIAT) Action Plan, which provides the framework for the flanking policies that are key to the CFTA’s success. Bringing this about will in turn require innovative approaches to financing and trade governance, before phase 2 issues such as competition, intellectual property and e-commerce can be broached.
David Luke is Coordinator of the African Trade Policy Centre (ATPC) at the United Nations Economic Commission for Africa (UNECA). Jamie MacLeod is a Trade Policy Fellow, African Trade Policy Centre (ATPC) at UNECA.
This article is published under Bridges Africa, Volume 6 - Number 6, by the ICTSD.
[1] Jones, Emily. “Moves at the Negotiating Table.” In Negotiating Against the Odds, 79-116. London: Palgrave Macmillan UK, 2013.
[2] United Nations Economic Commission for Africa (ECA), African Union (AU) and African Development Bank (AfDB). Assessing Regional Integration in Africa IV: Enhancing Intra-African Trade. Addis Ababa: ECA, AU, and AfDB, 2010.
[3] Karingi, Stephen, and Simon Mevel. “Deepening Regional Integration in Africa: A Computable General Equilibrium Assessment of the Establishment of a Continental Free Trade Area followed by a Continental Customs Union.” Paper for presentation at the 15th Global Trade Analysis Project Conference, Geneva, 27–29 June 2012.
[4] Depetris Chauvin, Nicolas, Ramos, Priscila, and Guido Porto. “Trade, Growth, and Welfare Impacts of the CFTA in Africa.” 2016. Available at: http://bit.ly/2vy3mD8.
[5] AU. Assembly of the Union: Decisions and Declarations. Twenty-Seventh Ordinary Session, 17 – 18 July. Addis Ababa: AU, 2016.
[6] AU. Guidelines on the Implementation of the Decision on Financing the Union. Addis Ababa: AU, 2016.
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Leapfrogging: The key to Africa’s development?
Despite sustained economic growth over the past two decades, Sub-Saharan Africa faces massive challenges and significant gaps in many development outcomes. Although poverty has been declining, a recent report estimates that over two-fifths of the African population was poor in 2012.
Nearly two-thirds of Africans do not have electricity. Less than one quarter of African enterprises have loans or lines of credit; the corresponding share among firms in non-African developing countries is almost half. The use of formal financial services is concentrated among the richest 20 percent of the population. Most African countries have made significant gains in access to education, but learning remains weak. The agriculture sector, which employs a large share of the labor force, exhibits low productivity. Technological change and levels, which are the drivers of productivity, are much lower compared to other parts of the world. Even simple productivity-enhancing factors like the use of fertilizers has remained flat for decades.
Africa’s large infrastructure, technology, and policy gaps require disruptive solutions and thinking outside of the box. Yet, development policies have often been primarily programmatic and mostly incremental. This book argues that it is time to go back to basics of development, think big, and foster the environment for more innovation and technology adoption, to provide the chance for Africa to experience major positive transformations. This is not a new idea; to the contrary, it is what economic theory and history teach. There is no solid ground to treat Africa as an exception.
The one commonality among almost all contemporary growth and development theories is that they consider technology and innovation as the primary drivers of economic growth. Historical experiences point to the same evidence. Major changes in the history of countries like the United Kingdom, the United States, or even recently developed and emerging economies can be tightly linked to increased productivity through the adoption of better technologies. The stream of inventions that began in the 18th century in the United Kingdom, from the steam engine to electricity, the power loom, and machine tools, has dramatically changed the course of human history. More recently, the phenomenal rise of South East Asian countries involved moving from low productivity agriculture (paddy fields) to manufacturing and more technology-intensive electric and electronic components.
Squarely focusing on uncovering investment opportunities that could reduce the distance to the technology frontier should therefore be the starting point in thinking about African development. Equally important is the acknowledgment that Africa need not follow the same path and/or steps as other emerging regions. Vertiginous changes brought about by the digital revolution in the past 20 years (World Development Report 2016) make leapfrogging (skipping steps, charting new paths) in Africa not only a possibility but a necessity.
While it has become customary in the development practice to highlight and quantify constraints to investing in Africa, this book argues that those constraints must be seen as and transformed into investment opportunities. Several factors, such as skills, service delivery, access to finance, energy, to name the few, are often pointed out as constraints to investment. Treating those constraints as investment opportunities, attracting the private sector, both domestic and foreign, and creating a conducive environment for technological diffusion is precisely how Africa will harness innovation toward its prosperity.
This book is the product of a collaboration between the World Bank’s Africa Region and the China Development Bank. The book provides the analytical background to the Third Investing in Africa Forum in Dakar, September 25-27, 2017.
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Changes in technology and trade disrupting manufacturing-led development
New policies needed to ensure developing countries can ompete
Advances in technology and changing trade patterns are affecting opportunities for export-led manufacturing. Smart automation, advanced robotics and 3-D printing are new factors influencing which locations are attractive for production. While these shifts threaten significant disruptions in future employment, particularly for low-skilled workers, they also offer opportunities, according to a new report released yesterday by the World Bank Group.
The report, Trouble in the Making? The Future of Manufacturing-Led Development, underscores the resulting changes in the manufacturing sector’s ability to create jobs and lift people out of poverty in developing countries. It encourages policymakers to adjust their approach to spurring job creation in manufacturing and readying workers for the jobs of the future.
“Technology and globalization are changing how manufacturing contributes to development. We will need to embrace this change rather than fear it. In the past, the manufacturing sector created jobs for unskilled workers and increased productivity. In the future, developing countries will need to update their policies along with their infrastructure, firm capabilities and job creation strategies to meet the demands of a more technologically advanced world,” said Anabel Gonzalez, the World Bank Group’s Senior Director for Trade & Competitiveness.
Changing technologies and shifting globalization patterns are destined to reshape manufacturing-led development strategies, according to the report. Trade is slowing. Global value chains remain concentrated among a relatively small number of countries. Smart automation, advanced robotics, 3-D printing and other advances being incorporated by global manufacturers of cars, electronics, apparel, consumer and other goods are shifting how countries and firms compete for production.
While these trends raise fears that manufacturing will no longer offer an accessible pathway to growth for low- and middle-income countries, the report seeks to identify policy priorities that can help these economies face the challenges and embrace the opportunities they bring.
“Countries can seize promising new opportunities for productivity growth and job creation if policymakers pursue approaches that adapt to changing technologies and changing patterns of globalization,” said Mary Hallward-Driemeier, a Senior Economic Advisor in the World Bank Group’s Trade & Competitiveness Global Practice and the report’s co-author. “Those countries that don’t are likely to face not just economic costs, but also social costs associated with increased inequality and more limited access to opportunities.”
The report offers “3Cs” for countries seeking to bolster their manufacturing sectors: competitiveness, capabilities and connectedness.
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Ensuring competitiveness will increase the importance of reforms that reduce unit-labor costs. But it will also require each economy to be better able to consider new business models; to seek new contracting relationships that embrace new technologies; and to devise new ways for manufactured goods to also deliver services.
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Building capabilities will involve giving workers new sets of skills, strengthening firms’ abilities to absorb new technologies, and providing new infrastructure and new rules to support the use of new technologies.
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Promoting connectedness will continue to emphasize openness to trade in goods, including raw materials and components. But it also increases the importance of grasping the synergies with services that are increasingly embodied and embedded within manufactured goods.
“New processes and new technologies will change how traditional goods are made,” said Gaurav Nayyar, an Economist in the World Bank Group’s Trade & Competitiveness Global Practice and the report’s co-author. “To make the most of each economy’s potential, policymakers and private-sector decision-makers will need to seize new opportunities by re-thinking their manufacturing-led development strategies.”
Trouble in the Making? The Future of Manufacturing-Led Development
Throughout history, lower-income countries have relied on manufacturing, which provides jobs for unskilled workers, helps increase productivity, and drives economic growth, as a central driver of development. However, success in manufacturing and global value chains is currently concentrated in a limited number of countries. In 2015, 55% of the world’s manufactured goods were produced in high-income countries. China, the world’s largest producer, accounted for another 25%. Where does this leave other countries?
The The Future of Manufacturing-Led Development report explains that the criteria for becoming a desirable manufacturing location are changing. Companies once influenced by the prospect of inexpensive labor costs are beginning to favor locations that can better take advantage of new technologies.
The increasing adoption of industrial automation, advanced robotics, smart factories, the internet of things, and 3D printing are transforming the manufacturing process. “The use of new technologies to produce traditional manufactured goods will be disruptive in developing economies – whether they are using the new technologies or not,” says Mary Hallward-Driemeier.
“If labor represents a smaller share of costs, more production may happen in richer countries, closer to consumers. Fewer businesses may move to lower-cost locations and local firms will face steeper competition. But it is not all bad news. There are new opportunities too – and that part of the story needs more attention.”
The pattern is a familiar one – in some sectors, robots and other technological advances are automating jobs once done exclusively by people. In China, for example, factories are projected to have more than 400,000 industrial robots installed by 2018, the highest number of any country in the world. FoxConn – the firm known for producing Apple and Samsung products in China’s Jiangsu province – recently replaced 60,000 Chinese factory workers with industrial robots.
By reducing the relative importance of wages, robotics and “smart” factories can change what it takes for locations to compete in global manufacturing markets. Philips in the Netherlands and Adidas in Germany are two companies who recently “reshored” production of their shavers and sneakers back home to be closer to final consumers. In each of these cases, the newer factories powered by technology provided cost savings over their offshore plants powered by low worker wages.
At the same time, changes in the global economy are presenting other challenges. Weak import demand resulting from the trade slowdown following the 2008 financial crisis, the declining trade in parts and components, China’s continued expansion at the lower end of global value chains, and emerging threats of protectionism can all dampen the potential for growth in manufacturing.
The intersection of these trends in technology and trade shape where and how production happens, where different types of jobs are being created, and the extent of economic opportunities around the world. There is a risk that manufacturing may no longer be an accessible pathway for low-income countries to develop.
However, The Future of Manufacturing-Led Development asserts that the future is not all doom and gloom. Although dramatic, media reports of massive job losses due to automation may be overblown in developing countries. In fact, according to the report, the threat of automation to today’s jobs may be a relatively modest two to eight percent for developing economies. The bigger unknown, according to the report, is “tomorrow’s jobs.” On one hand, there is a real risk that countries will lose out on jobs that are never created. On the other, new technology could also lead to entirely new occupations that can’t be predicted today.
Despite a rising bar for economies to be globally competitive, there are opportunities ahead for developing countries. The production of tradable goods such as textiles, garments, and footwear continue to be labor-intensive and do not feature much automation yet. Ethiopia is an emerging hub for this type of textile production, attracting large amounts of investments from China and serving as a garment source for major European brands such as H&M.
Commodity-based manufactures, such as food processing, wood and paper products, and basic metals will also remain an entry point for less-industrialized countries. Brazil is one country that has excelled in this area, with $44.2 billion in exports in 2016.
Finally, services, including those related to businesses – such as call centers and data centers – and those related to manufactured products – such as design, marketing and distribution – are another area where developing countries can take advantage of future opportunities. With its success in call centers, the Philippines, for example, has made a name for itself as an offshore business services hub, employing 1 million employees with an estimated $18 billion in exports.
“Countries absolutely need to address the costs of change. However, to enable development, more attention should be focused on positioning firms and workers to take advantage of new opportunities. This work helps to shift the focus on what needs to be done in this critical agenda,” says Anabel Gonzalez.
Manufacturing will remain a part of development strategies, but its contribution to inclusive growth is likely to be lower than in the past. The feasibility of attracting production and enabling local firms to use new technologies is becoming more challenging. As countries adjust to the changing global economic environment, meeting the policy agenda is urgent.
“Change creates winners and losers,” says Gaurav Nayyar. “Policy makers need to identify concrete ways for developing countries to position themselves to address the disruptions of technology and take advantage of globalization. Not being prepared could be costly, and complacency is not an option.”
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Southern African leaders, at General Assembly, call for levelling the economic playing field
Warning that Africa is beset by the double scourge of the disparity of the global economy and illicit financial outflows, South African President Jacob Zuma yesterday called on the United Nations to play a central role in tackling both issues, which are major obstacle to full development.
“The current structure of the global economy continues to deepen the divide between the global north and global south,” he told the General Assembly’s 72nd annual general debate. “While a few enjoy the benefits of globalization, the majority of the world’s peoples still live in abject poverty and hunger, with no hope of ever improving their living conditions.
“We need the political will and commitment from global leaders to address the challenges and obstacles posed by this untransformed structure of the global economy, if we hope to achieve the goals and ambitions of Agenda 2030,” he added, referring to the Sustainable Development Goals (SDGs) which aim to eliminate a host of socials ills, such as hunger and diseases, all by 2030.
Mr. Zuma stressed that Africa continues to lose a significant chunk of its resources through illicit financial outflows, billions of dollars which would otherwise be used to develop the continent, and provide education, healthcare, housing and other critical basic needs, with money laundering, corruption, and transfer pricing by among multinational companies among the biggest challenges.
“We appeal for the cooperation and commitment of every member state of the United Nations, and the International community at large to address this phenomenon,” he said.
“Developed countries in particular, have a historic and moral obligation to contribute to achieving a fair global economic environment, and to eradicate the scourge of illicit financial flows from the continent. The UN should also be at the centre of addressing this problem.”
Also addressing the Assembly on Wednesday, Hage G. Geingob, the President of Namibia, highlighted the importance of a “development that reaches all people in an equitable manner”.
“Growing income disparities, between nations and within nations, poses the greatest threat for peace within countries and globally,” he said the Assembly’s 72nd annual general debate, stressing that as long as there’s poverty and income inequality in Namibia, lasting peace and social justice would not be achieved.
President Geinbog also noted the Namibian support of gender equality and the importance of including women and girls in development, as well as the youth. “We, in Namibia, believe that gender equity is equally important for a stable and harmonious society,” he added, recognizing also the contribution of women in promoting global peace.
He also expressed the importance of seeing Africa as an “important and equal partner of the international community, with a contribution to make,” instead of “only a source of primary commodities”.
“It is only through unity, that we will bring about a world free from hunger and poverty. It is only through unity, that we will deliver a sustainable planet for our children and their children,” he concluded.
In the same vein, Arthur Peter Mutharika, the President of Malawi underscored that it is the responsibility of the current generation of world leaders to ensure that their actions offer hope of a better future to the next generation.
“The adoption of the 2030 Agenda reflects our global resolve to address the most pressing challenges in the spirit of the human collaboration,” he said, adding that unity among nations is indispensable.
“The cause that rallies us together is that we are one humanity, on one planet. This is the tie that binds us all. All our differences and national interests are secondary to this overriding cause,” he declared.
In particular, the President noted the growing impact of climate change, such as through natural disasters, on the most vulnerable and that his country – where 85 per cent of the populations depend on agriculture – crop failures are a tragedy.
“Therefore,” he added, “let me appeal to all Member States to consider strategies and avenues for collaboration for us to adapt to the fast-changing climate.”
In conclusion, he also spoke against nuclear weapons, noting that it remains the existential threat to humanity, and said that the idea of keeping such weapons “questions the wisdom of mankind.”
Expressing his country’s categorical disapproval of the spread of ballistic missile technology, he added: “This should not be tolerated in any way by any Member State of the UN.”
Expressing his country’s commitment to implementing the SDGs, King Mswati III of Swaziland, highlighted national initiatives to mainstream and localize the global development goals through awareness raising, consultations and education at all levels.
“[We have] also integrated the goals into the National Development Strategy, which was revised to capture its linkages with the SDGs and the African Union Agenda 2063,” he said.
In his address, King Mswati III, also underlined the urgency to mitigate the challenges arising from climate change, which is already showing its impact through severe droughts, new patterns of pest infestation, as well as hurricanes, floods and landslides.
“We urge donors and all nations, to not only fulfil their pledge towards the ‘green fund,’ but also to adopt policies to strike the correct balance between production of essential products and environmental sustainability to protect and preserve the world for future generations.”
Further in his address, the leader of Swaziland also spoke of social development in his country, noting progress in tackling poverty, hunger and disease, and improving the lives of the people.
In conclusion, he also highlighted the importance of South-South cooperation as well as capacity building, enhanced resources and technology transfer to help lower-middle-income countries and to least developed countries.
Similarly, highlighting Madagascar’s key poverty alleviation initiatives, President Hery Martial Rajaonarimampianina Rakotoarimanana, thanking international support enabled the country to do so.
“I can say that since 2016, Madagascar raised $6.4 billion in global investment and aid from institutional donors,” the President announced in his address to the General Assembly.
This feat, he explained was made possible through the easing of political conflicts in his country.
He added that this injection of funds allowed Madagascar to start investing in the key sectors of its economy and for the future of the country.
Thanks to this funding, Madagascar is now working to reduce poverty in a sustainable manner, reaching 92 per cent of the population, he noted, highlighting that policies setting up basic infrastructure in several sectors is also starting to bear fruit, including agriculture, livestock, energy and fisheries.
The President also announced health projects, including the launching of a universal health coverage scheme, the reduction of maternal and infant mortality through a strengthening of the network of health centres, an increase in the Government budget on nutrition, and an advanced epidemiological surveillance system that would allow the Government to monitor some 28 epidemic-prone diseases in real time.
“One year to go to the 2018 Presidential elections, after hard work and continuous determination, I can say that Madagascar has reached a milestone and a stage that now allow room for hope,” the country’s leader expressed.
Additional UNGA statements for African countries are availale here.
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WTO upgrades forecast for 2017 as trade rebounds strongly
WTO economists have issued a strong upward revision to their forecast for 2017 trade expansion following a sharp acceleration in global trade growth in the first half of the year.
The estimate for growth in world merchandise trade volume in 2017 was raised to 3.6%. The previous estimate for 2017 was 2.4%, though this was set within a range of 1.8% – 3.6%, reflecting the high level of economic and policy uncertainty.
The new estimate puts the focus on the top end of that range. Growth of 3.6% would represent a substantial improvement on the lacklustre 1.3% increase in 2016. Reflecting the continued forecast risk arising from deep uncertainty about near-term economic and policy developments, the range of estimates for world trade growth has been adjusted to 3.2% – 3.9%. Stronger growth in 2017 was attributed to a resurgence of Asian trade flows as intra-regional shipments picked up and as import demand in North America recovered after stalling in 2016.
“The improved outlook for trade is welcome news, but substantial risks that threaten the world economy remain in place and could easily undermine any trade recovery,” Director-General Roberto Azevêdo said. “These risks include the possibility that protectionist rhetoric translates into trade restrictive actions, a worrying rise in global geopolitical tensions and a rising economic toll from natural disasters.”
“Though difficult to quantify, these risks are very real. As a result, increased optimism about trade should be tempered with a healthy dose of caution. On the other hand, the fact that trade growth is now more synchronized across regions than it has been for many years could make the current expansion self-reinforcing. Such a positive outcome would be more likely if countries continue to resist the temptations of protectionism and work together with their partners in the multilateral system to ensure that gains from trade are both large and widely shared.”
The new estimate for world trade growth in 2017 is at the high end of the range of estimates provided in WTO economists’ most recent trade forecast of 12 April 2017 (1.8% – 3.6%). The strength of the revision is partly due to a modest improvement in the consensus forecast for world GDP growth (2.8% in 2017 at market exchange rates, up from 2.3% in 2016) and partly due to the composition of that growth.
GDP growth accelerated in most major economies in the second quarter, most notably in China where quarter-on-quarter growth rose from 1.3% in Q1 (equivalent to an annual rate of around 5.3%) to 1.7% in Q2 (around 7.0% annualized). Growth also strengthened in the United States from 1.2% annualized in Q1 to 3.0% in Q3) and the euro area (from 2.2% in Q1 to 2.6% in Q2).
Stronger growth particularly in China and the United States boosted demand for imports, which spurred intra-Asia-trade as demand was transmitted through regional supply chains. Chinese demand in the first half of 2017 was driven by solid growth in industry (up 6.4% in real terms for the year to date) and even stronger growth in services (up 7.7% over the same period). Financial conditions in Asia also improved compared to the volatile first quarter of 2016, contributing to business and consumer confidence.
The partial recovery of oil prices in 2017 also appears to have provided some support for investment in the United States, growth of which slowed abruptly in 2016 – particularly in the energy sector – but has picked up in the first half of this year. The import content of investment tends to be higher than other components of GDP, so a recovery of expenditure in this area would be expected to have an outsized impact on import demand.
The rapid pace of trade growth in 2017 is unlikely to be sustained next year for a number of reasons. First, trade growth in 2018 will not be measured against a weak base year, as is the case this year. Second, monetary policy is expected to tighten in developed countries as the Federal Reserve gradually raises interest rates in the United States and the European Central Bank looks to phase out quantitative easing in the euro area. Third, fiscal expansion and easy credit in China are likely to be reined in to prevent the economy from overheating. All of these factors should contribute to a moderation of trade growth in 2018 to around 3.2% (the full range of the estimate being from 1.4% to 4.4%).
Chart 1: Merchandise exports and imports by level of development, 2012Q1-2017Q1
(Volume index, 2012Q1=100)
Source: WTO Secretariat.
Charts 1 and 2 show seasonally adjusted merchandise export and import volumes by level of development and by geographic region. World trade rose 4.2% year-on-year in the first half of 2017 compared to the same period in the previous year. Developed economies’ exports were up 3.1% over the same period while those of developing economies were up 5.9%. Meanwhile, imports were up 2.1% in developed countries and 6.9% in developing economies in the first half of the year.
Exports and imports were up in the first half of 2017 compared to the same period last year in all regions tracked by WTO short-term trade statistics except for South America, where trade was essentially flat. North American exports and imports were up 4.9% and 3.9% year-on-year during this period. Exports of South America were down 0.7% while imports were up 1.0%. In Europe, exports grew 2.6% while imports rose 1.2%. Exports of Asia rose 7.3% while the region’s imports jumped 8.9% thanks in large part to strong increases in China.
“Other regions”, comprised of Africa, the Middle East and the CIS region, saw flat export growth of 0.1% in volume terms mostly due to the fact that demand for oil and other natural resources tends to be very stable. On the other hand, imports of these regions were collectively up 2.5% thanks to a partial recovery in prices for primary commodities. Oil prices were up 21.8% year-on-year in the first half of 2017, boosting export revenues of resource producing regions. However, prices remain low by recent historical standards, with Brent Crude at $53.25 per barrel on 11 September, well below the $100 per barrel that prevailed before July 2014.
Chart 2: Merchandise exports and imports by region, 2012Q1-2017Q1
(Volume index, 2012Q1=100)
Source: WTO Secretariat.
These data are in line with the WTO’s World Trade Outlook Indicator (WTOI), which switched from signalling below-trend growth in July 2016 to above-trend growth in November 2016 and has continued to strengthen since then. The WTOI combines several leading indicators for trade into a single composite indicator. Components include container port throughput, air freight shipments, export orders, automobile sales and trade in electronic components and raw materials.
Table 1 summarizes the WTO’s revised trade forecasts for 2017 and 2018. If these estimates are realized, 2017 will see developing economies outpace developed economies in trade volume growth on both the export and import sides. It will also be the first year since 2013 in which imports of developing economies will have grown faster than those of developed countries.
Whether this rebound marks an end to the so-called emerging market slowdown remains to be seen. A robust Chinese economic recovery has boosted import demand and stimulated trade between China and its Asian trading partners in 2017, but the pace of Chinese growth is expected to moderate progressively in 2018 and beyond. Meanwhile, other developing regions continue to stagnate. On a bright note, Brazil should see growth in its imports and GDP turn positive in 2017 but South America as a whole will continue to register weak trade and GDP growth.
Trade growth for 2017 has been revised upward for North America on both the export side (from 3.2% to 4.2%) and import side (from 3.0% to 4.1%) while estimates have been scaled back for European exports (from 2.8% to 2.5%) and imports (from 2.9% to 2.4%). The biggest upgrades were for Asia, which should see its exports and imports advance to 7.0% and 6.7%, respectively, in 2017. Previous estimates (2.5% for exports and 3.2% for imports) suggested a further weakening of the relationship between world trade and GDP but this seems to have been premature. The ratio of world trade growth to world GDP growth, referred to by economists as the “elasticity” of trade, should rebound to 1.3:1 in 2017 (see Chart 3).
Table 1: Merchandise trade volume and real GDP, 2013-2018a
Annual % change
![](https://www.wto.org/images/img_press/pr800table1_e.png)
a Figures for 2017 and 2018 are projections.
b Average of exports and imports.
c Includes the Commonwealth of Independent States (CIS), including associate and former member states.
d Other regions comprise Africa, Middle East and Commonwealth of Independent States (CIS).
Sources: WTO Secretariat for trade, consensus estimates for GDP.
A range of values have been provided around central estimates for 2017 and 2018 to reflect the uncertainty inherent in trade forecasts. World trade growth for 2017 could be as high as 3.9% or as low as 3.2% once complete data for the year are available. (Note: Ranges are based on the central estimate plus or minus the mean absolute deviation between historical forecasts and actual values, plus an adjustment to account for over/underestimation in previous years.)
Chart 3: Ratio of world merchandise trade volume growth to world real GDP growth, 1981-2017
% change and ratio
Sources: WTO Secretariat for trade, consensus estimates for GDP.
Risks to the forecast are firmly tilted to the downside. Anticipated shifts in the stance of monetary policy in developed countries could provoke large changes in prices and exchange rates that would strongly influence international trade patterns. Renegotiation of the North American Free Trade Agreement (NAFTA) and negotiation of post-Brexit trade arrangements between the United Kingdom and the European Union could also unsettle global and regional trade. Rising geopolitical tensions, most notably in Asia, could have extremely negative consequences for the world economy that would be difficult to gauge in advance. Finally, natural disasters including hurricanes in the United States could have a significant but temporary impact on trade in the short-run.
Over the longer term, the rebalancing of China’s economy away from manufacturing and toward services may weigh on global import demand for some time. Services, which give rise to lower demand for imports than manufacturing, have seen their share in Chinese value added rise from 43% in 2008 to 54% today. Although this rebalancing may cause Chinese imports to moderate, these changes should promote stronger and more sustainable growth in the long run.
Figures above refer to merchandise trade in volume terms, but trade in current US dollar terms is also up in 2017. Trade in commercial services is also up in most major economies other than the United Kingdom, which saw the dollar value of exports and imports fall 5.2% and 6.8%, respectively. However, nominal trade statistics should be interpreted with caution as they are often strongly influenced by prices and exchange rates.
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tralac’s Daily News Selection
African statements to UNGA’s debate: updated resource page
Starting today, in Mauritius: 3rd AU Customs Expert Trade Facilitation Forum. The Forum will develop a set of recommendations, observations on how AU Member States can best implement the BIAT and the WTO TFA.
Diarise: 2017 PIDA Week (10-14 December, Swakopmund) on the theme Enhancing trade and economic transformation through regional infrastructure development
Informal AU trade ministerial: update (AU)
Commissioner Muchanga raised the longstanding issue of the AU’s observer status in the WTO and invited Member States reflect on how to resolve the matter in the not-too-distant future. Also, Amb. Muchanga stressed the dire need for Africa to work under the principle of speaking with one voice and acting in unison. “We must emerge from this meeting with a strong reaffirmation of that principle” and “should all commit to speaking with one voice during the Eleventh WTO Ministerial Conference in Argentina,” he emphasized. Commissioner Muchanga also urged AU Ministers of Trade to use their collective strength in numbers at the WTO to become key interlocutors in the upcoming negotiations, while safeguarding their collective interests in the negotiations.
Rob Davies, SA’s Minister of Trade and Industry and chair of the informal meeting, said the WTO Ministerial Conference will be a follow-up to MC10 where Africa was able to get an outcome on export competition / subsidies on agriculture, which have continuously been a detriment to Africa’s development and industrialization. “There are a number of subjects under consideration in the WTO, such as domestic support but with different principles than those agreed under the Doha Development Agenda. We also have new issues such as e-commerce, investment facilitation and transparency, which entail new rules. We need MC11 to reaffirm multilateralism in our rules making,” Minister Davies concluded. The Report of the meeting and its annex (Draft Declaration on WTO issues), will be considered and endorsed by a formal meeting of the AU Ministers of Trade prior to the WTO-MC11.
All-Party Parliamentary Group for Trade Out of Poverty: Can the Commonwealth help developing countries trade out of poverty?
The aim of the inquiry is to gather evidence and set out concrete proposals for consideration / adoption by Commonwealth member states at the Commonwealth Heads of Government Meeting (CHOGM) in London during April 2018. The Inquiry is jointly organised as an initiative between the APPG-TOP and the UK Overseas Development Institute (ODI) and is led by a Committee of eminent persons and experts. The inquiry is co-chaired by Lord Jeremy Purvis and Nigeria’s Minister of Industry, Trade and Investment, Okechukwu Enelamah. Committee Members: Harsha Singh (Brookings India), Patricia Francis (WTO-UNCTAD International Trade Centre), Dirk Willem te Velde (ODI), Catherine Clark (Prudential plc), Steven Pope (DHL Express Europe plc), Trudi Hartzenberg (tralac), Phil Rourke (Centre for Trade Policy & Law, Carleton University), Angela Straughan (consultant), Chi Atanga (Walls of Benin), Lisa McAuley (Export Council of Australia). [Download: Inquiry TOR]
WTO Ministerial Conference: What’s at stake for small, least developed and sub-Saharan African countries? (Commonwealth)
The remaining period before MC11 is crucial for small states, LDCs and SSA countries, which must use this time to review the state of play at the WTO in areas of interest to them, focus on what may be achievable, set their priorities for MC11 and map up their strategic options in the light of overall developments. A pro-small states outcome at MC11 depends on small states’ input into the process towards the Ministerial. Amid global uncertainties and major geopolitical changes, this may be an opportunity for this group of countries to gain recognition. Post MC11, small states, LDCs and SSA countries should take stock of the Doha Round with a view to identifying priority issues that are achievable and that can bring about incremental gains for them. [The authors: Collin Zhuawu, Teddy Y Soobramanien]
Related: @UNCTADKituyi: Signed MOU with Commonwealth SG to deepen our cooperation in trade, blue economy and other areas of complimentary competences and interest
ACP Group of States’ agricultural trade and the WTO negotiations (UNCTAD)
This paper examines the formula proposed in the 2008 draft modalities and compare it with the one proposed by Paraguay in March 2015. The authors attempt to take into account how the world has changed since 2008, by looking at the changes in tariffs facing ACP countries, in agricultural prices and in domestic support. They then examine proposed tariff cuts at a six-digit level. Next, the initial and final tariffs are aggregated to 24 sectors and analysed within a well-known general equilibrium model, the Global Trade Analysis Project (GTAP), to assess the impacts on welfare and trade flows for ACP countries. They conclude with recommendations for ACP countries in the WTO negotiations.
IGAD petrochemicals cluster: Regional survey of potentials, trends and possible operational and policy measures (UNECA)
Assisting African countries to make the most of their commodities, particularly in industrializing to promote growth, job creation and economic transformation is now a strategic priority of the Economic Commission for Africa says Stephen Karingi, Director of the ECA’s Regional Integration and Trade Division. Mr Karingi said the IGAD report being considered at the meeting draws on IGAD member States’ experiences to date with cluster-based economic development. “It is my hope that this meeting will brainstorm on some of the key issues relating to the development of a petrochemical cluster the IGAD region. It will also contribute to the development of analytical framework for designing a competitive industrial economy in the continent.”
South Africa Economic Update: innovation for productivity and inclusiveness (World Bank)
This 10th South Africa Economic Update offers a review of the country’s recent economic and social developments and outlook in the context of global economic prospects. It focuses on the role of innovation in fostering economic growth, job creation and poverty reduction in an environment in which more South Africans are getting poorer. Extracts (pdf):
The availability of firm-level transaction data provides a more detailed view of how product innovation is affecting the export basket. South Africa is one of the first developing countries to conduct such a transaction level analysis. Following the OECD methodology, SA’s export products are classified into four categories: low technology, medium-low technology, medium-high technology, and high technology. Box 2.3 describes these groups of products from a qualitative perspective. Using these definitions, high-tech products accounted for only 7% of the South African export basket in 2014, while “other” and medium technologies comprise the bulk of exports (Table 2.5). This is not surprising given that South Africa is known for its exports of minerals and resource-based products – all of which make up the category of “other”. This indicates that South Africa mostly operates in the medium-tech space, which typically involves complex technologies, with moderate to high levels of R&D investment.
A detailed review of the export trends from 2010 to 2014 shows growth in both low- and high-tech products. There has been a gradual decline in the share of medium-tech and resource-based products, which were arguably South Africa’s most competitive manufacturing industries. Unlike many other developing nations, South Africa is not trapped in low-technology exports, and has the capacity to further upgrade its technologies and compete on quality and price. [Pointers: Figures 2.12 to 2.14: South African exports (2005 vs 2015), High-tech exports in BRICS countries, Technological content of exports per destination (2010-14); Tables 2.5 to 2.6: Export value of different technology levels in South African total exports, South Africa’s top five export products per technology group (2014)]
Related: Marek Hanusch: Will automation kill South African jobs? No, say new studies; Gabriel Goddard: Can South Africa tap into its innovation potential to improve the lives of its citizens?
Namibia not ready for the Africa Free Trade Area (Malaysian Digest)
Namibia is not ready to engage in the proposed African Continent Free Trade Area, said stakeholders present at the national level consultation on the initiative, Namibia Press Agency reported. A one-day consultation was held on Tuesday where various trade unions, faith-based organisations, academia, youth groups, government officials and the private sector deliberated on the CFTA’s developmental impact on Namibian people, in particular, and SADC in general. Sylvester Wullo Bagooro, from Third World Network-Africa, who was a guest speaker at the consultation cautioned the participants on the negative impact of the deadline on which they will have to approve the content of the agreement, which is December this year.
Namibia’s exports remain under pressure (The Namibian)
Latest trade statistics of the second quarter of 2017 (pdf) posted on the Namibia Statistics Agency’s website show that Namibia only experienced an annual increase in two of the top five products, being diamonds and livestock, while copper ore, cathodes and fish all recorded a decline. By destination, only exports to South Africa and Belgium recovered, compared to last year. Ngoni Bopoto, a research analyst at Namibia Equity Brokers, yesterday described the latest figures as “concerning.” The latest trade statistics further show that imports from SACU member states (mainly South Africa) declined marginally 0,3% from the first quarter of 2017 and substantially 15,1%, compared to the second quarter of 2016, which is negative for receipts from the SACU pool.
South Africa continues to be the main source of domestic imports, accounting for 60,4% (N$12,152bn) of total imports. This is followed by Botswana with a 6,9% (N$1,394bn) share of imports. In third place was Bulgaria, which registered an import expenditure of N$879m and accounted for a market share of 4,4%. Zambia and China accounted for 4,3% (N$872m) and 3,7% (N$752m) of total imports, respectively.
Kenya forms team to negotiate international trade deals (Standard)
In a gazette notice yesterday, Industry, Trade and Co-operatives Cabinet Secretary Adan Mohamed said the National Trade Negotiations Council will identify trade policy gaps, give guidance and advise government on key trade issues. According to CS Mohamed, the council, which will be chaired by the Principal Secretary in the Ministry, will also come in handy to advise government on possible options to pursue on addressing emerging trade disputes. Small and medium-sized enterprises will also be helped to tap into international trade. The council will be expected to look at all trade documents, notifications, coming from bodies such as WTO, UNCTAD, Cconomic Partnership Agreements, AGOA, EAC, COMESA, and make decisions. [Details on the NTNC’s composition, powers and functions can be accessed here]
Zimbabwe: Treasury toughens stance on errant transit truckers (Bulawayo24)
In a Statutory Instrument gazetted on Saturday, transit truckers will be fined $2000 for diverting from the route specified by the Commissioner-General of Zimbabwe Revenue Authority. SI 113 of 2017 also aims to bring legislative changes that improve the management of transit cargo in Zimbabwe and to buttress the Electronic Cargo Tracking System introduced in May. The instrument also makes it mandatory to place the ECTS tracking system on all transit vehicles while section (e) of the SI highlights the penalties involved in tampering with the ECTS system.
Summary comments on the WBG’s 2017 Guidance on PPP Contractual Provisions (Heinrich Boell Foundation)
In an effort to promote standardization and expedited negotiation of contracts for Public-Private Partnerships (PPPs), the World Bank Group introduced the 2017 Edition of the Guidance on PPP Contractual Provisions. The Guidance provides both sample language for contracts as well as commentaries to explain legal options. While the Guidance provides improved and more detailed advice as compared with the 2015 version, it continues to emphasize the preferences and requirements of the private sector partner without commensurate consideration of the perspective of the government. In response, the following comments on the Guidance are offered by the Heinrich Boell Foundation to help ensure that PPP contracts achieve an appropriate balance between investor rights, on the one hand, and the rights of the government and people, on the other. In addition to initial overarching observations, comments are offered on each of the sections addressed by the Guidance; namely:
Today’s Quick Links: AGOA: Limitations (1 October 2017, through 30 September 2018) of duty- and quota-free imports of apparel articles assembled in beneficiary Sub-Saharan African countries from regional and third-country fabric IGAD: Conference of Speakers of Parliaments concludes IMF Working Paper: Policy mix and the US trade balance UNCTAD: Making women’s economic empowerment a reality Christine Lagarde: UN High-Level Panel on Women’s Economic Empowerment IMF’s Chart of the Week: Banking on women - a case for more |
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Boosting private sector’s investment in innovation could help South Africa create jobs and reduce poverty
Harnessing South Africa’s largely untapped potential for innovation could increase the economy’s productivity, propel job creation, and be of benefit to the country’s growing number of poor, according to a World Bank report released yesterday.
The report finds that South Africa’s 6% dip in overall economic productivity from 2011 to 2016 was due, at least in part, to a sharp drop, estimated by some at 40%, in private research and development (R&D) expenditure since 2009.
“South Africa’s productivity growth is diverging from global growth, and the country risks falling further behind its peers,” said Paul Noumba Um, World Bank Country Director. “This would be to the detriment of the poor for whom a growing economy is necessary for jobs and a sustainable system of social grants. In such an environment, South Africa can turn to encouraging private innovation as one of several ways in which to improve people’s lives”.
In its tenth Economic Update for South Africa, the World Bank’s projection for economic growth in 2017 is 0.6%, revised down from 1.1% in January. GDP growth is expected to pick up to a moderate 1.1% and 1.7% for 2018 and 2019 respectively, spurred on by an improvement in commodity prices and a strengthening in the balance sheets of households.
The report’s special focus section analyzes opportunities for innovation to become a more central part of South Africa’s economic model of shared growth. Simulations done for the report suggest that that innovation could propel job creation and would also raise the consumption of the poorest 40 per cent of households from its spillover effect by putting pressure on prices.
“Given South Africa’s untapped potential for absorbing and adapting foreign technologies, private R&D can be turned into a more powerful driver of corporate profitability and economic growth,” said Sebastien Dessus, World Bank Program Leader. “Innovation can help improve the lives of the poor through the provision of better and cheaper goods and services, and expand economic opportunities through the introduction of disruptive technologies that can lower barriers to competition.”
Brain drain and the slow growth of small firms were also important factors in productivity loss. The report argues that improving the business climate for startups could help South Africa harness its large innovation potential. This could be done by more effective public support for innovation, as well as by encouraging skilled immigration and strengthening competition in new emerging industries, such as Information and Communications Technologies (ICT), and facilitating trade.
Although South Africa emerged from recession in the second quarter of 2017, per capita income had barely increased in the preceding six years, leading to more than 3 million people joining the 30.4 million South Africans (of a population of about 55 million) living on less than US$2.9 a day.
South Africa Economic Update: More Innovation Could Improve Productivity, Create Jobs, and Reduce Poverty
The tenth edition of the South Africa Economic Update, Innovation for Productivity and Inclusiveness, examines how innovation can boost economic growth and help address South Africa’s most pressing social challenges.
“In South Africa’s low growth environment, innovation can play a critical role to create jobs through increased productivity, and improve the lives of the poor through providing better products and services,” said Paul Noumba Um, World Bank Country Director for South Africa.
Recently released statistics show that, between 2008 and 2015, four out of five South Africans experienced – half permanently and half intermittently poverty – and that, between 2011 and 2016, 3 million more South Africans joined the ranks of the 30.4 million living on less than US$2.90 a day. Unemployment reached a 14-year peak of 27.7% in 2017.
The Update forecasts a timid recovery in the next three years, with the economy anticipated to grow barely faster than the country’s population, with real gross domestic product (GDP) growth projected at 0.6% in 2017, 1.1% in 2018 and 1.7% in 2019.
The report warns of considerable downside risks and argues that declining Research and Development (R&D) is an important factor behind the country’s weak economic performance and its divergence from its peers in terms of growth in technology.
R&D spending, which is essential to identify and assimilate innovations generated elsewhere to produce new products and services, has declined in South Africa over the past decade.
The report asserts that this is to the detriment of the poor because innovation strongly influences the welfare of low-income households by reducing their cost of living within sectors that have an impact on their daily lives, such as public transportation, food and beverages, agriculture and footwear.
The decline in R&D spending has happened despite a high rate of economic return when investment is made. Academia there is, but broadband is costly
With some exceptions, South Africa’s academic excellence, the report states, and strong urban networks of entrepreneurs and opportunities innovation are stifled by an unconducive business environment, expensive trading costs, and low skills base – all of which are impeding the emergence and growth of startups.
South Africa has the lowest share of young firms among emerging economies globally, where elsewhere, young, high-growth firms known as “gazelles” are playing a leading role in innovation.
“Given the transformative role of gazelles around the world in creating jobs, South Africa’s small and diminishing share of young firms is a concern,” said World Bank Lead Economist for Trade and Competitiveness, Gabriel Goddard. “Improving factors that either stifle the emergence of young firms or reduce their growth potential, could boost South Africa’s innovation capabilities and overall impact”.
The report says that Information Communications Technology (ICT) capabilities have become particularly important for innovation, enabling new business models and the emergence of new markets. Its study shows that, although South Africa has remarkable individual stories of ICT success in financial technology, education, e-health and online job platforms, the information technology industry remains relatively small, constrained by the high cost of broadband.
The report offers its considerations for policy, including fostering a business climate more conducive to both the entry of new firms and to risk-taking and experimentation, building a skills base in technical and entrepreneurial skills, and encouraging “brain circulation” into South Africa.
It also suggests improving South Africa’s connectivity to global markets and increasing the effectiveness of sophisticated support systems for entrepreneurship.
Download: South Africa Economic Update: Innovation for Productivity and Inclusiveness (PDF, 3.88 MB)
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African Union Ministers of Trade meet to come up with a common position prior to the 11th WTO Ministerial Conference
The African Union Commission in collaboration with the Government of South Africa organized a Special Meeting of African Union Ministers of Trade, on 18 September 2017 in Addis Ababa.
The main purpose of the Informal Meeting was to enable Africa to discuss and formulate common positions on current issues of offensive and defensive interest as well as new issues before the 3rd Mini-Ministerial World Trade Organization (WTO) Meeting on 9-10 October 2017 in Marrakech, Morocco and the 11th Ministerial Conference of the WTO (WTO-MC11).
The Meeting also reflected on the overall strategy that Africa should adopt in the WTO multilateral trading system in order to achieve its structural transformation in the context of Agenda 2063: The Africa We Want.
The meeting was attended by Ministers of Trade, Senior Trade Officials, and Delegates from nearly forty African Union Member States, members of the African Group of Ambassadors to the WTO, representatives of Regional Economic Communities (RECs), and experts from the African union Commission, the United Nations Economic Commission for Africa (UNECA), and South Centre. H.E. Mrs. Susana Malcorra, the Argentinian Former Foreign Minister and Chair of the 11th WTO Ministerial Conference also attended the Meeting.
In his introductory remarks, Amb. Albert M. Muchanga, African Union Commissioner for Trade and Industry, expressed his gratitude to the Government of the Republic of South Africa for co-sponsoring the special meeting as well as the African Group of Ambassadors to the WTO and senior officials for the excellent work undertaken in preparation for the meeting.
In addition, Commissioner Muchanga raised the longstanding issue of the AU’s observer status in the WTO and invited Member States to reflect on how to resolve the matter in the not-too-distant future. Also, Amb. Muchanga stressed the dire need for Africa to work under the principle of speaking with one voice and acting in unison.
“We must emerge from this meeting with a strong reaffirmation of that principle” and “should all commit to speaking with one voice during the Eleventh WTO Ministerial Conference in Argentina,” he emphasized.
Before he concluded, Commissioner Muchanga urged African Union Ministers of Trade to use their collective strength in numbers at the WTO to become key interlocutors in the upcoming negotiations, while safeguarding their collective interests in the negotiations.
Addressing the meeting, the Honourable Rob Davies, Minister of Trade and Industry of South Africa and Chair of the Informal Meeting, stated that the Meeting provided an opportunity for AU Ministers of Trade to reflect on the issues and challenges that they will be presented with in Argentina.
He underscored that the 11th WTO Ministerial Conference will be a follow-up to MC10 where Africa was able to get an outcome on export competition/subsidies on agriculture, which have continuously been a detriment to Africa’s development and industrialization.
“There are a number of subjects under consideration in the WTO, such as domestic support but with different principles than those agreed under the Doha Development Agenda (DDA). We also have new issues such as e-commerce, investment facilitation and transparency, which entail new rules. We need MC11 to reaffirm multileralism in our rules making,” Minister Davies concluded.
H.E. Mrs. Susana Malcorra, the former Argentinian Foreign Minister and Chair of the 11th WTO Ministerial Conference, thanked Commissioner Muchanga for being invited to the Africa’s preparatory Meeting prior to the 11th WTO Ministerial Conference. According to the Minister, the 11th WTO MC will come up with a fair system that will be on Africa’s side in terms of development.
“I hope the voice of Africa will be united. And my plea to you is to prioritize the most important issues at stake in order to move forward Africa’s agenda,” she said.
It is anticipated that the Report of the Meeting and its annex (Draft Declaration on WTO issues) will be considered and endorsed by a formal meeting of the AU Ministers of Trade prior to the WTO-MC11.
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Can the Commonwealth help developing countries trade out of poverty?
About the Inquiry
The All-Party Parliamentary Group for Trade Out of Poverty (APPG-TOP) is undertaking an Inquiry into whether the Commonwealth can help developing countries trade out of poverty.
The aim of the Inquiry is to gather evidence and set out concrete proposals for consideration/adoption by Commonwealth member states at the Commonwealth Heads of Government Meeting (CHOGM) in London during April 2018. The Inquiry is jointly organised as an initiative between the APPG-TOP and the UK Overseas Development Institute (ODI) and is led by a Committee of eminent persons and experts.
The inaugural Commonwealth Trade Ministers Meeting (CTMM) held in London in March 2017, offered the APPG-TOP and ODI the opportunity to begin a wide-reaching policy discussion through the launch of a booklet on 10 Commonwealth policy priorities for trade and development[1] and the convening of a Wilton Park conference on ‘Creating a consensus-based Commonwealth vision for trade negotiation, facilitation and finance’. With the Commonwealth Heads of Government Meeting (CHOGM) taking place in London in April 2018, this Inquiry provides a unique opportunity to build on this momentum, engage a wider group of stakeholders, and make a powerful case for an ambitious new trade and development agenda for the Commonwealth.
The full Terms of Reference for the Inquiry can be accessed here.
Inquiry Committee and Secretariat
The Inquiry is led by a Committee of eminent persons and experts co-chaired by Lord Jeremy Purvis from the UK and Hon Minister of Industry, Trade and Investment from Nigeria, Okechukwu Enelamah. In addition to the Co-Chairs, the Inquiry Committee Members are:
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Harsha Singh, Executive Director, Brookings India
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Patricia Francis, former Executive Director, WTO-UNCTAD International Trade Centre
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Dirk Willem te Velde, Head, International Economic Development, ODI
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Catherine Clark, Head, International Relations, Prudential plc
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Steven Pope, Vice President, DHL Express Europe plc
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Trudi Hartzenberg, Executive Director, Tralac Southern Africa
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Phil Rourke, Executive Director, Centre for Trade Policy & Law, Carleton University
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Angela Straughan, Independent Consultant in Trade Facilitation
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Chi Atanga, Entrepreneur and CEO, Walls of Benin
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Lisa McAuley, CEO, Export Council of Australia
The Secretariat for the APPG-TOP (provided by Saana Consulting) and ODI will support the Inquiry Committee in gathering evidence, organising hearings and preparing the associated reports.
Submission of Evidence & Hearings
The Inquiry Committee are interested to receive written evidence from interested parties to support the Inquiry. The submissions will be shared with the Inquiry Committee ahead of the Hearings, which will be held in the UK Parliament on 16th November 2017.
The evidence submission guidelines can be found here, and downloaded here.
Background to the Inquiry
The Commonwealth is an association of fifty-two diverse countries spanning Africa, Asia, the Americas, Europe and the Pacific, and bound by historic ties, shared values and long-established trading relations. With a combined economy of more than $10 trillion, a population of 2.3 billion, and annual GDP growth in excess of 4 per cent, the Commonwealth is uniquely placed to become a driving force behind global trade for development[2].
Commonwealth members’ combined exports of goods and services account for roughly 15 per cent of the world’s total exports. While not a trading block, trade costs are 19 per cent lower and countries tend to trade 20 per cent more when bilateral trade takes place between Commonwealth countries[3]. Unsurprising then, the growth of intra-Commonwealth trade is set to continue with the value of trade forecast to surpass $1 trillion by 2020.
The inaugural Commonwealth Trade Ministers’ Meeting in March 2017 highlighted the importance the governments of Commonwealth states place on improving conditions for trade and investment. The 10 Commonwealth Policy Priorities for Trade and Development published in March 2017 by ODI and APPG-TOP were put forward to encourage trade ministers to prioritise trade policies and programmes that would enhance development outcomes in the Commonwealth. The 10 recommendations were:
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Reduce costs by implementing the WTO Trade Facilitation Agreement
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Ensure that the benefits of tariff preferences are maximised for developing countries
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Increase connectivity to better facilitate
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Expand trade finance for small and medium sized enterprises
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Expand women’s participation in trade
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Develop skills for trade
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Promote green growth through trade
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More and better-targeted aid for trade
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Establish a Commonwealth-wide trademark system
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Improve trade governance
Given that the Commonwealth includes a significant number of developing countries, thirty of which are classified as small states (many of these being islands), it is crucial that trade is harnessed to promote sustainable development. This Inquiry will help ensure that this message is amplified in the lead up to CHOGM 2018 and can play an integral role in shaping and driving the Commonwealth’s trade and development agenda forward.
[1] 10 Commonwealth Policy Priorities for Trade and Development. Available at: https://www.odi.org/sites/odi.org.uk/files/resource-documents/11341.pdf
[2] Ibid
[3] The Commonwealth in the Unfolding Global Trade Landscape: Prospects Priorities Perspectives Commonwealth Trade Review 2015. Available at: https://www.tralac.org/discussions/article/8587-the-commonwealth-launches-trade-review-report.html
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Summary comments on the World Bank Group’s 2017 Guidance on PPP Contractual Provisions
In an effort to promote standardization and expedited negotiation of contracts for Public-Private Partnerships (PPPs), the World Bank Group introduced the 2017 Edition of the Guidance on PPP Contractual Provisions.
The Guidance provides both sample language for contracts as well as commentaries to explain legal options. While the Guidance provides improved and more detailed advice as compared with the 2015 version, it continues to emphasize the preferences and requirements of the private sector partner without commensurate consideration of the perspective of the government.
In response, the following comments on the Guidance are offered by the Heinrich Boell Foundation to help ensure that PPP contracts achieve an appropriate balance between investor rights, on the one hand, and the rights of the government and people, on the other.
In addition to initial overarching observations, comments are offered on each of the sections addressed by the Guidance; namely:
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Force Majeure
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Material Adverse Government Action
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Change in Law
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Termination Payments
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Refinancing
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Lenders’ Step-In Rights
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Confidentiality and Transparency
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Governing Law and Dispute Resolution
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Bond Financing and Corporate Financing
The Guidance will be featured in the First African Roundtable on Infrastructure Governance, sponsored by the World Bank Group, African Development Bank (AfDB), International Monetary Fund (IMF), OECD and others, to be held in Cape Town on November 2-3, 2017.
Overarching Comments
First, the Guidance does not allocate the risk of PPPs between governments and private investors in a balanced manner. Rather, it places disproportionate risk on governments (referred to as the “Contracting Authority” in the Guidance). Although this may result in better pricing for governments on the front end, the true project costs are in some cases simply being loaded onto the back end. For instance, this would be the case if governments are forced to compensate investors for certain disruptions or delays in project caused by events beyond the government’s control.
Risks for the government and the general population could rise in the case of mega-PPPs, not only due to the magnitude of investments, but also because they are more prone to cost and schedule overruns and benefit shortfalls than smaller projects. In addition to those risks, governments may also provide the private investor with guarantees (e.g., minimum revenue guarantees) and other commitments that trigger burdensome financial obligations for the government in the long-term.
When risks are disproportionately allocated to the public sector, gains tend to be privatized and losses socialized. In such circumstances, governments may be required to take on additional debt or to divert resources from essential economic and/or social services to compensate the private partner when risks materialize. Such dynamics fuel inequality and even social unrest.
Second, under the Guidance’s recommended drafting language, if a government changes the law as part of a bona fide, non-discriminatory effort to regulate environmental and social issues in the public’s interest, this may trigger a duty to compensate the private partner. In most instances, such an outcome would be contrary to international jurisprudence. The duty to compensate would also have a “chilling effect” on changes in law that might otherwise be highly desirable, or even required by international law. For example, achieving the goals of the Paris Climate Agreement will require substantially strengthened legislation in almost all countries, such as legislation on fossil fuel subsidies or carbon pricing, incentives for renewable energies, or requirements for performance standards in order to ensure resilience to extreme climate or weather events. Such legislation might be discouraged by PPP contracts that follow the advice of the Guidance, as it may negatively affect investor returns and therefore could trigger claims for compensation by the host government.
Third, the Guidance encourages governments to enter into various contractual provisions that potentially restrict their ability to carry out important governmental functions, yet it does not address related social and environmental concerns that are of import to society. For example, the introductory section on “PPPs in Context” should note the importance of environmental and social impact assessments (ESIAs) and human rights impact assessments (HRIAs), and the need to allocate responsibility between the parties to a PPP for the identification, avoidance, mitigation, and management of the environmental and social impacts of their projects. Relatedly, governments could be advised to consider the capability of potential PPP partners to manage environmental and social/human rights risk in order to strengthen governments’ ability to meet their own environmental and human rights obligations and to minimize the risk that the project encounters delays and shut-downs. The “PPPs in Context” section should also offer guidance on climate change, a subject that is addressed only in a single sentence in a footnote despite the recognition in World Bank reports that climate change risks, mitigation and adaptation issues have become critical to infrastructure projects and should be expressly addressed in PPP contracts.
Indeed, the Guidance misses the opportunity to underscore the potential of PPPs to make contributions to sustainable development. While it focuses on the legal and regulatory environment that promotes private sector investment and risk allocation, the Guidance fails to mention the role of infrastructure in promoting sustainable development. Where it does mention environmental and human rights considerations, it does so in relation to risks of negative impacts. While ‘doing no harm’ is a crucial component of sustainable infrastructure, the Guidance must also address how sustainable infrastructure helps countries realize their national sustainable development visions and goals, including environmental and social sustainability, climate resilience, and local economic development.
As a final overarching comment, we note that the Guidance excludes the possibility of the participation of governments in PPPs as shareholders or partners. Instead, the Guidance assumes that the project company (the Private Partner) would be wholly owned by the private sector. While that is one model for PPPs, governments of developing and emerging market countries should have the option to participate in the ownership of the relevant project companies. To exclude that possibility is to deny governments the potential benefits of equity ownership, while potentially putting more onerous financial commitments on governments than they otherwise would be required to undertake. (For example, government obligations to compensate lenders, bondholders, and redundant employees if the private investor exits the project – as currently envisioned in the Guidance’s sample drafting language – would not be necessary if, with the exit of the private investor, the government has the right to assume full ownership and continued operation of the project company.) In any case, a wholly privately-owned project company structure is not necessary to provide the project company with significant benefits, such as tax concessions, currency exchange guarantees, and guarantee of the ability of the private party to bring in personnel to manage and operate the project. In fact, the entire structure of a wholly privately-owned project company appears to encourage maximum private participation in PPPs, and to place the maximum risk on the host government while removing any significant risk from the private participants in PPPs.
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Additional detailed comments can be found in the markup of the Guidance: Annotated Guidance on PPP Contract Provisions (pdf)
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Key Messages on the World Bank Group’s 2017 Guidance on PPP Contracts
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African, Caribbean and Pacific Group of States’ agricultural trade and the World Trade Organization negotiations
The long-running World Trade Organization (WTO) Doha negotiations remain unresolved. The stumbling block in 2008 was the intransigence of the United States of America over domestic support and the G-33 position on the creation of a safeguard, accessible for developing countries, against import surges and depressed prices (Special Safeguard Mechanism (SSM)). Since 2008, further issues have arisen outside of agriculture, and negotiators appear further from an agreement now than they were then.
Members agreed in 2008 to make linear tariff reductions within bands, but proposed exemptions for sensitive products; while providing for much needed flexibility, this threatened to undermine the reduction of tariffs. Ironically, the greater the reduction of tariffs is, the greater is the potential of exemptions for sensitive products to undermine that reduction. On the other hand, it has repeatedly been shown that WTO members require some flexibility to protect politically sensitive sectors.
Analysis at the time suggested that although developing countries as a group would benefit from the proposed reductions in tariffs, domestic support and export subsidies, the benefits were not evenly distributed. Indeed, many African, Caribbean and Pacific Group of States (ACP) countries were likely to become worse off as the result of loss of preferential access as most-favoured nation (MFN) tariffs were lowered. In addition, the rising price of temperate products would raise the costs of imports, worsening their terms of trade from two directions.
This paper examines the formula proposed in the 2008 draft modalities and compare it with the one proposed by Paraguay in March 2015. The authors attempt to take into account how the world has changed since 2008, by looking at the changes in tariffs facing ACP countries, in agricultural prices and in domestic support. They then examine proposed tariff cuts at a six-digit level. Next, the initial and final tariffs are aggregated to 24 sectors and analysed within a well-known general equilibrium model, the Global Trade Analysis Project (GTAP), to assess the impacts on welfare and trade flows for ACP countries. They conclude with recommendations for ACP countries in the WTO negotiations.
The new trading environment for ACP countries
Trade patterns
Agricultural exports from ACP countries have increased threefold since 2000, but their share of world agricultural exports has in fact declined since 1995 from 4.0 per cent to 3.6 per cent in 2012. This is because world agricultural trade has grown faster than ACP exports.
As non-agricultural commodity prices and exports have risen, the role of agricultural exports has declined. The share of ACP agricultural exports in total merchandise exports has halved since 1995 and is currently around 12 per cent. This is largely attributed to the exports of oil, which increased tenfold from $24 billion in 1995 to $267 billion in 2012. Crude oil prices increased more than fivefold from 1995 to 2012, but have fallen by half since June 2014. Current prices are $63 a barrel, well down from the peak of $144 in June 2008.
Agricultural exporters and importers of ACP have been greatly affected by price instability. The major ACP agricultural exports are cocoa, cotton, coffee, sugar and oilseeds. From the perspective of exporters, prices of tropical agricultural exports have risen since the early 2000s. This led some international institutions, such as the Food and Agriculture Organization of the United Nations, to forecast higher prices in the foreseeable future. However, prices have moved down since 2011, broadly in line with falling crude oil prices.
While rising agricultural prices are generally beneficial for exporters, many ACP countries are net food importers, and most are importers of temperate products such as wheat, rice, meat, dairy products and sugar. Food prices peaked in 2008 and again in 2011 but fell in 2014. The International Monetary Fund (IMF) forecasts that the food price index will fall 14 per cent below 2014 levels by 2020. Many African members of ACP have benefited from the non-food commodity boom. The IMF all-commodity price index rose threefold from 2000 to 2012. However, in the past two years the index has fallen 35 per cent. Energy has a large weight in the commodity price index, reflecting the value of production. Oil prices are expected to fall further in 2015 but rise moderately until 2020. As with food, non-food price movements benefit some ACP countries at the expense of others. Angola and Nigeria are major oil producers in Africa. Trinidad and Tobago in the Caribbean is a significant exporter of liquid natural gas. Numerous African countries are exporters of minerals such as gold, diamonds, copper and nickel.
Tariffs on ACP importers
Tariffs on ACP agricultural imports have fallen steadily since many ACP members joined WTO in 1995. The average effectively applied tariff for ACP countries as a group was 29 per cent in 1995 and is presently around 13 per cent.
Currently, regions within ACP with the highest applied tariffs are East Africa and the Pacific. East African countries have high tariffs on agricultural imports from China, the Republic of Korea and several other ACP regions, while the Pacific group of ACP countries maintains high tariffs on imports from most countries with the notable exception of the European Union. Perhaps as a result, trade between these regions is low. Bound rates are very high – over 70 per cent on average for ACP agricultural imports. Bound rates have not changed greatly since 1995. Most ACP countries would appear to have sufficient space to reduce their highest bound tariffs by 47 per cent without impinging on their applied rates.
Tariffs facing ACP exporters
Tariffs facing ACP agricultural exports have also fallen in recent years. Currently, tariffs on agricultural exports to the European Union, Japan and the United States are rather low, with the exception of Southern African exports to Japan. However, ACP exports to the Republic of Korea, particularly from the Southern African and Caribbean regions, face significant border protection. China imposes 76 per cent tariffs on sugar imports from some Caribbean countries, and India imposes barriers of 100 per cent or more on agricultural imports of, for example, alcohol, coffee and edible offal of fowl from all ACP regions.
The main market for most ACP countries is the European Union. Given the European Union’s multitude of preferential trade arrangements, the existing tariffs on agricultural imports are relatively low, less than 1 per cent for West, Central and East Africa and the Pacific, and about 3 per cent for Southern Africa. However, Pacific countries face a higher tariff of around 10 per cent. The main agricultural export for ACP countries to the European Union is sugar. The European Union has high tariffs on imports, up to €419 per ton, although ACP countries have preferential access under a quota system. In 2017, the quotas and tariffs are scheduled to be removed and ACP countries will face competition from low-cost producers such as Brazil. According to European Union estimates, sugar imports from ACP countries may drop by 43 per cent.
Low average tariffs may hide a number of tariff peaks. Some of these can be very large. For example, the European Union has a tariff on whey (HS 0404106200) of €167.2 per 100 kg, equivalent to 203 per cent.
Given the rise in agricultural prices, the reduction in tariffs, the growing importance of emerging economies and the concerns about domestic support, it is useful to analyse how ACP would be impacted under two possible scenarios. In 2008, it seemed that the Doha proposals on agriculture, as outlined in revision 4 of the Draft Modalities, would not have benefited ACP countries as a group. Most ACP countries would not have been obliged to make significant tariff reductions and hence would not have benefited from any improvement in resource reallocation. In addition, they would not benefit from any improvement in market access because of preference erosion. Many ACP countries enjoyed preferential access to developed country markets, and a general reduction in tariffs in these markets would make ACP countries worse off.
Download: ACP Group of States’ Agricultural Trade and the World Trade Organization Negotiations (PDF, 3.9 MB)
This publication was prepared by Mina Mashayekhi, Head, Trade Negotiations and Commercial Diplomacy Branch, Division on International Trade in Goods and Services, and Commodities (DITC), UNCTAD; David Vanzetti, Agricultural Economist, Visiting Fellow, Crowford School of Public Policy, Australia National University; Taisuke Ito and Luisa Rodriguez, Economic Affairs Officers, Trade Negotiations and Commercial Diplomacy Branch, DITC, UNCTAD.