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Leveraging the services sector for inclusive value chains in developing countries
The nature of production, business processes, and economic interdependence has been fundamentally altered by the emergence of regional and global value chains.
Changes of this scope and scale represent both opportunities and challenges in terms of advancing sustainable development outcomes in least developed and low income countries. Ensuring that developing country firms can not only participate in value chains but also, and perhaps more importantly, upgrade within them is of vital importance.
Both participation and upgrading within value chains require access to key services inputs such as information and communication technology services, financial services, energy, transportation, and logistics – many of which are outsourced. The increasing servicification of manufacturing, as well as growing levels of modularisation of services, helps to explain the rising share of services within the export baskets of both developing and developed economies. These trends have important implications for the achievement of inclusive and sustainable economic growth, given the contribution of services within new production networks to employment, economic growth, and poverty alleviation.
In this paper, Judith Fessehaie presents a conceptual framework of the contribution of services to value chains, examines the involvement of services within value chains at the macro, meso, and micro levels, and discusses the sustainable development implications of services in value chains. The author further provides readers with a number of key conclusions and general policy implications.
Executive Summary
With few exceptions, such as finance and logistics, the role of services in global value chains (GVCs) is usually neglected. Yet, services contribute to GVCs in broader and deeper ways. For example, it was technological advances in transport and communication that made it possible at all for transnational corporations, retailers, and brand houses to outsource and offshore production to distant countries. Moreover, most discussions on services and developing countries tend to be framed in terms of opportunities for trade in services (tourism, business process outsourcing (BPO)) rather than services supportive of participation and upgrading in GVCs. Only recently have we started to understand the extent of “servicification” of GVCs.
This paper looks at the contribution of services to GVCs. In particular, it discusses the multiple roles of services in GVCs – as essential inputs, highly profitable value-added links, and channels to attain the Sustainable Development Goals (SDGs).
Two aspects of services in GVCs are noticeable. Firstly, the areas where firms in developing countries have struggled to upgrade are service related: research and development (R&D), product development, and marketing are knowledge intensive and tend to be located in countries with high endowments of skills, technologies, and “know-how.” A small number of emerging economies have now joined this group of countries.
Secondly, participation and upgrading in GVCs requires access to services inputs which are usually outsourced. Some inputs are acquired using existing networks (telecom); others are outsourced to third parties. Competitive access to these inputs is essential to promote participation and upgrading in GVCs – for example, financial services allow firms to invest in innovation and expand production; transport services allow firms to access inputs and export markets; and technical testing and analysis services allow firms to participate in standards-intensive GVCs such as fresh fruits and vegetables and upgrade into high-value, niche markets such as organics or fair trade.
The paper discusses the servicification of GVCs for key service sectors, focusing on the following aspects:
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The participation and upgrading opportunities for Low Income Countries (LICs) and least developed countries (LDCs) in regional value chains (RVCs) in particular;
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The potential impact of servicification of GVCs on selected SDGs; and
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Policy implications in terms of trade in services and investment.
The key messages for policymakers arising from this paper are summarised as follows:
1. No “one size fits all” strategy
Value chain upgrading strategies need to be adjusted to take account of countries’ capabilities, industries, segment of the value chain targeted, and end markets. Hence, some services will be more important than others.
2. Trade policy design needs to be informed by detailed value chain analysis
Trade negotiations need to take a holistic view across goods and services. Trade policy design should be based on detailed understanding of which services sectors’ liberalisation and regulation can be instrumental to value chain competitiveness and where increased services exports and imports are supportive of exports of goods.
3. Domestic regulations
Domestic regulations are important to ensure access by SMEs, women, and youth; new entry and competition; and effective market access liberalisation in RVCs. The impact on SDGs critically depends on the design and enforcement of these regulations. Moreover, Heuser and Mattoo (2017) argue that exporting countries should place more emphasis on international cooperation in regulatory cooperation and on credible regulatory commitments to safeguard the interests of consumers in importing countries. These processes would be critical to support further processes of services liberalisation.
4. Need for broader policy interventions
Trade policies and domestic regulations need to be accompanied by policies and measures to address bottlenecks to firm competitiveness and increase firm productivity. These include: skills development, in particular at the technical level; increased access to ICT, finance, and business development services; investment in domestic technological upgrading in terms of equipment, management, and organisations; cheaper and more reliable physical infrastructure; improvement of administrative procedures and reduced red tape, in particular across borders; improved access to market information, business to business linkages, and export promotion; and institutional capacity building for government and business associations. Domestic policy interventions can also increase the domestic value-added content of exports by developing linkages between exporting firms and local SMEs.
5. Standards and participation in GVCs
Participation in GVCs often requires compliance with international standards. This requirement affects not only suppliers to global buyers but also suppliers further down the value chain. This implies that local service providers, such as information technology companies, professional service providers, and logistics companies, have to meet very high standards in order to supply their export-oriented customers. While compliance costs are generally high across the board, they can be particularly burdensome for SMEs in developing countries. Case studies from Latin America and Asia highlight standards compliance as a critical area for support from policymakers.
6. Broad stakeholder consultations
Designing value chains and trade strategies requires broad, substantial, and continuous consultations with government ministries and agencies, foreign and domestic lead firms, and domestic suppliers. This will ensure that strategies are effective and stakeholders are committed to their implementation and monitoring.
7. Role for public-private partnerships
Policymakers should explore areas where partnerships with lead firms can facilitate participation and upgrading processes. Examples include partnerships with offshore industry firms to promote skills development; with supermarkets to promote local sourcing; and with lead auto, machinery, and electronics original equipment manufacturers to localise high-value aftermarket services.
8. Regional value chains and regional cooperation
Regional value chains offer significant opportunities for LIC and LDC firms with limited product development, marketing, and distribution capabilities to participate and upgrade in value chains. Deepening regional integration in goods and services can support the development of RVCs. A recent review of case studies in Africa shows that successful services exports started in the region and in one mode of supply, and subsequently generated services exports in other, complementary modes, sometimes beyond the continent. Moreover, regional cooperation should target shared infrastructure and scale and/or knowledgeintensive services such as sectoral R&D.
This paper was produced under ICTSD’s Programme on Inclusive Economic Transformation as part of a project focused on global value chains which is aimed at empowering least developed and low income countries to effectively utilise value chains to achieve sustainable and inclusive economic transformation.
The views expressed in this publication are those of the author and do not necessarily reflect the views of ICTSD or the funding institutions.
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U.S.-African partnerships: Advancing common interests
Remarks by Thomas A. Shannon, Jr., Under Secretary for Political Affairs, United States Institute of Peace (USIP)
Introduction
Good morning. Thank you President Lindborg for your very kind and generous introduction. To you and to Ambassador Carson I am grateful for the invitation to participate in this important and timely symposium.
USIP has proven itself to be a unique and vital institution within our policy landscape. It is not only the keeper and dispenser of remarkable expertise in the practice of peace building and conflict resolution, but is also a convener and convoker of first category. USIP brings together some of our best strategic thinkers and most interesting organizations to discuss, debate, and shape American foreign policy.
Today is one such occasion. I am honored to help open this symposium on the relationship between the United States and Africa, with a special focus on the emerging partnerships that will define that relationship in the 21st century....
Today, change has velocity, driven by technology and connectivity. My experience has taught me that American power and American values can have a transformative impact on global change. I believe this is especially true for Africa. The partnership that we offer is especially relevant for countries in the midst of profound transitions from authoritarian to democratic governments, from exclusive to inclusive societies, from autarky models of development to ones based on open markets and regional integration, and from global isolation to intense participation in world events.
Setting the Global Stage
As we consider the purpose and nature of our relationship with Africa, it is important to note two things. First, Africa’s emergence as a point of global interest and strategic convergence. What happens on the continent over the next few years will shape the world’s economy, security, and well-being. Africa is no longer an addendum to global geopolitics. Instead, it is a bridge from the Indo-Pacific region to the larger Atlantic community, while also connecting directly to Europe and the Middle East. In the State Department it touches every geographic bureau, and at the Defense Department it connects to every geographic combatant command. In short, Africa’s centrality makes it immediately relevant to our success and demands attention and engagement.
Second, as far as the United States is concerned, Africa is already a continent of allies and partners. With a few notable exceptions, the vast majority of African states share our commitment to free markets, equitable trade, democracy and the rule of law, secure borders, and effective responses to global terrorist threats.
African states’ progress towards open markets and free trade have spurred economic growth, development, and tremendous opportunity across the continent. Indeed, six of the world’s ten fastest growing economies are in Africa. By 2030, Africa will represent almost a quarter of the world’s workforce and consumers, and by 2050 Africa’s population is projected to double to two billion people.
And our balance of trade with Africa is near parity – thanks to booming demand for infrastructure investment, aircraft, consumer products, and services. African states consistently attract strong investor attention from American companies.
Democracy and the rule of law are also advancing on the continent. Competitive, participatory elections are becoming the norm. Just two weeks ago, we witnessed the Supreme Court of Kenya’s decision to overturn the August 8 Presidential elections, and President Kenyatta’s mature decision to respect that ruling. The independent legal process, and broad support and respect for the Court’s decision, reflect the strength of Kenya’s democracy.
Finally, African allies and partners are stepping forward to lead regional initiatives to address long-running conflicts and humanitarian crises. In the Lake Chad Basin, Nigeria, Niger, Chad, and Cameroon formed the Multinational Joint Task Force to fight Boko Haram and ISIS-West Africa, and are coordinating military operations, civilian security, and humanitarian assistance. The United States is proud to support this and other regional initiatives to bring security and stability to citizens affected by conflict and food insecurity.
Strengthening our Relationship: The Path Forward
Though there is much to commend in recent developments on the continent, we all know that African states continue to face significant challenges. And any relationship, however strong, requires care and nurturing if it is to grow. As President Trump, Secretary Tillerson, and our national security team engage with our African partners, they will be guided by four strategic purposes.
Advancing Peace and Security
First, advancing peace and security. Doing so, yields dividends for citizens in Africa, and advances our own national security.
We are looking to African partners to take the lead in resolving regional conflict, and we will continue to partner with the African Union and regional organizations that lead successful efforts to end violence and prevent mass atrocities. While our hope and commitment to seeing an end to the devastating man-made crises in DRC, South Sudan, and other locations is enduring, the long term sustainability of our financial commitment requires continuing contributions from our assistance partners. We will also require greater political commitment from African leaders who want peace and stability in their countries and in their region. This will ensure that our support and investment is effective and enduring.
On the continent, we are working to build the capacity of regional peacekeepers, whose numbers continue to increase in Africa. In the past year, we have provided training to peacekeepers from over 20 African countries actively engaged in UN and African Union (AU) peacekeeping operations. This engagement has allowed more than ten battalions to deploy more effectively into some of the world’s most dangerous operations in Somalia, Mali, South Sudan, and the Central African Republic. Generously, Africans now comprise over 70 percent of the peacekeepers in Africa, up from 40 percent ten years ago. We acknowledge that peacekeeping comes with a tremendous risk. We both mourn and honor those Africans who have given their lives in peacekeeping operations.
The United States also addresses peace and security through humanitarian assistance to vulnerable populations such as refugees and internally displaced people. In 2016, we provided more than $1.5 billion to UNHCR’s humanitarian operations. With the support of USAID and the Department of State’s Bureau of Population, Refugees, and Migration – for example – an estimated 1.8 million people in South Sudan receive life-saving humanitarian assistance every month.
Our work to advance peace and security is not just regional. Increasingly, it is global. African states are partnering with us to address the danger that North Korea presents to the world. We asked African countries to join us in restricting political and economic engagement with North Korea, shutting down North Korea’s illicit trade networks, and publicly opposing North Korea’s reckless missile and nuclear tests. Numerous African partners have taken concrete actions, but more needs to be done.
Countering the Scourge of Terrorism
Second, countering the scourge of terrorism. This Administration seeks to partner with African allies to confront and counter terrorism in Africa, including defeating Boko Haram, al-Qaida in the Islamic Maghreb, and ISIS-West Africa. In recent years, African countries have intensified their regional and domestic efforts to take greater ownership on this front, often with great success. In Somalia, the African Union and Somali security forces are driving out al-Shabaab. Working through AU leadership, regional peacekeeping partners such as Uganda, Kenya, Ethiopia, Burundi, and Djibouti are helping to lead the way in this effort.
Military, law enforcement, and intelligence tools are vital to defend against these threats, but military force alone is not enough for a sustained peace. We must work with our partners, including civil society, traditional authorities, and religious leaders, to address the root causes of conflict, combat marginalization, and create economic opportunity. There is no long-term solution to terrorism absent this comprehensive approach.
Any progress in our counter-terrorism efforts, however, will be undone by abusive and illegal behavior by security forces. We will continue to hold our allies to the highest standards and ensure that individuals who fail to respect human rights in this important fight are held accountable.
The challenge now is for our African partners to complement their successes on the battlefield with trained law enforcement personnel to provide civilian security and economic policies to kick start moribund local economies.
Increasing Economic Growth and Investment
Third, promoting prosperity through economic growth and investment. This Administration seeks to do business not just in Africa, but with Africa, moving the focus of our economic relationship with the continent from aid to trade and investment. Trade will be free, fair, and reciprocal, and our investors will be more competitive. This is about creating jobs for both Americans and Africans throughout the continent.
One of our most important bipartisan endeavors in the economic arena is the African Growth and Opportunity Act, or AGOA. AGOA has been the cornerstone of U.S. economic engagement with countries of sub-Saharan Africa since 2000.
To highlight a few of the achievements:
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U.S. investment in sub-Saharan Africa increased from $9 billion a year in 2001 to $34 billion in 2014 and created over 300,000 jobs across Africa.
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U.S. exports to Africa rose at an even faster rate, from $6 billion in 2000 to $25 billion in 2014.
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U.S. imports from sub-Saharan Africa under AGOA totaled almost $11 billion in 2016, a 14% increase from the previous year alone.
These successes, and the knowledge that trade helps strengthen democratic institutions and reinforce regional stability, are prime reasons the U.S. Congress overwhelmingly approved legislation in 2015 to re-authorize AGOA for ten more years.
We remain committed to our economic partnerships with Africa and will continue to seek opportunities to strengthen two-way trade and investment. USAID, for example, has established three trade hubs to help the African private sector take advantage of AGOA and expand exports to the United States. Additionally, the Millennium Challenge Corporation, or MCC, provides economic assistance to governments that have already established good policy environments. Most of the MCC’s work has been and continues to be in Africa.
Promoting Democracy and Good Governance
Finally, promoting democracy and good governance. Efforts to secure enduring peace are undermined when governments fail to provide good governance and uphold the rule of law – the foundation for security and the driver of inclusive economic growth in free societies.
We see the corrosive effects of corruption as fundamentally detrimental to the future success of African societies. An AU study estimated corruption costs the continent roughly $150 billion per year. Bribes and low-level corruption worsen poverty and inequality, and harm citizens’ faith in government. Corruption – particularly at the highest levels – deters foreign investment, foments instability, and diminishes the capacity of security forces and other institutions to deliver basic services.
The United States will continue to partner with regional organizations to advance good governance and the rule of law. In The Gambia, when President Jammeh reneged on his commitment to accept the results of the presidential election in December 2016, the Economic Community of West African States, or ECOWAS, stepped up with other regional leaders and took a principled stand for democracy. ECOWAS and regional leaders organized a strong diplomatic campaign to influence President Jammeh to give up power. He ultimately stepped aside, peacefully ceding power to his democratically elected successor, President Barrow. This was an excellent example of an African-conceived and African-managed effort in strengthening democracy, and one that we were proud to support.
Conclusion
Africa is a place of trusted friends and partners. We must continue to journey together in our quest for peace and security, inclusive democracy and good governance, a trained work force with economic opportunities, and an empowered civil society. As an old African proverb says, “If you want to go quickly, go alone. If you want to go far, go together.” We plan to go together with our African partners.
Thank you again for the opportunity to be here today and for your commitment to advancing the longstanding ties between the United States and Africa.
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ICE 2017: ECA praised for “excellent initiative” in Central Africa
Cameroon’s Minister of Trade, Mr. Luc Magloire Mbarga Atangana, has described the upcoming meeting of the Inter-Governmental Committee of Experts for Central Africa (ICE 2017) as “an excellent initiative,” given its focus on promoting industrialization, regional integration and the consumption of products made in Central Africa.
Mr. Atangana was speaking during a meeting with Antonio Pedro, Director of ECA’s Sub-Regional Office for Central Africa (SRO-CA), on 12 September 2017 in Yaoundé, Cameroon.
Mr. Pedro told the minister that the choice of the theme for the ICE 2017, “Made in Central Africa: from a vicious to a virtuous circle,” was ECA’s way of responding to the decision taken on 23 December 2016 during the Extraordinary Summit of Central African heads of state of government to diversify their economies as a means to reducing the region’s vulnerability to external shocks and dependence on the export of raw materials.
Both personalities agreed that Central Africa’s rich endowments in natural resources and the market opportunities that the operationalization of the Continental Free Trade Area (CFTA) would create provide the necessary fundamentals for sustainable structural transformation and job creation in Central Africa.
They discussed progress made by other RECs in promoting intra-Africa trade, noting that “Central Africa is lagging behind other sub-regions, but that its success stories should be emulated and replicated for scale and transformational change.”
They also concurred that “by maximizing trade in intermediate goods and fostering backward and forward integration, countries in Central Africa will benefit more from trading with each other than with the external world.”
The Minister of Trade stated that with a population of more than 150 million, Central Africa provides a “big enough market” for all its member states, “especially if we effectively promote free movement of goods and services.”
He cited a “positive example” of Cameroon, which imports palm oil from Gabon for its refineries that produce vegetable oils and soap. “We need to do more of this,” said Mr. Atangana who then deplored the fact that Cameroon’s textile industry does not benefit much from the country’s cotton production since, “only about 4% is transformed locally. The rest is exported.”
Mr. Atangana said ECA’s continental knowledge and expertise in structural transformation and trade issues will be of great benefit to Cameroon and the entire Central African sub region.
Against this backdrop, Mr. Pedro congratulated Cameroon for its ongoing efforts to promote locally produced goods in supermarkets and other strategic areas around the country. “This is in line with our own vision at ECA,” he added.
The ECA director reassured the minister of ECA’s support, stating, “ECA is available to provide evidence-based analyses on the potential of free trade areas within Africa and also support all other efforts to boost economic diversification and the productive capabilities of countries in the sub region. We look forward to collaborating with you and your ministry in advancing this agenda.”
Addressing the media after his meeting with the minister, Mr. Pedro said: “I was pleased with my meeting with the minister. We share the same vision and agreed that it is essential to redirect our efforts towards the promotion of economic diversification in Central Africa through resource-driven and trade-induced industrialization. So we’ve found a very good partner in Cameroon.”
ICE 2017 will take place in Douala from 26-29 September 2017. It provides opportunity for high-level policy makers, captains of industry and other stakeholder to reflect on how to create resilient and globally competitive economies in Central Africa through the promotion of local production and consumption.
It will bring together representatives of ministries in charge of planning, economy, industry, mines, trade, and small and medium-sized enterprises; delegates from ECCAS, CEMAC and their specialized agencies; representatives of UNIDO, FAO, UNDP, AfDB, the private sector, civil society, universities and research centres in the sub-region.
Thirty-Third Meeting of the Intergovernmental Committee of Experts (ICE 2017)
Douala, Cameroon, 26-29 September 2017
The overarching objective of the thirty-third session of ICE is to review regulatory issues pertaining to the mandate and functioning of the SRO-CA, enable experts to discuss economic and social development issues in Central Africa and, particularly, the development of an industrial fabric in Central Africa as well as propose strategies for accelerating structural transformation of the economies of the sub-region.
The meeting also aims to take stock of the status of implementation of sub-regional, regional and international initiatives and make appropriate recommendations for inclusive and sustainable development in Central Africa. Another objective of the meeting is to review progress made in the implementation of ECA/SRO-CA’s 2016 programme of work and provide directions for the implementation of the Office’s 2017 programme.
Participants will listen to presentations on the theme of the ICE and consider the following documents: (i) report on the socio-economic situation in Central Africa; (ii) ECA/SRO-CA activity report for 2016 and 2017 programme of work; (iii) annual progress report on regional and international programmes and other specific initiatives in the sub-region; (iv) annual report on sub-regional initiatives devoted to roaming this year; and (v) 2017 edition of the Economic Report on Africa.
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Featured trade finance tweet, from @AUTradeIndustry:
In 2014, SMEs constituted more than 80% of enterprises in Africa, but they accounted for only 28% of banks’ trade finance portfolio @AfDB
Starting today, in Dar es Salaam: AUC/USAID BIAT Workshop on Trade Finance and Trade Information
The workshop (13-15 September) provides a forum for exchange of information on Boosting Intra African Trade and specifically on trade information and trade finance. It will develop recommendations and best practices for consideration by AU policy organs. [To follow debates from the BIAT workshop: @InvestEAfrica, @AUTradeIndustry, #BIAT2017]
The PACCI/AU/UNECA/ATPC workshop on the CFTA and the African private sector finished yesterday in Accra.
Extract from the concept note: In spite of the importance that business groups attach to the creation of a single continental market for goods and services, this conference will be the first organized on CFTA from the private sector perspective. The initiative launched by UNECA/ATPC to support the private sector to work with governments, the AU Commission, UN and international organizations on boosting intra-African cooperation and integration was long overdue. By bringing the private sector in as a core partner in the formation of a continental free trade area, this conference is opening up a world of new possibilities to create opportunities for businesses to exploit and bring about benefits to ordinary citizens of Africa.
Ghana’s trade minister: Private sector will succeed through implementation of CFTA. The Minister of Trade and Industry, Alan Kwadwo Kyerematen, has assured that the private sector in Ghana and Africa will succeed if the implementation of the CFTA is pushed through. “In actual fact, whether there will be challenges or not as a continent we have no choice but to move ahead with this continental agenda. First, I’m not sure that there is any evidence of any country in the world that has achieved significant growth without taking advantage of the regional market. All the countries that have achieved superlative growth whether it is in Asia or is in North America you would find eventually that they’ve achieved that growth partly based on the advantage they’ve taken on the regional market. Also there is evidence that many of these countries have actually used regional markets as a stepping stone into the global market and so we should not be surprised if we find that most of the world’s advanced trading nations are also part of the most integrated regional economies,” he explained. [GNCCI: Africa needs CFTA to prosper economically]
Regional markets, politics and value chains: the case of West African cement (ECDPM)
This study points to the need to view cement not just as a background story to more important development policies or more ambitious narratives. With recent regional and national policies in West Africa increasingly focused on economic transformation and the potential role of low-value minerals-based industrialisation, cement is at the centre of a range of development processes through production, distribution and construction, often funded or co-funded by public money. Further, the cement sector seems to be at the nexus of a range of structural and current issues for development policy in West Africa: high local production and transport costs; cheap cement imports from East Asia; a regional power or hegemon placing national over regional interests; weak competition effects to counteract inefficiencies in production; and unpredictable and politically motivated policy-making. Lessons from the cement sector may be valuable for promoting value chain development in other sectors in the region. [The authors: Bruce Byiers, Karim Karaki, Jan Vanheukelom]
Cement wars: How Dangote price cuts drive competitors into loss territory (The EastAfrican)
The entry of Africa’s richest man, Aliko Dangote, into the cement business in Tanzania has rocked the industry in the region, with cement manufacturers looking at huge losses. The cutthroat competition introduced by Dangote Cement through price cuts, is forcing the firm’s competitors to sell their products at prices lower than their cost of production. In the past two weeks, two of the region’s cement players with more than 60 per cent combined market share in Tanzania, posted negative results which they blamed on the price wars that have seen them consistently sell their products below cost as they struggle to stay afloat.
COMESA-EAC-SADC TFTA: Mauritius to sign the agreement in October (GoM)
The COMESA-EAC-SADC TFTA Agreement will be signed by Mauritius in October 2017. The signature will take place during a national workshop on the COMESA-EAC-SADC TFTA which the country will host. The workshop aims at raising awareness, and sensitising stakeholders on the COMESA-EAC-SADC TFTA, including trade opportunities and benefits to be derived from an enlarged market of 26 African countries in the Eastern and Southern African region.
East Africa: A concrete step ahead on sustainable HS classification capacity (WCO)
Under the auspices of the WCO/JICA Joint Project, launched in July 2016 to support trade facilitation in Africa, a regional workshop for Master Trainers on HS Classification in East Africa was held in Kampala, 4-8 September. This is the last workshop in a series of three activities on HS Classification, jointly supported by JICA and WCO, which aims at developing (i) a pool of well-experienced trainers and (ii) training materials including case studies to be used by those trainers. Twenty-five customs officials from Burundi, Kenya, Rwanda, Tanzania and Uganda participated in the workshop.
Fiscal rules: Coping with revenue volatility in Lesotho and Swaziland (IMF)
Over the past decade, Lesotho and Swaziland have faced significant volatility in their fiscal revenues, owing to highly unstable SACU receipts. Based on model analysis, this paper explores the advantages of implementing fiscal rules to deal with such volatility. To successfully implement a rules-based fiscal policy framework in Lesotho and Swaziland, sufficient groundwork would be needed - strengthening the credibility of fiscal policy and of revenue management and expenditure controls, while building institutional and legislative frameworks. Immediate budgetary objectives - alleviating the impact of volatile SACU revenues - need to be rooted in medium-term fiscal plans. Thus, the impact could be mitigated by saving windfalls resulting from positive adjustments of SACU revenues and internalizing the downward adjustments when SACU transfer falls below the steady-state level. Developing a rules-based fiscal framework requires a government commitment to saving SACU revenue windfalls and prudent government spending in good times. This would require broad support of stakeholders amid political pressure. Greater savings of SACU revenues could be generated, if stakeholders perceive mitigating the volatility of output as welfare enhancing.
Consultancy opportunity: 2018 Commonwealth Trade Review (The Commonwealth)
Building on the success of the first review, the Secretariat is preparing the next report to be launched at CHOGM in London in 2018. The 2018 Review seeks to further expand analysis on the ‘Commonwealth effect’ by examining how more effective trade governance could lead to increased trade, as well as gains from trade, in the Commonwealth. The report will also consider how Commonwealth countries can harness digitisation and new technologies to grow future trade and investment, within this context.
South Africa’s Department of Trade and Industry: updates
(i) 2016/2017 Annual Incentive Performance Report (pdf). During 2016/17 a total of 1 549 enterprises were approved across all the Incentive Development and Administration Division incentives, totalling an amount of R12.8bn and attracting an estimated R39.4bn in investment. Throughout this reporting period 23 351 projected new jobs were recorded and claims amounted to R4.6bn were paid to beneficiaries. Overall, Gauteng took the lead with regard to number of approvals (597), and projected number of new jobs (8 647). Western Cape was in the second position with 556 approvals, and a projected 8 583 new jobs, and KwaZulu-Natal in third place with 211 approvals and an anticipated 4 513 new jobs.
(ii) 2016/17 Annual Report (pdf). A recent review of regional target markets highlighted the necessity for South Africa to leverage its unique value propositions to retain or improve current trade in identified target markets such as Asia, Africa and the Middle East, where distinct capabilities in technology and skills transfer, high-technology solutions, agro-processing and supply capabilities have been proved. South Africa’s value proposition is unique in that its proximity to African and Middle Eastern markets is uncontested, that it is the only African country with a sustained and effective membership to BRICS, and that it can leverage off trade agreements to which it is a signatory. These elements continue to be teased out to maintain South Africa’s lead position as a supplier of choice in several emerging high-growth markets, while increasing its share of high-value exports and locally manufactured products in markets where its position is currently less than optimal. The department is conducting a study towards the elaboration of a services export strategy that is aimed at assisting South African firms to integrate into the regional and global supply chains of multinational firms by actively promoting subcontracting in power, infrastructure programmes and the built environment.
Nigeria: Foreign trade in goods statistics (Q2 2017)
The total value of Nigeria’s merchandise trade at the end of Q2, 2017 was N5,697.5bn. This shows a slight increase of 7.7% from the value of N 5,292.4bn recorded in the preceding quarter. Total export for the period under review stood at N3,102.0bn, while total import stood at N 2,595.5bn. Imports in the review period showed an increase of 13.5% more than the value recorded in the preceding quarter, while exports grew at 3.2% when compared to the previous quarter. The marginal rise in exports as well as increased imports brought the country’s trade balance in Q2, 2017 to N506.5bn from N719.4bn recorded in the preceding quarter. This trade surplus of N506.5bn recorded during the period under review was therefore 29.6% lower than the figure recorded in Q1, 2017. Trade by Mode of Transport:
In Q2 2017, Nigeria’s major mode of transporting its goods to partner countries was by water. Transport of goods by water accounted for N3, 089.6bn or 99.6% of total export. The goods exported through the road were valued at N7.4bn while goods exported through the air totaled N5.1bn. For import trade, the major mode of transporting goods into the country was through water transport. The water transport accounted for N2, 450.7bn or 94.45. Goods that entered the country through Road transport accounted for N20.1bn or 0.7% while those that entered through Air transport accounted for N124.5bn or 4.8%. Other modes of transport were used but their contributions were low. [Download the accompanying tables] [Related: NBS develops trade database for data users] [Ports Authority harps on multimodal cargo haulage to ease traffic congestion]
Kenya plans to import sugar from COMESA (The EastAfrican)
Kenya plans to start importing sugar from COMESA member states after a four-months break that saw the country’s private firms ship in more than 250,000 tonnes of duty free sugar from countries outside the 19-member bloc. Kenya’s sugar directorate said the move aims to bridge the widening sugar deficit in the country, which is expected to hit 600,000 tonnes, from the current 300,000 tonnes, in the next three months. Last year, Kenya’s sugar demand was 900,000 tonnes against local production of 639,000 tonnes. This year’s demand is projected at one million tonnes against local production of about 400,000 tonnes, largely due to underperformance by Mumias Sugar Company and prolonged drought, according to the Sugar Directorate in Kenya’s Agriculture and Food Authority.
ECOWAP 2015-2025: A panoply of policy instruments to promote sustainable food systems in West Africa (ECDPM)
ECDPM’s Carmen Torres interviews ECOWAS Director Alain Sy Traoré, on how his organisation is seeking to use its new agricultural policy, ECOWAP 2015-2025, and various other policy tools, to promote agricultural development, food and nutrition security and the sustainability of food systems in West Africa. [Download latest GREAT Insights: Sustainable food systems]
Trade finance: Changing times call for a collaborative approach (GTR)
The International Chamber of Commerce Banking Commission’s new head of policy, Olivier Paul, discusses how the Banking Commission’s role will be critical as the trade finance industry adapts to unprecedented change.
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African Union BIAT Workshop on Trade Finance and Trade Information in Africa
The African Union Commission, in partnership with USAID, is hosting a Workshop on Trade Finance and Trade Information in Africa in Dar es Salaam, United Republic of Tanzania, from 13 to 15 September 2017.
Introduction
The Commission of the African Union in partnership with the United States Agency for international Development (USAID) envisaged holding a Workshop on Trade Finance and Trade Information in Africa in line with the African Union Action Plan for Boosting Intra-African Trade Program and the USAID-African Union Partnership Program.
In January 2012, the African Union Heads of State and Government, during their 18th Ordinary Session of their Summit adopted a pdf Decision on Boosting Intra-African Trade (BIAT) and Fast Tracking the Establishment of the Continental Free Trade Area (CFTA) (34 KB) . Among other things, the Decision was aimed at promoting Africa’s Regional Integration agenda as well as making trade serve more effectively as an instrument for the attainment of Africa’s rapid and sustainable socio-economic development. Within this decision, they also adopted an Action Plan for Boosting intra African trade (BIAT) and resolved to implement a CFTA by an indicative date of 2017. The Action Plan on the other hand is aimed at deepening Africa’s market integration and significantly increasing the volume of trade that African countries undertake amongst themselves.
Upon the adoption of African Union Agenda 2063, in 2013, the Heads of State and Government also resolved to develop a Ten-Year Implementation Plan that was subsequently adopted by the AU Summit held in June 2015. The CFTA is one of the projects to be implemented in the first 10 year plan of Agenda 2063. Member States and the Regional Economic Communities (RECs) are responsible for the on-the-ground implementation of these initiatives, with support from various partners through a number of different initiatives. The AUC, mainly through the Department of Trade and Industry (DTI), plays a number of key roles in promoting implementation of the Action Plan for Boosting Intra-African Trade (BIAT)[1] and the CFTA. These include the key leadership functions of agenda setting, thought leadership, convening, knowledge management, and monitoring and reporting.
Under the USAID African Union Partnership program (AUP), a stocktaking of BIAT on behalf of DTI was undertaken in late 2014. The aim was to inform strategic planning and dialogue among key constituents and development partners, with a focus on opportunities to advance BIAT implementation within actors’ limited resources and mandates. It was found that the RECs and other key constituents have a strong demand for AUC leadership on a range of specific priority topics for the African trade agenda, and would like the AUC to engage them in implementation of agreements and principles, data and information flows, and communication and collaboration. Following these observations, the DTI and USAID propose to expand their current knowledge sharing systems and exchange through a dedicated three-day Workshop of the African Union Commission, RECs, select business councils, and partners on the Trade Finance and Trade Information, which are two of the seven Clusters of the BIAT Action Plan.[2]
Trade Finance and Trade Information in Africa
Trade Finance and trade information are two crucial aspects in boosting intra African trade. Issues related to the financing of commercial transactions and access to and sharing of information are essential for the trade intensification in Africa. In this regard, the BIAT Action Plan envisages developing and strengthening African financial institutions and mechanisms to promote intra-African trade and investment, and also filling trade information gaps so as to create more trade opportunities for the African business community.
The Regional Economic Communities (RECs) have various programs aimed at addressing both Trade Information and Trade Finance. However, the implementation of the same varies from REC to REC. For instance, in Trade Finance, ECOWAS and COMESA have trade and Investment Banks serving their respective regions, while other RECs are yet to have similar institutions. In regards to trade Information, five of the eight AU recognized RECs, (COMESA, EAC, ECOWAS, SADC and IGAD) have already set up platforms which collates and disseminate semi-annually or monthly trade information from the Member States. In addition, COMESA and ECOWAS also have Community Information Centers (CICs) which enable exchange of information and data.
In addition to the RECs, various other pan African institutions have taken a lead in providing services related to trade finance and trade Information. In this regard, The African development bank and the Afreximbank have strong portfolios dealing with these aspects. To compliment these institutions, some development partners such as USAID through its Trade Hubs also have important ongoing programs especially under trade information in relation to the Africa Growth Opportunity Act (AGOA).
Objective of the Workshop
This Workshop therefore will provide a Forum for exchange of information on Boosting intra African Trade and specifically on Trade Information and Trade Finance. It will offer an opportunity to develop recommendations as well as best practices on Trade Information and Trade Finance for consideration by African Union Policy Organs. The Workshop will also aim to provide networking opportunities as well as expand and strengthen knowledge exchange among practitioners. The outcomes of the Workshop will also inform other initiatives such as the establishment of an African Trade Observatory envisaged under the CFTA, which is being supported by USAID.
Participation
The following is the expected participation at the Workshop: Representatives from RECs Secretariats, African Union Commission, the Bureau of the AU Specialized Technical Committees on Trade, Industry and Minerals, USAID, the Pan African Chambers of Commerce and Industry, African Development Bank, World Bank, Afreximbank, UNECA, Regional Business Councils and targeted businesses involved in intra-African trade. In light of unique challenges facing women and youth in business with respect to Trade Finance and Trade Information, women and young entrepreneurs will also participate in the Workshop.
For additional BIAT documents and resources, please visit tralac’s CFTA Resources page.
[1] See pdf Boosting Intra-African Trade: Issues Affecting Intra-African Trade, Proposed Action Plan for Boosting Intra-African Trade and Framework for the fast-tracking of a CFTA (928 KB)
[2] Other Clusters of the Action Plan are as follows: Trade Policy, Trade Facilitation, Productive capacities, Factor Market Integration and Trade related Infrastructure.
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2017 African Prosperity Conference on Business and the Continental Free Trade Area
Private sector will succeed through implementation of CFTA – Ghana Trade Minister
The Minister of Trade and Industry, Alan Kwadwo Kyerematen has assured that the private sector in the country and Africa will succeed if the implementation of the Continental Free Trade Area (CFTA) is pushed through.
According to the minister, the implementation of Continental Free Trade Area (CFTA) is a major step in consolidating the integration agenda for Africa and that is what his government believes will make businesses in the country succeed.
“Today, we are sowing the seeds of what I believe ultimately would determine whether this enterprise will succeed or not which is the participation of the private sector in Africa in the implementation of the Continental Free Trade Area (CFTA).”
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, Mr. Kyerematen further said although there may be challenges with the implementation of the CFTA amidst doubts, as a continent, we have no choice than to go ahead with it because it would be of significant help for Ghana and Africa.
“In actual fact, whether there will be challenges or not as a continent we have no choice but to move ahead with this continental agenda... First, I’m not sure that there is any evidence of any country in the world that has achieved significant growth without taking advantage of the regional market. All the countries that have achieved superlative growth whether it is in Asia or is in North America you would find eventually that they’ve achieved that growth partly based on the advantage they’ve taken on the regional market.
“Also there is evidence that many of these countries have actually used regional markets as a stepping stone into the global market and so we should not be surprised if we find that most of the world’s advanced trading nations are also part of the most integrated regional economies,” he explained.
The Continental Free Trade Agreement 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.
2017 Conference on Business and the Continental Free Trade Area
Organised by the UN Economic Commission for Africa/African Trade Policy Centre (ATPC), Pan African Chamber of Commerce and Industry (PACCI), and the Ghana National Chamber of Commerce and Industry
Background
The African Union (AU) summit formally launched negotiations for a Continental Free Trade Area (CFTA) at its meeting in Johannesburg, South Africa on 15 June, which became a priority initiative under the AU’s Agenda 2063. The latter has laid out a vision for the trajectory of African development during the next five decades.
The signing of the Continental Free Trade Area agreement targeted for December 2017 is expected to set Africa on a new development path. There is a huge amount to be gained from a free trade area for Africa. Compared with the other regions of the world, intra-African trade is the lowest of any region in the world at 17,6%. Intra-regional trade in Europe is 60%. Within the association of Southeast Asian Nations it is 30% and in South America 21%.
Africa has more to gain than lose in creating the CFTA, which will rival trade agreements like the EU-US Transatlantic Trade and Investment Partnership and the 16-member Regional Comprehensive Economic Partnership. Africa already has the Tripartite Free Trade Area (TFTA) signed in June 2015 combining three largest trading blocs: The East African Community, the Common Market for Eastern and Southern Africa (COMESA) and the Southern Africa Development Community (SADC).
The three regional economic communities have a combined GDP in excess of 1.3 trillion dollars and a population of 565 million. However, the TFTA, which has been signed by 16 of the 26 member countries, is yet to be ratified to come into force.
With the support of the UNECA/ATPC, this conference aims to raise the awareness of business leaders and operators from across the region about the CFTA, to apprise them about the on-going negotiation on CFTA and to further strengthen the engagement of the private sector to accelerate the implementation of the agreement once negotiated.
The conference will take place in Accra, Ghana, on 12th and 13th September, 2017.
Basis for the Conference
In spite of the importance that business groups attach to the creation of a single continental market for goods and services, this conference will be the first organized on CFTA from the private sector perspective. The initiative launched by UNECA/ATPC to support the private sector to work with governments, the AU Commission, UN and international organizations on boosting intra-African cooperation and integration was long overdue. By bringing the private sector in as a core partner in the formation of a continental free trade area, this conference is opening up a world of new possibilities to create opportunities for businesses to exploit and bring about benefits to ordinary citizens of Africa.
This two-day conference will focus on the role of business in supporting and promoting the CFTA. The discussion will be a great opportunity to examine the progress made in the negotiation of the CFTA will provide a strong base for engaging the private sector in the implementation of the agreement.
Objectives
The African Union has set the ambitious target of completing the continental free trade on goods and services (CFTA) negotiations in 2017. This ambitious continental free trade pact, which will build on the COMESA-EAC-SADC tri-partite free trade agreement, is expected to ‘yield significant benefits’ and will ‘foster economic growth, equitable development, and support integration through trade liberalization, industrialization and infrastructure development’.
Obviously the private sector is expected to feature prominently in the CFTA negotiations. In particular, the trade talks, among other things, will likely focus on harmonization of sanitary and phytosanitary or SPS measures and Technical Barriers to Trade (TBT) standards and the elimination of non-tariff barriers (NTBs).
The Pan African Chamber of Commerce and Industry working with the African Union Commission, the UNECA/Trade Policy Center and other AUC partners works towards promoting effective trade and investment policies under the CFTA. The 2017 African Chambers and business associations conference will have plenary as well as break-out sessions.
The main four key objectives of the Conference are to:
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Provide an opportunity for regional and sub-regional organizations to share progress to date and the remaining gaps of their CFTA negotiations with the private sector;
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Examine ways of engaging the private sector on a regular and substantive basis;
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Facilitate closer economic ties amongst African business community to address new and emerging challenges relating to intra-African trade;
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Share ideas on the role of the private sector in the implementation of the CFTA once the agreement is signed;
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In addition, four critical issues will be recognized and given ‘priority attention’: jobs, technology, women, and green economy.
Key activities
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Pre-Conference Activities – A thorough engagement of key stakeholders with African and global experience will take place through pre-conference (i) web-based and phone consultations. The range of topics addressed here will mirror that of the conference. These will serve to provide inputs for identifying priority topics, developing the conference panels, and will also allow for specific recommendations to be endorsed by conference delegates. (ii) Activities geared specifically towards young professionals and business leaders, and students of business and public administration will be another important pillar. African young professionals and business leaders will participate in the consultations which will conclude with their recommendations on what they can do to advance the CFTA. (iii) Linkages and synergies to events around the CFTA taking place at the REC levels, and other related events, will be strategic and timely.
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Conference on “Business and the Continental Free Trade Area” – will focus on role of the private sector in: i) Catalyzing a coalition of stakeholders (private sector, civil society, parliamentarians and academia) around the CFTA, and (ii) Engaging the private sector to boost continental trade.
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Post-Conference Activities – A number of activities will emerge from the “2017 Business and the Continental Free Trade Area” conference. The approach on these will be to support ideas, recommendations, and activities that emerge organically from the event. A few ideas, however, are being developed to support a programmatic approach: (i) Establishment of a unit within national chambers to champion the implementation of the CFTA; (ii) Articulating specific follow-up activities that will emerge from the conference. (iii) Materials, collateral, video and developed modules will enable wholesale approach and south-south knowledge exchange and dissemination.
Results
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Improved capacity of chambers of commerce and industry/business associations in understanding trade policies and issues related to the CFTA with at least 2 national events conducted promoting the CFTA by 70% of chambers of commerce.
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At national levels enhanced dialogue and networking among government officials and business leaders conducted to promote the CFTA with at least 1 national public/private event conducted promoting the CFTA by 70% of chambers of commerce.
Deliverables
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Establishment of a unit within national chambers to advance and monitor the implementation of the CFTA;
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Four conference papers on (i) Review the implications of EPA, AGOA and other trade instruments on the CFTA; (ii) How can SMEs increase their cross border trade in Africa; (iii) How the private sector can advance and monitor the implementation of the CFTA following it’s ratification
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Recommendations on the priority issues for action and follow up.
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Agreement to use existing mechanisms to review and follow up on the conference commitments.
Conference Participants
The Conference will be attended by about 150 economic operators including exporters, importers, investors and trade support institutions along with governments within Africa and beyond.
High Level Speakers include H.E. Mr. Alan Keyerematen (Ghana Minister of Trade), H.E. Mr. Albert Muchanga, AU Commissioner for Trade and Industry, Nana Dr. Appiagyei Dankawoso, President of the Pan African Chamber of Commerce and Industry and the Ghana National Chamber of Commerce and Industry, and Dr. David Luke, UNECA Programme Coordinator: African Trade Policy Center.
The Pan African Chamber of Commerce and Industry was established by 35 founding national business chambers in 2009 to be the main business advocacy organization in Africa. PACCI provides exclusive support, networking opportunities, and access to innovative insight and analysis for our members. Today PACCI is the most representative business organization in the continent, providing a voice for business at a continental and global level. It has one key objective: to strengthen Africa’s business competitiveness across all sectors.
PACCI has been partnering with UNECA/ATPC to enhance private sector participation in trade policy making. The ATPC has been assisting PACCI to build its capacity since 2013.
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Dti pushes ahead with localisation to boost domestic growth
South Africa is working towards more effective monitoring and enforcement of localisation of products and compliance with local content requirements, Trade and Industry Minister Rob Davies said on Tuesday.
Briefing reporters after the Department of Trade and Industry (dti) presented its 2016/17 Annual Report to the Portfolio Committee on Trade and Industry, Minister Davies said localisation and incentives are two policy tools that are the most impactful in supporting industrialisation.
“Localisation is one of the levers that South Africa has identified as a tool to fastrack industrialisation. As South African government we are not signatory to the World Trade Organisation’s Government Procurement Agreement which does allow localisation polices,” said Minister Davies.
“[W]e are working towards much more effective monitoring and enforcement of localisation because once localisation and designations are turned into practice by National Treasury, it’s no longer an option. The Department of Performance Monitoring and Evaluation (DPME) is going to follow up on this issue so that we make sure the leakages we have seen from localisation, as a result of some tender decisions, are plugged,” said Minister Davies.
The Minister said the DPME is already engaged in a process of reviewing the effectiveness of incentives.
“The DPME has started looking at some of our incentives and they’re looking at it from the point of view of how we can we improve what we get from our incentives and their design. They have concluded that there is value for money in the incentives,” said the Minister.
Minister Davies stated that in terms of the trade and investment rules under the WTO, as a country, government cannot impose localisation policies on the private sector.
“We have to use other tools like working together with Proudly South Africa, the private sector and manufacturing sector to engage them on the implementation and also pursue more retailers to come on board too,” added Davies.
Designation gaining traction
Dti Director General Lionel October said the department has so far designated over 20 products.
“In all of them, we’ve seen results. We’ve seen the revival of the clothing and textiles and footwear industry. In terms of the buses that were designated, all the buses from Rea Vaya to MyCiTi are now locally procured. We’ve revived the bus industry,” said October.
The designation policy instrument is one of a suite of policy levers designed to maximise support for domestic manufacturing.
Audit outcomes
The Auditor General’s audit outcomes showed that the department had received a clean audit. Six of the 10 entities, including the department, audited by the Auditor General had clean audits.
The annual report highlighted that the global economic environment remains challenging, albeit Gross Domestic Product (GDP) growth of 2.5% in the second quarter of 2017. Minister Davies said the South African economy still faces poor growth and a lack of inclusivity.
The annual report showed that R7.7 billion (75.03% of the total budget) was transferred to beneficiaries across the various incentive scheme programmes.
In 2016/17, the department approved over 1 400 applications for financial support amounting to about R7 billion to leverage private sector investment of about R 30 billion into South Africa’s economy.
Black Industrialists Programme
The department has now approved 62 people for funding under the Black Industrialists Programme.
The programme is specifically dedicated to supporting the growth and building the global competitiveness of majority black-owned and managed businesses in the manufacturing sector.
“We now have passed the halfway mark of the first 100. In fact, it is now 62 in terms of approvals. The target is for us to reach 100 by the end of this financial year,” said Minister Davies.
Trade
Minister Davies said the next six months will be busy for the department, starting with a meeting on a Ministerial level of the Southern African Customs Union (SACU) countries, together with the countries of the East African Community (EAC).
“The aim now is to finalise and finish the tariff schedule between SACU and the EAC as part of the tripartite and as part of broadening the continental free trade area. We are almost there with that work.”
In July, South Africa became the 19th country to sign an agreement establishing the Tripartite Free Trade Area (TFTA). The TFTA represents an integrated market of 26 countries with a combined population of 625 million people and a total GDP of $1.6 trillion.
The agreement will enter into force once 14 countries submit their instruments of ratification. Once the agreement enters into force, it will reduce the tariffs on goods traded between the tripartite countries and create new opportunities for exports, as well as regional value chains.
South Africa is preparing for the World Trade Organisation’s 11th Ministerial Conference, which will be held in Argentina in December.
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Cement wars: How Dangote price cuts drive competitors into loss territory
The entry of Africa’s richest man, Aliko Dangote, into the cement business in Tanzania has rocked the industry in the region, with cement manufacturers looking at huge losses.
The cutthroat competition introduced by Dangote Cement through price cuts, is forcing the firm’s competitors to sell their products at prices lower than their cost of production.
In the past two weeks, two of the region’s cement players with more than 60 per cent combined market share in Tanzania, posted negative results which they blamed on the price wars that have seen them consistently sell their products below cost as they struggle to stay afloat.
The Tanzania cement sector has experienced disruption following the entry of Dangote Cement, as discount pricing unsettled the large cement players in the region, further raising competition and cutting margins in the local and regional cement market.
Tanzania Portland Cement Company (TPCC), majority owned by Germany’s Heidelberg Cement, posted a 45.6 per cent drop in first-half profit after an output glut, while Kenyan headquartered Athi River Mining (ARM) Cement saw its losses compounded fivefold, from $2.54 million to $13.3 million.
ARM chief executive officer Pradeep Paunrana said that in the past six months, they have been forced to sell cement at a price below cost in Tanzania, which has hurt its 26 per cent market share.
“The commodity’s price in the Dar market fell from $88 per tonne in September last year to lows of $60 per tonne this year. This has greatly affected us,” Mr. Pauranha said.
Quest for market leadership
The price cut was occasioned after Dangote Cement slashed its prices by up to 40 per cent in 2015 to gain market share, leaving the smaller players struggling.
TPCC, Tanzania’s biggest cement maker, with a 36 per cent market share, reported a net profit of $5.5 million, down from $10.03 million a year ago. Its chairman Hakan Gurdal said the drop in profit resulted from the lower prices in an increasingly competitive market that saw the firm’s revenue drop by 16 per cent to $52.57 million.
“The market situation remains challenging, but we will continue to work to maintain our market leadership. We are now implementing strict cost controls to reduce the cost of sales and administrative expenses,” Mr Gurdal said.
Last month, Dangote announced that it would start using its own gas-powered plant in Tanzania this month to reduce its reliance on diesel generators for electrical power which had seen its operations costs increase. This means that the firm’s costs will drop significantly, probably affording it further price cuts, to the detriment of its competitors.
Back to drawing board
Even as the other firms complained of high production costs, Dangote’s Mtwara plant increased volumes by at least 64 per cent in the first half of 2017, pushing the six-month sales to more than 400,000 tonnes, despite the losses incurred in its operations costs.
“The factory is still reliant on diesel generators which results in net income losses that weigh on our operations outside of Nigeria. However, we expect to have gas turbines installed by September, which will immediately bring the plant into profitability,” the firm said.
Mr Dangote has used his Ethiopian and Tanzanian plants to gain a foothold in the regional cement industry.
His targeting of the consumers with low-cost cement, which is 20 to 40 per cent cheaper than other locally produced products, drove down retail prices in a market where they had remained static for close to a decade. It has since gained a 23 per cent market share after its 2015 opening of its three-million-tonne-per annum plant in Mtwara.
For ARM, losses have now forced it back to the drawing board as it seeks a new round of fundraising to steady its business, probably through selling a stake to a new investor in the short term.
ARM’s Tanzania business has remained uncompetitive as cement prices there have been declining, with the current levels of $66 per tonne, from a high of $105 in 2016.
Strategic investor
The Tanzania business accounted for 29.3 per cent of ARM’s total sales and income in 2016 but also contributed 65 per cent of the loss before tax.
“Our plan is to sell our non-cement business, which is the fertiliser plant in this case, take short term shareholder loans and bring on board a strategic long-term investor. We are doing this to restore the value which has been eroded because of our Tanzanian operations,” Mr Paunrana said.
In September 2016, the firm received $140 million investment from CDC Group, to reduce the long term debt which has been escalating over the years.
As at December, its debt halved halved to $126.17 million from $232.53 million in 2015, However, the firm is looking to add more debt to ease near-term repayment obligations.
Analysts at Genghis say that they expect cement firms in the region to continue performing below par as the production cost remain high in Tanzania and Kenya, due to a ban of imported coal in Tanzania.
“We are confident that challenges relating to supply of coal will come off from the second half of this year due to the new two coal mines in Tanzania. Other challenges relate to electricity supply, but this is expected to level off, though at a slower pace, as the government installs new transmission lines,” analysts at Genghis said.
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tralac’s Daily News Selection
Launched today in Abuja: Nigerian Tax Research Network
Profiled presentations from UNCTAD’s Trade and Development Board meeting: Evolution of the international trading system and its trends from the perspective of Africa: presentation by ATPC’s Jamie MacLeod (pdf); Evolution of the international trading system and its trends from a development perspective: speech by ITC’s Arancha González (pdf); International Trading System and its Trends from a Development Perspective: presentation by UNCTAD’s Ms Shamika Sirimanne
Nairobi Outcome: Fostering synergies and coherence between regional integration and the multilateral trading system through WTO accessions (WTO)
Participants acknowledged that regional integration has emerged as one of the major objectives of African policy-makers and a driving force for economic development of the African continent, as well as for job creation. A large and growing youth population and their needs and aspirations had to be taken into account in policy-making, including in the WTO accession negotiations. At the same time, participants also noted that despite an increasing trend of intra-regional trade, there is still considerable room for improvement in the areas of interconnectivity and the movement of goods, services, capital and people. These improvements are essential for fully realizing economic potential of the on-going regional integration efforts. Moreover, supply side capacity constraints would also need to be addressed if one were to improve competitiveness in regional markets.
Discussions also revolved around the sequencing of WTO accession and deepening regional integration i.e. liberalization at the multilateral and regional levels. It was suggested that the opening efforts at the regional level, especially on market access, could serve as a benchmark or ceiling for the multilateral commitments by an acceding government, although each case had to be assessed in its own merit, especially on rules. Consultations between the acceding government and partners within regional arrangements were strongly encouraged during the accession negotiations, so as to ensure the integrity of these preferential arrangements.
Medium-term budget frameworks in Sub-Saharan African countries (IMF)
More than 15 years ago, many countries in sub-Saharan Africa embarked on a program of budgetary reform, an important element of which was a medium-term budget framework. This working paper focuses on the performance of these frameworks in six countries - Kenya, Namibia, South Africa, Tanzania, Uganda, Zambia. It assesses the effectiveness of MTBFs in achieving improved fiscal discipline, resource allocation, and certainty of funding, as well as wider economic and social criteria such as poverty reduction and more efficient public investment. In most countries, early successes were not sustained, and budgetary outcomes did not improve, partly for technical reasons, such as poor data and inadequate forecasting methodologies, but also because the reforms were largely supply driven. [The authors: Richard Allen, Taz Chaponda, Lesley Fisher, Rohini Ray]
Swaziland: 2017 Article IV Consultation documentation (IMF)
The outlook is fragile. In absence of policy actions, the FY17/18 fiscal deficit is projected to be large and domestic arrears to accumulate, weighing heavily on the outlook. Real GDP is expected to grow by 0.6% in 2017 and turn negative thereafter as domestic arrears rise. Inflation is foreseen to return below 6% by 2018 as food prices normalize. With no increase in SACU revenue over the medium-term and limited budget financing, government’s liquidity problems would deepen and eventually trigger some form of adjustment. Even if government’s budget financing were available, with no policy actions, the medium-term outlook would be unsustainable. Public debt would increase to 58% of GDP by FY19/20 and rise further over the projection period. High public expenditure would fuel domestic demand and contribute to a current account deficit and, absent additional external financing, quickly deplete international reserves, putting at risk the currency peg. Annex IV. Containing the wage bill in Swaziland:
(i) Swaziland has high and increasing public wage expenses. In FY16/17, public wage costs for central government employees peaked to 13.8% of GDP (11.3 percent in FY12/13) and amounted to 99% of domestic revenue (45% of domestic primary spending). Except for Lesotho, Swaziland (with Namibia) has the largest public wage bill (in terms of GDP) among SACU countries and small middle income economies in the region. While already on a rising path, in FY16/17, the wage bill sharply increased as a review of public sector salaries reformed, among others, the pay structure and resulted in about 2% of GDP in additional wage expenses. Looking forward, Swaziland’s public wage-to-GDP ratio is expected, under current policies, to increase further and exceed 17–18% of GDP (about 49% of domestic primary spending) by FY21/22, largely above domestic revenue collection.
(ii) The increase in the public wage bill has predominately reflected rising salaries. Over the last four years, the wage bill has increased by 2½% of GDP. Over this period, compensations per employee grew on average by about 11% per year in nominal terms, well above inflation dynamics and were the main driver of the rising wage bill, contributing about 85% of the overall nominal increase. During the same period, public employment increased on average by about 3.6% per year, outpacing population growth and contributing to the remaining part of the nominal wage bill increase. Higher public employment mainly reflected strong occupational dynamics in education, defense and security (about 60% of central government employment). [IMF concludes 2017 Article IV Consultation: statement]
Swaziland: Selected Issues (IMF)
Government’s balance sheet vulnerabilities have been rapidly rising, becoming a potential source of macro-financial risks for the economy. Banks and nonbank financial institutions, businesses and households have large exposures to the government and, in some cases, their own vulnerabilities. In this context, a fiscal shock can rapidly propagate into the economy through the financial sector. The financial sector is also likely to amplify the impact of shocks on the economy, possibly opening the way to deep recession. In the case of an extreme shock with difficulties in servicing debt, the banking system capitalization would be significantly hit. Staff analysis highlights the need for fiscal consolidation and for strengthening the CBS’s role in monitoring and managing macro-financial risks.
South Africa: Clothing, Textile, Footwear and Leather sectors convene conference to find responses to SA’s downgrade to junk status (Fin24)
Labour and business in the clothing, textile, footwear and leather sectors are deeply concerned about the impact of the downgrades of South Africa’s debt on our industry and the broader economy, the CTFL Stakeholder Initiative said on 29 August. “The downgrades by various rating agencies during – and possible future downgrades – will raise the cost of borrowing for the workers, businesses, government and consumers. This will have a negative impact on government spending on CTFL support measures and incentives, on investments by businesses and on spending by consumers on the products made in CTFL factories. We are concerned that it could lead to increased factory closures and retrenchments in the CTFL sectors, placing an even greater strain on South Africa and its poor. This is not good news, given our already high levels of unemployment.” To understand the impact of the downgrades – including of possible future downgrades – and to develop measures to mitigate its impact, CTFL trade unions (SACTWU and NULAW) and employer associations convened a conference, 6-7 September in Durban. [Download: presentation by IDC’s Jorge Maia]
Zambia: Monetary Policy Statement July-December 2017 (pdf, Bank of Zambia)
International trade: The trade deficit narrowed to $37.2m in the first half of 2017 from $504.6m in the second half of 2016 due to the higher growth in exports relative to the growth in imports over the same period (Tables 10 and 11 - Appendix). Merchandize export earnings rose by 16.5% to $3.9bn due to higher earnings from copper, which increased by 28.8% to $2.9bn. Higher volumes and realised prices accounted for the increase in copper earnings (Table 12 – Appendix). However, cobalt, gold and non-traditional export earnings declined. [Download: Presentation, pdf]
Zimbabwe: A roadmap for economic transformation and economic outlook (SET)
The paper argues that the most viable is a ‘single sector, single agent’ approach – whereby transformation is focused on a single sector with high potential and led by a single reformist agent within government – and this could ‘kick-start’ change. First, Zimbabwe has inherent competitive advantages. These include rich natural endowments in agriculture and extractives, including gold, platinum and diamonds; proximity to key regional markets in South Africa, Zambia and other neighbouring countries; and good levels of education and business skills. These provide Zimbabwe with the potential to develop value-added, export-led manufacturing and processing of its products, with resultant and much-needed formal, higher-wage employment and fiscal revenues. [The authors: Godfrey Kanyenze, Prosper Chitambara, Judith Tyson]
Nigeria: 2017 Manufacturing Sector Survey insights (NOI Polls)
The 2017 Manufacturing Sector Survey conducted by NOIPolls and CSEA has identified: Unfavourable foreign exchange rates (55%), Bad roads (55%), Unavailability of petrol and diesel (47%), Limited access to credit (45%), Policy inconsistency (44%), Lack of Infrastructure (39%), Unstable power supply (31%), and Weak demand (29%), as the top challenges facing the manufacturing sector in Nigeria. The survey report released to the public today also found the following: 74% of manufacturing companies found the business environment unsupportive in 2017; and this finding represents a 14-point increase from the 2016 result (60%), indicating a worsening of the business environment. Similarly, lack of infrastructure, red-tapism and corruption were identified as some of the structural bottlenecks stifling the business environment.
Roads to trade: Connecting mines versus cities in West Africa (IGC)
A recent project aims to decipher what kind of transport infrastructure West African countries need most to generate economic growth. The relative gains of prioritising internal market potential (cities) versus the export of natural resources (mines to ports) are calculated through a counterfactual comparative analysis with actual road and track building that took place between 1965 and 2012. Building on this first exploration of the data, we aim to achieve three goals in the rest of this project:
Cross-border trade, insecurity and the role of customs: some lessons from six field studies in (post-)conflict regions (pdf, WCO)
Africa, and especially the Sahel, has experienced frequent recurrences of armed conflicts and terrorist acts in the last decade. This paper is based on six field studies, in Chad, Mali, Sudan, Tunisia, Libya and the Central African Republic. It reflects on the governance of trade in border regions during a (post-)conflict situation, exploring the practices and strategies of customs officials operating at insecure borders. It demonstrates the unintended consequences of security policies – especially on trade, and consequently on revenue generation. It further shows how customs administrations de facto leave it to customs officers on the ground and importers to agree on an acceptable tax burden to prevent smuggling and a new upsurge in violence to a certain extent. Idiosyncratic and pragmatic approaches by customs seem to play a major role at the local level. [The authors: Thomas Cantens, Gaël Raballand]
Preferential trade agreements and global value chains: theory, evidence, and open questions (World Bank)
Preferential trade agreements today are more numerous and deeper than they were a quarter century ago. Do deep agreements promote countries’ integration into global value chains? What are the economic mechanisms? How do countries choose their trade agreement partners? Would the undoing of deep agreements disrupt global value chains? What is the outlook for trade agreements and global value chains going forward? This paper reviews the small but growing literature on the role of deep agreements as the institutional underpinnings of global value chains.
India’s export slump and the troublesome Rupee (The Wire)
Does the rising Indian rupee hurt exports? The usual refrain of India’s exporters is their exports are affected by the increasing value of the rupee, which makes their exports unattractive to foreigners. Rajan’s policies of stabilisation of Indian currency pursued during his tenure and his reiteration of the need for continuous attention to stabilising the value of rupee have been misconstrued by various interest groups. While exporters think stabilisation means keeping nominal exchange rate low for export promotion purposes, policy makers feel that stabilisation means keeping a high exchange rate, which reflects the strength of the nation. Neither is true.
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Regional Dialogue on WTO Accessions for the Greater Horn of Africa: Nairobi Outcome
Fostering synergies and coherence between regional integration and the multilateral trading system through WTO accessions
1. Introduction
The Regional Dialogue on WTO Accessions for the Greater Horn of Africa took place in Nairobi, Kenya from 28 to 30 August 2017. This first-of-its-kind event was organized by the WTO Secretariat in partnership with the Government of Kenya and the University of Nairobi. The Regional Dialogue was opened by H.E. Ambassador (Dr.) Amina Mohamed, Cabinet Secretary for Foreign Affairs of the Republic of Kenya, Professor Peter Mbithi, Vice-Chancellor of the University of Nairobi and Ms. Maika Oshikawa, Officer-in-Charge of the Accessions Division of the WTO.
Opening statements acknowledged the critical contribution that WTO accessions have made in strengthening the rules-based multilateral trading system and the values that it has upheld since the establishment of the WTO. Africa has become an increasingly important player in the WTO with 44 Members, representing over one quarter of the current 164 membership. It was recognized that this role could be even more significant if the eight African countries in the process of accession accede to the WTO.
The region of the Greater Horn of Africa represents one of the largest concentrations of countries remaining outside of the WTO, with Comoros, Ethiopia, Somalia and Sudan in the process of WTO accession. In addition, South Sudan has recently expressed its interest to join the WTO. This region is currently also one of the most active in terms of substantive accession activities, which have intensified since the Tenth WTO Ministerial Conference held in Nairobi, in December, 2015 – the first Ministerial Conference held in Africa – where Members concluded the accessions of Afghanistan and Liberia.
The Regional Dialogue gathered high-level government officials, including at the levels of Minister/State Minister and Chief Negotiator from four acceding governments (Comoros, Ethiopia, Somalia and Sudan), and South Sudan (non-WTO observer); representatives from five Article XII Members (China, Liberia, Oman, Seychelles and Yemen); and representatives from seven development partners and international organizations (African Development Bank (AfDB), Enhanced Integrated Framework (EIF), Intergovernmental Authority on Development (IGAD), Islamic Development Bank (IDB), UK Department for International Development (DFID), United Nations Conference for Trade and Development (UNCTAD) and World Bank).
Participants engaged in a rich, informative and interactive dialogue across several sessions over three days, based on presentations, which were followed by open discussion.
2. WTO membership: Structural reforms and regional integration
The Dialogue started off by presentations on Africa and the Multilateral Trading System by Ambassador Dr. Stephen Ndung’u Karau (Kenya) and on WTO accession reforms and regional integration by Ms. Maika Oshikawa (WTO). These presentations were followed by a Davos-style panel discussion, moderated by Ambassador Zhang Xiangchen (China) with leading experts from key regional and multilateral institutions, namely by Mr. Paul Brenton (WB), Mr. Joseph Rwanshote (IGAD), Mr. Gabriel Negatu (AfDB) and Ms. Mina Mashayekhi (UNCTAD), on the topics of “fostering synergies and coherence between structural reforms, the WTO and regional integration in Africa”.
Participants also benefited from presentations by former Chief Negotiators and expert officials who had been directly engaged in successfully concluded accessions, namely, of China (2001) by Ambassador Zhang Xiangchen, Yemen (2014) by Mr. Nagib Hamim, Seychelles (2015) by Ms. Cillia Mangroo and Liberia (2016) by Minister Axel Addy. Different perspectives on WTO accessions – from a Working Party Chairperson, an original member, a development partner and a regional academic institution – were also shared, respectively by Ms. Hilda Al Hinai (Oman), former Chairperson on the accession of the Seychelles, Ambassador Nelson Ndirangu (Kenya), Mr. Simon Hess (EIF) and Dr. Mary Mbithi (University of Nairobi).
The Regional Dialogue reaffirmed the central role of WTO accessions in instituting domestic structural reforms. It provided not only a set of rules but also the framework to establish commercial policy and foster economic integration. For African acceding governments, it also served as a disciplinary instrument to lock-in necessary reforms that would have been difficult to implement otherwise. Thus, it was important to align accession-related domestic reforms into a broader national development agenda including, inter alia, economic diversification, modernization and transformation, attracting foreign direct investment and re-branding strategies.
Participants acknowledged that regional integration has emerged as one of the major objectives of African policy-makers and a driving force for economic development of the African continent, as well as for job creation. A large and growing youth population and their needs and aspirations had to be taken into account in policy-making, including in the WTO accession negotiations.
At the same time, participants also noted that despite an increasing trend of intra-regional trade, there is still considerable room for improvement in the areas of interconnectivity and the movement of goods, services, capital and people. These improvements are essential for fully realizing economic potential of the on-going regional integration efforts. Moreover, supply side capacity constraints would also need to be addressed if one were to improve competitiveness in regional markets.
Discussions also revolved around the sequencing of WTO accession and deepening regional integration i.e. liberalization at the multilateral and regional levels. It was suggested that the opening efforts at the regional level, especially on market access, could serve as a benchmark or ceiling for the multilateral commitments by an acceding government, although each case had to be assessed in its own merit, especially on rules. Consultations between the acceding government and partners within regional arrangements were strongly encouraged during the accession negotiations, so as to ensure the integrity of these preferential arrangements.
3. Accession to the WTO
The Regional Dialogue welcomed the progress registered in the accessions of the four acceding countries in the region. Ministers and Chief Negotiators of Comoros, Ethiopia, Somalia and Sudan provided the state-of-play of their respective accession processes and their visions on the way forward. In addition, South Sudan provided the state of its expression of interest to join the WTO.
Mr. Abdou Nassur Madi, Director-General of Economy and Foreign Trade of Comoros, stated that since mid-2016, there has been a strong political commitment, from the highest political level, to advance its accession, following a long dormancy after the establishment of the Working Party in 2007. Since then, two Working Party meetings held in December 2016 and June 2017, combined with a visit to Moroni in March by the Working Party Chairman Ambassador Luis Enrique Chávez Basagoitia (Peru), have generated the momentum to advance the technical work. An important milestone was crossed in July, when all but one bilateral market access negotiations were concluded. Comoros was fully committed to constructively engaging with WTO Members to close outstanding issues in the coming weeks, so that it could become the 165th Member of the WTO by the Eleventh Ministerial Conference (MC11).
H.E. Dr. Bekele Bulado Bukana, Minister of Trade of Ethiopia stated that, for his Government, WTO accession has always been a priority, despite the dormancy in the process since the third Working Party meeting in 2012. Currently, efforts have been underway to reactivate the accession process, with the preparation of updated documentation for the fourth Working Party meeting. Recently, the Government reviewed and revised the WTO accession negotiation structure, which had been approved by the Council of Ministers. Moreover, the Government had been undertaking necessary reforms to make its trade regime WTO compliant and to reduce all forms of trade barriers through, inter alia, an Ease-of-Doing-Business Initiative and improving customs procedures.
H.E. Ms. Khadra Ahmed Dualeh, Minister of Commerce and Industry of Somalia, stated that since the establishment of Somalia’s accession Working Party in December 2016, the political landscape had changed considerably with the election of new President Mohamed Abdullahi Mohamed Farmaajo in February 2017. The President had pledged full support for WTO accession and its related reforms, in order to rebuild its economy which had suffered long conflicts. The new administration was ready to work closely with all key domestic stakeholders to actively pursue the accession process. The technical team is currently preparing a Memorandum on the Foreign Trade Regime (MFTR) to kick-start the fact-finding stage of the accession process.
H.E. Mr. Elsadig Mohamed Ali, State Minister of Trade of Sudan and Dr. Hassan Ahmed Taha, National Chief Negotiator stated that while Sudan’s accession had started in 1994, the process had reached a standstill after its second Working Party meeting in 2004 due to a lack of political commitment and internal issues. Since 2016, the Government had made serious efforts towards reactivating the accession process with a renewed strong political commitment. Two working party meetings had been held in 2017 and progress had been made on several bilateral market access negotiations. Sudan remained fully committed to engage constructively with Members to achieve its objective of concluding its accession process as early as possible.
H.E. Mr. Moses Hassan Ayet Tiel, Minister of Trade, Industry and Investment of South Sudan, stated that as the youngest country in the international community, the integration into the global economy was a priority for South Sudan. In particular, South Sudan understood the critical importance of the multilateral trading system and was ready to undertake the required reforms to promote economic development and re-brand its country. For this reason, South Sudan would shortly submit an application for WTO accession for consideration by Members. South Sudan’s membership in the East African Community since 2016 had already helped familiarize itself with some of the requirements of the WTO. The participation in this Regional Dialogue, which was supported by the EIF, was instrumental for the Government to take final decision on the application, as it provided useful information, insight and advice.
In the session Mobilizing Support for WTO Accession, chaired by Professor Tabitha Kiriti-Nganga (University of Nairobi/WTO Chair), the acceding governments also made presentations on their accession specific technical assistance and capacity building needs. Technical assistance and capacity building were recognized as an essential pillar in the WTO accession process. The importance of clear identification of their needs was stressed in order to facilitate the accession process and maximize the benefits they could derive from accession-related reforms. In response, development partners presented the specific support available from their institutions for acceding governments in their WTO accession processes, namely Mr. Paul Brenton (World Bank), Mr. Pete Vowles (DFID), Ambassador Zhang Xiangchen (China), Mr. Joseph Rwanshote (IGAD), Mr. Patrick Kanyimbo (AfDB), Ms. Mina Mashayekhi (UNCTAD) and Ambassador Ali Ibn Talib Abdelrahman Mahmoud Elgindi (IDB).
4. Emerging best practices on WTO accessions: Additional lessons
Participants shared lessons learned from their accession experiences, and offered advice and tips on various aspects of the accession process, building on the LDC accession acquis and the Emerging Best Practices on LDC accessions presented by Ms. Mariam Soumaré and Mr. Stefan Almehagen Sandstad (WTO Secretariat). While it was clear that the commitments undertaken by the acceding LDCs were significantly broader and deeper than those undertaken by the original Members. Each accession outcome reflected specificities linked to national situations.
Participants underlined the importance of support of different types of stakeholders which were instrumental in facilitating the accession process. These included, inter alia, the Working Party Chairperson; a network of “friends of accession” of WTO Members; the African Group and the LDC Group; partners in regional integration arrangements; the WTO Secretariat; and bilateral, regional and multilateral development partners. In this regard, the human aspect of accession negotiations was emphasized, as WTO accession ultimately was about people. Good working relationships within the negotiating team and with all stakeholders could greatly facilitate the often complex accession process. Participants agreed that a clear and realistic roadmap could help align the expectations of all stakeholders involved, both domestically and internationally.
Participants discussed the relevance of the 2002/2012 LDC Accession Guidelines. The Guidelines were useful in providing overall guidance on LDC accessions, such as seeking restraint from WTO Members whose demands were deemed to be too excessive. However, acceding governments would always need to find negotiated solutions with WTO Members in order to finalize the accession negotiations.
Other advice and tips shared included, inter alia, the need to communicate, coordinate, and cooperate with negotiating partners (3Cs); compiling and monitoring accession specific questions; conducting bilateral market access negotiations in the capital; conducting informal negotiations before negotiations; and keeping record of all meetings, including informal and bilateral meetings.
5. Conclusions and recommendations
Participants welcomed this first Regional Dialogue focused on WTO Accessions in the Greater Horn of Africa. The Dialogue provided a useful platform for exchange of experience on WTO accessions, based on recently concluded and on-going accessions in Africa. Different perspectives provided by the Chief Negotiators, Working Party Chairpersons and various partners helped participants establish holistic views of various aspects of the accession process. In particular, the discussions on the linkages between regional integration in Africa and WTO accession generated a rich exchange of policy options and negotiating strategies. Overall, the three-day discussions were open, honest and interactive, in addition to be being informative. Participants appreciated experience sharing as one of the most effective ways to build accession knowledge and negotiating capacity. In this regard, they welcomed the upcoming Sixth China Round Table, to be held on the margins of the Eleventh WTO Ministerial Conference, which would focus on the development of a network of accession negotiators to support the on-going accessions.
Participants welcomed the recent progress registered in the accessions of Comoros, Ethiopia, Somalia, and Sudan, and urged WTO Members to work constructively with acceding governments to advance their accession negotiations. In particular, they pledged their full support for conclusion of the accession of Comoros by the Eleventh WTO Ministerial Conference in Buenos Aires, Argentina and they urged WTO Members to accelerate and facilitate the finalization of the negotiations in the coming weeks. It was noted that the accession of Comoros would send a strong signal to the international community of the WTO’s ability to deliver on negotiated outcomes and its contributions to economic development of LDCs. Participants also urged Sudan to accelerate its accession towards early conclusion in 2018 and encouraged Ethiopia for reactivation of its accession process as early as possible. Somalia was encouraged to submit its MFTR before MC11 so that its accession process could advance in early 2018.
Participants expressed their full support to South Sudan for its intention to submit an application for accession to the WTO, pursuant to Article XII of the Marrakesh Agreement Establishing the WTO. They called on WTO Members to consider the application positively, as encouragement to promote peace and stability in the region, when it would be submitted by the Government of the Republic of South Sudan for consideration by the General Council at its meeting in October 2017.
Dialogue participants reiterated strong appreciation to Kenya for its support to the accession efforts of its neighboring countries, and requested Kenya to hold the Regional Dialogue on WTO Accessions for the Greater Horn of African on an annual basis, until the completion of the remaining accessions in the region.
Participants agreed on the urgent needs to enhance trade policy knowledge, capacity and resources in the region, including for analysis, strategies and negotiations, covering both the legal and economic aspects. In this regard, they welcomed the offer from the Government of Kenya to hold a WTO Trade Policy Course in partnership with the University of Nairobi. In addition, the University of Nairobi was encouraged to develop partnerships with universities in the region to help them build trade expertise through academic collaboration and cooperation.
Participants acknowledged the ongoing support provided by development partners in technical assistance, capacity building, trade infrastructure, to enable African countries tap on the benefits of their Memberships in regional trading arrangements and the WTO. In this regard, they appealed to development partners present (AfDB, DFID, EIF, IDB, IGAD, UNCTAD, WBG and the WTO Secretariat) to step up support for the accession process and subsequent implementation.
Participants expressed their appreciation to the Government of Kenya for hosting the Regional Dialogue, in partnership with the University of Nairobi, and warm hospitality provided to the participants. They also expressed their appreciation to the WTO Secretariat for the excellent arrangements.
Dialogue participants requested that this “Nairobi Outcome” be circulated as a document of the Committee on Trade and Development, the Sub-Committee on Least Developed Countries, the General Council and the Eleventh WTO Ministerial Conference.
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MDBs increase 2016 financing to tackle climate challenge
2016 Joint Report on Multilateral Development Banks’ Climate Finance
The world’s six largest multilateral developments banks (MDBs) continued to make a strong contribution to the global climate challenge in 2016, increasing their climate financing in developing countries and emerging economies last year to $27.4 billion from $25 billion in 2015.
Of this total, $21.2 billion or 77 percent was dedicated to climate mitigation finance, with the remaining 23 percent devoted to climate adaptation.
Combined with additional co-financing from other investors, the total amount of finance mobilized for climate action reached $65.3 billion last year.
The MDBs have reported jointly on climate finance since 2011. Collectively, the banks have committed over $158 billion in climate finance during the past six years.
The latest MDB climate finance figures are detailed in the 2016 Joint Report on Multilateral Development Banks’ Climate Finance, combining data from the African Development Bank, the Asian Development Bank, the European Bank for Reconstruction and Development, the European Investment Bank, the Inter-American Development Bank Group, and the World Bank Group.
Broken down by region, the largest share of last year’s MDB climate finance went to South Asia, with 20 percent, followed by East Asia and the Pacific and non-EU Europe and Central Asia, with 19 and 18 percent, respectively. The Middle East and North Africa at 9 percent and Sub-Saharan Africa at 7 percent received the least climate finance.
The MDBs also reported again on climate finance according to financial instrument. The vast majority of finance, 73 percent, was provided in the form of investment loans.
The MDBs’ methodologies for climate finance tracking align with the Common Principles for Climate Change Mitigation Finance Tracking, jointly agreed by the MDBs and by the International Development Finance Club (IDFC) and first published in March 2015.
The MDBs and the IDFC agreed on the Common Principles for Climate Adaptation Finance Tracking in July 2015. The MDBs and the IDFC have begun taking the next steps to harmonize their approaches in tracking adaptation finance.
The MDBs are continuing to work to update their joint tracking methodologies for mitigation and adaptation, to support the goals of the Paris Agreement, playing a key role in defining the finance flows consistent with a pathway towards low greenhouse gas emissions and climate resilient development.
“The World Bank Group is actively helping countries and companies around the world to reduce emissions, prepare for the impacts of climate change, scale up climate-smart investments, and meet the goals of the Paris Agreement,” said World Bank Senior Director for Climate Change John Roome.
“2016 was another year of strong climate action for the Bank Group. Since the beginning of that year, the Bank Group has undertaken renewable energy projects representing 10 gigawatts of generation capacity, and 10 new operations that when in place will improve the climate resilience of over 50 million people.”
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Clothing, Textile, Footwear and Leather sectors convene Conference to find responses to SA’s downgrade to junk status
Clothing sector seeks urgent solution to downgrades impact
Labour and business in the clothing, textile, footwear and leather (CTFL) sectors are deeply concerned about the impact of the downgrades of South Africa’s debt on our industry and the broader economy, the CTFL Stakeholder Initiative said on 29 August 2017.
“The downgrades by various rating agencies during – and possible future downgrades – will raise the cost of borrowing for the workers, businesses, government and consumers. This will have a negative impact on government spending on CTFL support measures and incentives, on investments by businesses and on spending by consumers on the products made in CTFL factories,” the CTFL Stakeholder Initiative said in a statement.
“We are concerned that it could lead to increased factory closures and retrenchments in the CTFL sectors, placing an even greater strain on South Africa and its poor. This is not good news, given our already high levels of unemployment.”
The CTFL Stakeholder Initiative pointed out that these factory closures and retrenchments will take place, if a proper and credible turnaround plan is not formulated immediately, and implemented expeditiously.
“The stagnant economy has already caused our sectors to lose more jobs than in recent years, mainly as a result of fewer orders from retailers and less procurement from government and corporates,” it said.
To understand the impact of the downgrades – including of possible future downgrades – and to develop measures to mitigate its impact, CTFL trade unions (SACTWU and NULAW) and employer associations convened a conference on September 6 and 7 at the Coastlands Conference Centre in Durban.
About 500 delegates were expected, including CTFL factory workers, union officials, factory directors and managers, service providers, government officials, the retail sector, as well as delegates associated sectors like cotton farming.
“The whole value chain will be represented, as we require a united response,” the CTFL Stakeholder Initiative said.
Several senior government leaders were invited to address the conference and discussion papers have been commissioned from senior researchers at Wits University’s Corporate Strategic Industrial Development (CSID) research programme and the Industrial Development Corporation (IDC).
The outcomes of the conference will be used to construct a plan to mitigate the impact of the downgrades on the CTFL sectors.
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Economic growth a priority to boost tax revenue – Gigaba
South Africans must not become complacent with current gross domestic product growth levels, and all stakeholders must make the effort to ensure sustainable economic growth. This will boost the tax revenue needed to fund services for society’s most vulnerable, Finance Minister Malusi Gigaba said on Monday.
He was addressing the 2017 Tax Indaba in Sandton. Gigaba said that although GDP rebounded 2.5% in the second quarter of the year, now is not the time to be complacent. The revised economic outlook will be announced at the mini budget on October 25.
“We must increase the revenue base by growing the economy on a faster and on a sustainable basis,” he said. Both government and business have committed to playing their respective parts in ensuring inclusive growth.
Gigaba said South Africa offers investors many opportunities. Structural reforms must be implemented in the economy to encourage investment. The 14-point plan announced in June should encourage business confidence by providing the policy certainty investors seek, he explained.
There needs to be a level of decisiveness by government and greater cooperation between business and government for the economy to grow better. Government is planning to continue investing in infrastructure development, as this will draw in needed investment from the private sector.
Fiscal and monetary policies should encourage consumer confidence to boost spending. Improved consumption confidence will increase household consumption, he said. The latest tax ombud report on the systems at the South African Revenue Service also indicates what must be done to instill confidence in taxpayers, he said.
He also highlighted opportunities to invest in value-adding sectors, such as manufactiuring and agro-processing.
Government expenditure takes a dip
Gigaba acknowledged that the fiscal consolidation path was maintained not by increasing revenue, but by dropping expenditure on a gradual basis. “Government is not in a position it would like to be,” he said.
He explained that the fiscal consolidation path should be pragmatic, in that taxpayer money should be spent wisely until such time as the economy is growing to expand the activities spend is directed to.
“This is an opportunity to change the culture of government in terms of employment, the size of government and the programmes implemented.”
Non-core or non-priority programmes in government should be identified and resources removed from them to be spent on priority programmes, he explained.
Current growth levels which are outpaced by population growth are “inefficient and unsustainable”, said Gigaba. Drastic measures should be taken to ensure growth is more sustainable and inclusive.
Speech by Minister of Finance Malusi Gigaba at the 2017 Tax Indaba
Taxation is at the very core of democracy. It is central to the social compact between the citizenry and their government. Citizens fund democratic government by paying tax, to enable the state to provide public services.
Government must collect tax fairly and progressively, and bears the responsibility to manage public finances prudently and effectively. Today I would like to update you on our economic outlook, before sharing some high-level reflections on the linkages between tax policy and our economic development agenda.
Economic outlook
South Africa’s GDP growth rebounded in the 2nd quarter of 2017 following two consecutive quarters of contraction in Q1 2017 and Q4 2016. GDP grew by 2.5% in Q2, on a quarter-on-quarter basis. On a year on year basis, GDP grew by 1.1% in Q2. A sectoral analysis of the contraction in GDP in Q1 2017 indicated worrying broad- based weakness in the industrial and services sectors. Services sectors had been the mainstay for growth in the last few years.
The improvement in the second quarter is encouraging as all sectors, except construction and government services, improved. Although the Budget Review GDP growth projection for 2017 of 1.3% remains at risk, we are increasingly optimistic that reasonable GDP performance may materialise in the coming quarters. On the demand side, household consumption was the largest contributor to GDP growth in Q2 2017, growing by 4.7 per cent quarter-on-quarter seasonally adjusted annual rate (saar) following a contraction in Q1 2017 (-2.7% q/q saar).
Despite this rebound, other indicators of household consumption – including consumer confidence, employment prospects, and credit growth – unfortunately remain weak.
We therefore remain cautious on the prospects of sustained household consumption expenditure at this pace. As the NDP correctly diagnosed, the most important step we can take to develop our country is to get more South Africans working. We therefore welcome commitments by the CEOs Initiative and Business Leadership South Africa to create jobs by growing the economy inclusively.
Favourably, the global economy continues to grow moderately, supported by stronger trade and industrial production. The IMF expects global growth to accelerate in 2017 and 2018, although risks to medium-term growth remain biased to the downside. Global financial markets have also been supportive towards emerging markets, and commodity prices have risen this year.
This is a critical opportunity for our economy. We need to take advantage of favourable global conditions by getting our sectors working.
Mining, manufacturing and tourism must take advantage of these conditions, and we need to take advantage of this global economic situation aggressively to drive the industrialisation programme and move our economy away from heavy reliance on primary production.
Investment was also affected by subdued business confidence and higher policy uncertainty. It is for this reason that we remain committed as government to implementing the 14 confidence-boosting measures we announced in June this year aimed at providing policy certainty by implementing much-required sector reforms.
Growth in real fixed investment contracted from +1.3 per cent q/q (saar) in Q1 2017 to -2.6 per cent q/q (saar) in Q2 2017, with investment by both public corporations and private enterprises contracting on a quarterly basis.
Other factors supporting the growth forecast have broadly remained in place, or improved:
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The IMF expects global growth to accelerate, to 3.5 and 3.6 per cent in 2017 and 2018, respectively.
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Inflation has moderated by more than anticipated at the 2017 Budget, particularly as food inflation has eased. Headline consumer inflation has eased from 6.8 per cent in December 2016, to 4.6 per cent in July this year. The fall in inflation provides some support for household spending, as their purchasing power improves. Improvements in the inflation outlook also resulted in a lowering of the repo rate in July 2017, by 25 basis points, which provides further support to credit constrained households. The labour relations environment has improved, supported by agreements on the national minimum wage, and reforms to collective bargaining, which include dispute- resolution mechanisms to lower the incidence and extent of disruptive strikes.
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Agricultural production has improved in farming regions where the drought has ended.
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Electricity performance has also improved, with Eskom’s energy availability factor rising to 77.3 per cent in its 2017 financial year (2016: 71.07 per cent).
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The financial sector remains relatively stable. South Africa has well-developed and deep capital markets. The introduction of the Financial Sector Regulation Act is expected to further promote this, as the “Twin Peaks” model will improve oversight of risks taken by the financial sector, and also ensure fair treatment of financial consumers.
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Government has introduced the Inclusive Growth Action Plan to respond to sustain momentum on the 9-point plan for growth and employment. The action plan is a coordinated effort by government to restore confidence in the short term, and lay stronger foundations for economic growth.
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The updated economic outlook will be presented in the 2017 Medium Term Budget Policy Statement. Our current level of growth which is outpaced by the rate of growth of the population is clearly insufficient and unsustainable. We simply have to take drastic measures and do better to get the economy growing faster, bigger, sustainably and inclusively. We cannot afford to become complacent as a result of the Quarter 2 GDP growth of 2.5% which has got us out of the recession much as it came as a welcome relief for all of us.
Reflections on tax policy
As I turn to some high-level reflections on tax policy, it is important then that we consider taxation in the context of economic development more broadly. One of the development imperatives that we have identified, along with our sister countries in the African Union, is the need for domestic resource mobilisation. This speaks to the need for African countries to finance their own development. Development aid and partnerships are both important and welcome.
Critically, these must complement, not replace, our own resource mobilisation through appropriate tax policy and effective tax administration, along with other elements such as increased savings and well developed capital markets. Thus the tax system we have developed as well as the world class tax administration we have in the South African Revenue Service are important contributors to our development agenda.
The topic of taxation will always be high on the agenda for taxpayers of all types, regardless of where we find ourselves in the economic cycle. Yet with the past few years of below par growth and the need for government to raise additional revenues, greater interest has been taken in tax policy and the changes required to meet those revenue requirements.
Although the flexibility of the tax system is key to achieving a sustainable fiscal position, higher economic growth must remain as the main objective to reach the levels of social development that this country deserves.
Yet government cannot do this alone, and the positive actions of business, labour, communities and individuals will be vital to setting the country on an improved growth path for the benefit of all. Such positive actions would not only be reflected through additional investment or improved productivity, but also through appropriate taxpayer behaviour. The tax revenues that are collected keep this country running, paying for social upliftment and poverty alleviation through grants and the multitude of services that the government provides, much of which benefits the most vulnerable in our society.
The social cohesion in the country rests on the ability of government to provide these benefits from the taxes collected, and the willingness of taxpayers to pay their taxes is a crucial part of gathering sufficient resources to keep that social cohesion intact. Tax morality plays a significant role in the success of a country and government recognises that tax morality is closely linked to the efficient use of resources and a reduction in corruption.
Government needs to do its part in showing that the taxpayers’ money is used wisely, that efforts are taken to reduce wasteful expenditure and that taxpayers are treated fairly.
The latest report by the Tax Ombud is an example of the actions that can be taken to improve taxpayer confidence and I am glad to see that he is scheduled to talk later in the week. Alongside these efforts taxpayers should recognise the importance of their contributions and their behaviour to the functioning of our society. Even the most upstanding of taxpayers would argue, however, that they are justified in minimising their tax through the options that are available to them.
It is our job to ensure that those opportunities are removed as far as possible to keep the system fair. We should not have a situation where individuals who can afford to pay for advisors or complicated structures end up paying less tax than those who cannot afford such services. The closing down of the use of interest free loans to trust s to avoid donations, tax and estate duty is an example of the measures we need to take to ensure equity between individuals.
Action must also be taken to ensure corporates pay their fair share, which we are attempting to address through measures such as those which are currently proposed to stop the use of share buybacks and dividend stripping to avoid capital gains tax. An area where we will increasingly devote attention to, is arresting illicit financial flows.
Several studies including Former President Thabo Mbeki’s High-Level Panel on Illicit Financial Flows, reports by Global Financial Integrity and the Panama Papers demonstrate how African countries lose billions of dollars per year to trade mispricing, illegal offshoring by the wealthy for tax evasion, as well as by criminals and corrupt persons.
National Treasury, the South African Reserve Bank and SARS are tightening controls in these areas. Our signing of the Financial Intelligence Centre Amendment Act in June this year was an important step in enhancing our ability to combat corruption, money laundering and illicit financial flows. Accordingly, government is eager for all taxpayers to be compliant and pay their fair share, as was shown through the introduction of the Special Voluntary Disclosure Programme which came to an end on 31 August.
The regular Voluntary Disclosure Programme will continue to be available through SARS and any remaining non-compliant taxpayers should genuinely consider their options before SARS begins to receive individual taxpayer information from other countries through the Automatic Exchange of Information that begins this month.
We encourage you as tax professionals to help us send the message that individuals and businesses should obey the law, disclose their offshore assets, and pay their fair share, before they are caught out. Unfortunately, as long as taxpayers either remain non-compliant or move to reduce their tax burdens, there will need to be corresponding tax policy amendments to uphold the integrity of the tax system.
This creates a complicated tax regime, where even five days may be insufficient to discuss the many tax policy areas that have been subjected to change in recent years. Government does endeavour to remain highly consultative with the public on tax policy changes and welcome the oversight that Parliament provides.
The 2017 Tax Indaba should be a fantastic opportunity to not only educate and inform others on the latest tax updates, but as a platform for meaningful discussion into how the tax system can best serve both those who pay tax in all its forms and our society as a whole.
I thank you.
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IMF Executive Board 2017 Article IV Consultation with Swaziland
On September 1, 2017, the Executive Board of the International Monetary Fund concluded the Article IV consultation with the Kingdom of Swaziland.
Since the 2010 fiscal crisis, Swaziland has experienced a period of macroeconomic stability and recovery. A rebound in South African Customs Union (SACU) revenues, expansionary policies and the peg to the South African rand have contributed to the rebuilding of buffers and supported a growth recovery. Yet, despite its middle-income status, structural impediments have hindered private investment and kept unemployment high, contributing to persistently elevated poverty and income inequality.
Macroeconomic conditions have recently deteriorated. In 2016, two shocks – a prolonged drought and a sharp decline in SACU receipts – severely hit the economy, while an expansionary fiscal policy worsened fiscal and external balances. Growth in 2016 stagnated, as agricultural productions declined, and headline inflation increased sharply, mostly due to rising food prices. Government’s policy of increasing public expenditure, while SACU revenues declined, widened the FY16/17 deficit to about 10½ percent of GDP. Public debt rose and domestic arrears accumulated, while the current account deteriorated and international reserve coverage declined below 3 months of imports. The economic slowdown and government’s domestic arrears have started having adverse effects on the banking sector’s asset quality, with non-performing loans (NPLs) rising.
Fiscal policy remains on an expansionary course, while the monetary stance has tightened. Despite a pickup in SACU revenue, the 2017 budget envisages a continuation of large fiscal deficits, and further increase in public debt. In the context of the peg to the South African rand, in early 2017 the Central Bank of Swaziland raised its policy rate above South African Reserve Bank’s rate.
The outlook is fragile, with an unsustainable fiscal policy. Growth is projected to pick up in 2017 due to the end of the drought and increasing SACU revenue, and turn negative thereafter as fiscal and external positions weaken. The large fiscal deficit would contribute to further reduce international reserves and bring public debt above sustainability thresholds.
Downside risks dominate the outlook. The main risk stems from further tightening in budget financing. Additional risks arise from deteriorating banks’ asset quality, lower SACU revenue and demand for key exports. With a fragile outlook, the materialization of risks could trigger abrupt fiscal adjustment. Linkages between domestic financial institutions and the government could further amplify the negative impact of shocks on the economy.
Staff report
Context: High vulnerability and limited buffers
Swaziland is a small middle-income economy particularly exposed to external shocks and with significant structural challenges. After a sharp decline in revenue from the South African Customs Union (SACU) in 2010 that prompted a fiscal crisis, revenue bounced back, fiscal and external balances improved, and buffers were rebuilt. The peg to the South African rand contributed to moderate inflation, and growth recovered. However, growth has been low compared to the pre-crisis period and other middle-income countries. The current account remains heavily dependent on SACU revenue and exports concentrated on a few products. More recently, an expansionary fiscal policy has depleted buffers, leaving international reserve coverage below adequate levels and prompting a rapid increase in public debt. Moreover, despite its middle-income status, Swaziland faces widespread poverty and a high HIV prevalence rate. Unemployment remains high and little responsive to growth, contributing to elevated income inequality.
In 2016, a prolonged drought and a sharp decline in SACU revenue severely hit the economy.
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Real GDP stagnated (1.1 percent in 2015) as agriculture and hydro-power production declined because of the drought, with negative effects on other sectors of the economy. Declining private demand largely offset the impact of an expansionary fiscal policy.
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The decline in SACU transfers (about 4¼ percent of GDP), coupled with strong demand for imports and lower exports (particularly for agricultural products), reduced the current account surplus to ¾ percent of GDP (10.8 percent of GDP in 2015). On the positive side, the net international investment position improved somewhat, although mainly reflecting short-term trade credit assets. However, other buffers have thinned, and end-year international reserve coverage declined to below 3 months of projected imports. More recently, reserve coverage has fallen further to 2.6 months of imports (May 2017).
Government’s policy of increasing public expenditure, against declining SACU revenue, widened the fiscal deficit and created budget financing shortfalls. The FY16/17 deficit widened to 10½ percent of GDP (4.6 percent in FY15/16) as SACU revenue declined and, on the spending side, a salary review increased wage costs and transfers and capital outlays reached the highest level since 2010, largely undoing the adjustment achieved during the 2010 fiscal crisis. Gross financing needs increased to 21¾ percent of GDP. The government increasingly tapped domestic markets and, in addition, resorted to central bank financing and accumulated domestic arrears (about 5⅓ percent of GDP at end March 2017). While still relatively low, public debt jumped to 25⅓ percent of GDP (from 18.7 percent), including domestic arrears. Against these developments, market pressures intensified, resulting in declining coverage ratios and rising yields for government securities.
Economic slowdown and government’s financing shortfalls have started adversely affecting the banking sector. Since 2012, credit growth to the private sector has averaged 11½ percent, but decelerated to 7½ percent in 2016 as corporate lending growth turned negative. However, credit to households for mortgages and durables remained buoyant, contributing to increase household indebtedness. At the same time, banks’ asset quality deteriorated, with NPL rising rapidly and exceeding 10 percent of total loans (end-March 2017). As government’s financing needs increased, banks’ direct exposure to the public sector rose and holdings of government securities reached about 11 percent of banks’ assets.
Aware of the long-term challenges, authorities have adopted plans to boost growth and foster social and economic transformation, but results have been mixed. In the context of their 2022 vision, authorities have increased public investment, and deployed incentives to boost private investment and economic diversification. However, the impact of these initiatives has been limited, particularly on private investment, employment and economic diversification. On the positive side, macroeconomic stability has been maintained. However, implementation of recent staff’s advice has been uneven, especially in the fiscal area, and new challenges are rising.
Policy discussions
Swaziland’s key challenge is to preserve macroeconomic stability against low SACU revenue and make inroads in reducing poverty and income inequality. With an expansionary fiscal policy contributing to an unsustainable outlook and external and financial vulnerabilities, discussions focused on the need for: (i) fiscal adjustment to bring the fiscal deficit in line with available financing, contain public debt dynamics and preserve external buffers; (ii) managing risks from fiscal and financial sector linkages and the large non-bank financial sector; and (iii) advancing structural reforms to generate sufficient growth and jobs to reduce poverty and inequality.
Selected Issues paper
I. The economic impact of fiscal vulnerabilities: A balance sheet approach
Government’s balance sheet vulnerabilities have been rapidly rising, becoming a potential source of macro-financial risks for the economy. Banks and nonbank financial institutions, businesses and households have large exposures to the government and, in some cases, their own vulnerabilities. In this context, a fiscal shock can rapidly propagate into the economy through the financial sector. The financial sector is also likely to amplify the impact of shocks on the economy, possibly opening the way to deep recession. In the case of an extreme shock with difficulties in servicing debt, the banking system capitalization would be significantly hit. Staff analysis highlights the need for fiscal consolidation and for strengthening the CBS’s role in monitoring and managing macro-financial risks.
Since 2015, the government’s balance sheet, liquidity, and risk exposures have been rapidly deteriorating, raising concerns about the impact on other sectors of the economy. As in many countries, the government in Swaziland is a major economic player with strong linkages with both the financial (banks and non-bank financial institutions) and nonfinancial sectors (businesses and households). As the government’s balance sheet deteriorates, all exposures to the government become a potential source of vulnerabilities for the sectors linked to the government and for the whole economy. Relying on the balance sheet analysis (BSA), this paper examines the nature of balance sheet vulnerabilities the government in Swaziland faces, and how fiscal shocks could transmit through the economy via balance sheet linkages and affect other economic sectors.
II. Investment, employment, and inclusive growth in Swaziland
Since 2010, growth in Swaziland has been sluggish and private investment declining, while unemployment remained high and employment has been little responsive to growth.
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Sluggish growth and declining investment rates. Growth performance over the last decade has been held back by a negative contribution to growth by capital formation, which has been associated with a decline in the private investment to GDP ratio. Despite a recent increase in public investment, overall investment has declined from 16.7 percent of GDP in 2000 to 8 percent of GDP in 2015.
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High unemployment and employment little responsive to growth. Over the last few years, the unemployment rate has remained persistently high at around 28 percent of the labor force, and higher than in other lower-middle income countries (the regional estimated unemployment rate is 5.3 percent). In addition, despite growth recovered in the post-2010 crisis, employment has changed little, making it unresponsive to growth and signaling a possible structural phenomenon. Staff analysis confirms the limited inclusiveness of growth in Swaziland.
Promoting growth and employment are critical developmental priorities for Swaziland. They are essential to address the high poverty rate (63 percent of the population lives in poverty) and income inequality (one of the highest in the world). Acknowledging these priorities, authorities have developed and have been implementing an Investor Roadmap (2005), and a post-2010 crisis Economy Recovery Strategy (2011), and have established a Swaziland Investment Promotion Authority (SIPA) to attract and promote domestic and foreign investment.
What Explains Low Private Investment and Responsiveness of Employment to Growth?
International comparisons suggest that specific structural impediments are limiting both private investment and the responsiveness of employment to growth. Three factors seem to play a role.
a) Skill Mismatches
Swaziland has very high skills mismatches in the labor market, which are usually associated with poor employment and investment performance. Following Estevao and Tsounta (2011), we construct, with some adjustments due to data availability, a skill mismatch index for 139 countries. According to the index, Swaziland has one of the highest skills mismatch index in the world, ranking 136th out of 139 countries. One possible source of such mismatch can be found in lower educational attainments particularly at the secondary and tertiary level compared to other lower middle income countries, i.e., there is a relatively low supply of skilled labor force in Swaziland. Past studies have shown that high skill mismatches are typically associated with higher unemployment rates. Moreover, a gap between occupational skills needed in given industries and those available in the labor force is likely to affect firms’ decision to invest as industries might find difficult to grow without an adequately skilled labor force.
b) Disconnection Between Wage and Productivity Trends
Disconnection between wages and productivity dynamics is hurting investment and keeping unemployment rates high. Swaziland has a large gap between wage dynamics and productivity trends. In particular, given the prominence of the public sector in the economy, fast increasing public wages generally drive private sector wages, generating a gap with productivity. Cross-country analysis suggests that this gap is associated with both high unemployment and low private investment rates. Previous studies find that real wages growth above labor productivity trends can contribute to keep unemployment rates high. At the same time, rising labor costs hurt firms’ profitability, which negatively affects investment decisions and new investments as well as competitiveness, thus discouraging foreign investment. Cross-country correlations for lower-middle income countries show that in general the gap between wages and productivity is associated to lower investment and higher unemployment.
c) Rigidities in the Business Environment
Swaziland presents several weaknesses in the business environment that can potentially limit job creation and investment. Swaziland’s ranking in the Global Competitiveness indicators has recently worsened, and in the 2015-2016 period the country ranked 128th out of 140 economies. Swaziland ranks clearly below the average of middleincome countries in legal contract enforcement (it attains 1.59 compared to an average of 4.1 points, on a 1-10 scale), higher education and training (3.1 against an average of 3.9 points, on a 1-7 scale), and the business impact of HIV (with an index of 2.1 compared to an average of 5, on a scale 1-7 with high indicating less negative impact) given the very high HIV prevalence in the country. This highlights areas that affect competitiveness where there is significant room for improvement. that improved quality of the business and institutional environments is associated to better growth and employment performance.
Dividends from Structural Reforms
Staff analysis suggests that lower skills mismatches and better connection between wages and productivity have the potential to increase private investment. Following IMF (2015), estimating an investment accelerator model for middle income countries during 2005-2014 suggests that skill mismatches are negatively correlated to investment and better connection between wages and productivity is positively associated to investment. In addition, more flexible frameworks in determining wages (a measure of labor market rigidities) support higher investment. There are indications that business environment indicators, such as protection of property rights are positively related to investment.
Swaziland may benefit from implementing structural reforms that boost private investment, and strengthen the nexus between employment and growth. Structural measures aiming to reduce skills mismatches by improving educational outcomes in the population, aligning wage growth with productivity, strengthening institutions, and reducing rigidities in the business environment seem to be at the forefront of private sector development, boosting investment and sustainable job creation.
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tralac’s Daily News Selection
Starting today, in Dar es Salaam: Tanzania oil and gas congress. A DW commentary: Gas and oil key in East African integration
UNCTAD’s Trade and Development Board began its 64th session this morning: opening remarks by Dr Mukhisa Kituyi (pdf)
Nigeria’s manufacturing sector: the CSEA-NOIPolls survey report will be launched tomorrow
7th African Green Revolution Forum: Abidjan Communiqué
Following the presentations and discussions at AGRF 2017, key actions were identified for immediate execution, to lead the path to Africa’s prosperity through agriculture. Heads of State and regional institutions led by the African Union Commission and NEPAD Agency reaffirmed their commitment to driving the CAADP biennial review process and implementing the scorecard on agricultural transformation for tracking progress in realising the aims of the Malabo Declaration. The Heads of State and Government present further committed to honor all financial, policy and political commitments made during this forum and in other past meetings. The actions taken over the next four months until the January 2018 AU Summit will be critical to delivering on this agenda and contributing to the achievement of the goals laid out in the Malabo Declaration. The AGRF partners intend to build on the momentum established at AGRF 2017 by developing a work plan that will tie together the most important moments and forums of the African agriculture community to secure further support for the biennial review process.
COMESA Industrialization Strategy adopted
COMESA ministers responsible for industry have adopted the regional industrialization strategy which defines key interventions at both regional and national levels to speed up industrial development in the region. The strategy is for a ten-year period from 2017 to 2026. COMESA institutions have been given specific tasks to do in supporting the implementation of the strategy. The diaspora is part of the strategy because of their contribution in providing not only financial resources but also skills and technology capabilities. [COMESA Competition Commission: Non-domestication of COMESA treaty challenging commission]
North Africa’s trade arrangements: complementarities and contradictions with the CFTA (FES-MENA)
Which place will North Africa assume in these negotiations? How can social justice and standards be protected? Which role can the civil society play in these negotiations? These were the primary questions asked in a two day workshop (28-29 June, Rabat) on the North African implications of the CFTA.
Developing businesses of scale in Sub-Saharan Africa: insights from Nigeria, Tanzania, Uganda, Zambia (Chatham House)
This paper provides a snapshot of the current business environment in Nigeria, Tanzania, Uganda and Zambia, as seen by the owners and managers of over 60 local businesses, and an analysis of the constraints and opportunities for company growth in those four countries. While there are some common factors, these countries vary widely in cultural, political, geographic and economic terms. The picture that emerges is therefore equally diverse.
Zambia: 2018 budget proposals and 2018-2020 MTEF (Finance Ministry)
Following the implementation of Zambia Plus - The Economic Stabilisation and Growth Program, a number of positive developments have been attained in 2017. These include the reduction in the inflation rate from a high of around 23% in February, 2016 to 6.3% in August this year, the appreciation of the Kwacha against major currencies and higher growth projections for 2017 at 4.3% compared to the initial forecast of 3.4%. Nonetheless, challenges still exist on the fiscal front. These include, but are not limited to, the large stock of arrears, for which the Government has designed a medium-term-time-specific-arrears-dismantling-strategy so as to significantly reduce the stock over the medium term. The 2018-2020 Green Paper focuses on sustaining economic growth and development through the continued implementation of the ESGP. Maintenance of debt sustainability will remain pivotal in the rebalancing of the Zambian economy. Government’s borrowing over the medium term, therefore, will be guided by the Medium Term Debt Strategy, soon to be published, so as to ensure that the country remains within sustainable debt levels. It is envisaged that the fiscal deficit will be reduced to no more than 3% of GDP by 2020. [Download the Green Paper here] [Note: Zambia’s 2018 National Budget will be presented on 29 September]
Botswana: National AGOA Response Strategy (Trade Hub)
This strategy document is divided into seven major sections: Introduction, Background, Situation analysis, Potential sectors for support under AGOA, Proposed strategic activities to address identified challenges, Implementation plan, and Monitoring and evaluation framework. The overarching challenges that Botswana needs to address to improve its utilization of the AGOA preferential program are inadequate awareness, insufficient investment from the US, high cost of production and transport, poor competitiveness, and compliance with US regulations.
Kenya, Tanzania resolve to verify goods to end trade issues (Xinhua)
Kenya and Tanzania have agreed to conduct joint verification exercise on all imports and exports to help solve trade issues between the two neighbouring countries. The exercise, once established, will see goods such as lubricants, edible oils, cement and textiles produced outside Export Processing Zone trade un-prohibited between the two countries, according to a joint communique between Kenya’s Principal Secretary for Trade Chris Kiptoo and his Tanzanian counterpart Adolf Mugenda issued in Nairobi on Sunday. In the communique issued following three days of intensive talks, the duo underscored the significance of having regular bilateral meetings to discuss concerns and opportunities with a view of promoting trade for the mutual benefit of the two countries and its people.
Anzetse Were: China taking over manufacturing in Africa? (Business Daily)
Chinese firms make it clear that there is a lucrative domestic market that indigenous firms have failed to fully tap and thus African firms have a lot to learn from Chinese firms. If trends continue, a situation may emerge where African industrialisation is owned and dominated by Chinese firms. While this is welcome in terms of contributions to Africa’s development, can it then be termed ‘African’ industrialisation?
World manufacturing Q2 2017: update (UNIDO)
Global manufacturing growth is expected to accelerate in 2017 thanks to a steady recovery in industrialized economies and the reversal of negative trends observed in Latin American economies in 2016. Worldwide the scope of domestic demand for manufactured products has widened in 2017. The current world manufacturing output growth trends, based on the data for second quarter of 2017, are explored in a report published by UNIDO (pdf). Africa in general is expected to improve its growth performance in 2017. However, manufacturing in South Africa, the largest manufacturer of the continent, is likely to contract in the wake of a new recession with considerable negative impact on the Southern African region. Manufacturing in the LDCs of Africa is expected to grow by around 4.0%. However, this is lower than the required growth rate to achieve Sustainable Development Goal target 9.2 by 2030. The UNIDO report also presents the growth estimates by manufacturing sectors.
Mauritius: PM announces a series of relief measures for export-oriented enterprises (GoM)
The meeting (with representatives of Business Mauritius, the Mauritius Chamber of Agriculture and the Mauritius Export Association) was held following representations from these institutions concerning the serious challenges facing the export sector. The Prime Minister had set up a technical committee comprising representatives from the public and private sectors as well as the Bank of Mauritius to assess the situation and to propose appropriate remedial measures. One of the measures is to provide assistance to the sugar industry for crop year 2017 by suspending the CESS. In addiction the SIFB is also giving a financial support of Rs 1 250 per metric ton of sugar to the planters and millers. As regards the export-oriented enterprises, Government will introduce an Exchange Rate Support Scheme with the following features:
Growth breaks and growth spells in Sub-Saharan Africa (IMF)
This paper examines the growth performance of sub-Saharan African countries since 1960 through the lens of growth turning points (accelerations and decelerations) and periods of sustained growth (growth spells). Overall, determinants of growth spells in sub-Saharan Africa are different from those in the rest of the emerging and developing countries.
2017 Migration Dialogue for Southern Africa: update (IOM)
Senior officials meeting at the recently concluded 2017 Migration Dialogue for Southern Africa conference also recommended the formulation of a comprehensive Regional Migration Policy Framework. The conference focused on the theme Addressing mixed and irregular migration in Southern Africa: linking protection, immigration, border management and labour migration. The 2017 MIDSA also provided SADC member states with a platform to share regional perspectives on the draft Outcome document towards an African Common Position as Africa’s inputs and contribute to the Global Compact on Migration.
Shinzo Abe’s India visit may see launch Of Asia Africa Growth Corridor project (Livemint)
“Japan is ready to commit $30bn for the AAGC while India is expected to commit about $10bn in the proposed corridor. An announcement on this is expected in next few days. These investments will be supplemented by other institutions. The actual investment may go much higher as $40bn is the initial commitment for launching AAGR,” said Sachin Chaturvedi, director general of Research and Information System for Developing Countries, a New Delhi-based think tank. The investment commitment by Japan is for a period of three years while India’s time frame for $10bn is for five years, he added. [India, Israel and the possibilities of collaboration in Africa], [Hong Kong hosts 2nd forum on Belt and Road Initiative]
Peter Drysdale: Why Asia needs to show the way on trade strategy (East Asia Forum)
RCEP trade ministers and officials are now meeting in Manila to meet their deadline to deliver East Asian trade reform this year or wimp it. It might seem strange in this time of global crisis to turn to ASEAN, dogged as it is by perceptions of weakness and vulnerability and distracted by the political and security problems in the South China Sea. But ASEAN, with Indonesia at its core, is a regional enterprise with a distinctly global outlook and objectives, an experiment in open regionalism that has succeeded.
Today’s Quick Links: Recent Congressional Research Service reports: Sub-Saharan Africa: key issues, challenges, and US responses; Tanzania: Current issues and US policy (pdf) ECA strengthens capacity in Eastern Africa region to better plan for energy expansion Launch of InvestSA One Stop Shop, Western Cape: speech by President Zuma Western Cape: Atlantis Special Economic Zone update Parmley in Zambia to promote bilateral trade links Momentum building up for a global coal alliance, says WCA CEO Benjamin Sporton |
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UNCTAD Trade and Development Board, 64th session begins in Geneva
UNCTAD Secretary-General targets trade barriers and calls for decisions to turn into action
Reducing barriers to trade and achieving true development for all countries were issues in the spotlight as a major meeting of experts in commerce, investment and policy got underway in Geneva today.
Referencing the global geo-political context, UNCTAD Secretary-General Mukhisa Kituyi stressed the important role of multilateralism at a time when international trade is focused on “mercantilist self-interest” rather than mutual benefit.
Dr. Kituyi used the opening of UNCTAD’s Trade and Development Board (TDB) to give life to the 2030 Agenda for Sustainable Development, adopted by the entire international community in 2015. The ambitious package of measures, which include the 17 Sustainable Development Goals, form the “defining agenda of our time,” he said.
The TDB meets up to three times a year in between the quadrennial editions of the UN Conference on Trade and Development, to deal with urgent policy issues, as well as management and institutional matters.
This TDB session, the 64th, is taking stock of the work done since the UNCTAD XIV summit, held in Kenya in July 2016. The “Nairobi Maafikiano” report, adopted by governments there, highlighted the link between regional integration and sustainable development.
“Our approach is balancing agility with prudence,” Dr. Kituyi told the TDB. “We have prioritized those elements of the Maafikiano that are the newest, and the most impactful.”
The presidency of the TDB rotates among the different regional groups of countries in the United Nations, and Ambassador Tudor Ulianovschi of Moldova took the helm on Monday, succeeding his Ugandan counterpart Ambassador Christopher Onyanga Aparr.
Mr. Ulianovschi highlighted the importance of dialogue and trade to achieve results on the path to the 2030 Agenda.
“We all need to make an effort to make the institutional machinery work to reduce barriers to trade,” he said on the sidelines of the event, where he also emphasized his determination to “eliminate” gaps in national legislation when it comes to facilitating trade.
“It is time to take decisions to actions and to results,” he said.
Mr. Ulianovschi is charged with guiding the TDB at a time when international trade is centre-stage in geo-politics and at a moment when the implementation of the 2030 Agenda is in focus.
A high-level dialogue during the second day of deliberations on Tuesday will give senior figures the opportunity to exchange experiences on regional economic integration matters through the presentation of best practices. The aim is to help craft practical policy recommendations on how Regional Trade Agreements can promote inclusive and sustainable development and meet emerging challenges, while supporting structural economic transformation.
The TDB also offers an opportunity to review the evolution of the world economy in 2016 and 2017 and analyze the factors that are making this recovery the longest and slowest on record. Delegates will likely demonstrate their concern over the continued slow pace of growth in advanced economies, as well as issues of debt and financial fragility.
The TDB debates will consider recent trends in financial markets and flows and address the vulnerabilities faced by developing countries. Delegates will also address rising inequality as one of the fundamental constraints on faster global economic growth. In addition, they will examine how inequality and financial instability jointly pose structural limits to inclusive growth, and propose a global agenda to address them.
Evolution of the international trading system and its trends from the perspective of Africa: Download the presentation by Jamie MacLeod, Trade Policy Fellow, Africa Trade Policy Centre (ATPC)
Evolution of the International Trading System and its Trends from a Development Perspective
Speech delivered by ITC Executive Director Arancha González
Let me start by commending the UNCTAD secretariat team for the background document prepared for this session. It provides a comprehensive overview of recent trade trends, both positive and less so, while outlining the challenges and opportunities facing developing countries seeking to use trade to achieve the United Nations Sustainable Development Goals.
Ahead of today’s meeting, the organisers had asked about the perceived fragility of the international trading system, and how recent trends in trade had affected our respective institutions.
This question is a bit different for the International Trade Centre than for our parent organizations.
ITC is, first and foremost, an organization that operates on the ground. Our mandate is to enable businesses to make the best possible use of international market conditions. Adapting to changing market conditions – in other words, dealing with markets as they are, not as we would like them to be – is part of our DNA. We are not a rule-setting organization. Our work does have an analytical component, but it is designed directly to enhance the impact and efficiency of our projects, and to equip governments and other actors with the information they need to help micro, small and medium-sized enterprises (MSMEs) become more competitive internationally.
That said, the entrepreneurs we work with tell us they are concerned about the prospect of shrinking value chains and rising trade barriers. They are right to be worried. Recent research on the trade slowdown suggests that arm’s length suppliers to international value chains were especially vulnerable to the crisis and its aftermath, as well as to current policy uncertainty. Intra-firm trade has held up more robustly.
To the extent that the international trading system looks in danger of disintegration today, it is primarily because of a backlash in some advanced economies against economic globalization.
This backlash owes something to anxieties arising from the rising economic and political clout of developing countries. But it is in great measure the result of a generation-long political failure: domestic policies have not ensured that the gains from trade and growth were more widely shared. Economic models clearly predict that trade hurts some people while benefiting societies as a whole. In too many places, however, some groups have borne nearly all the pain of adjusting to technological change and to less extent to trade, while the biggest gains have accrued to too few.
We in this room know that if protectionist rhetoric is translated into reality, it would diminish prospects for trade-led growth, especially in developing countries. It would cause economies at all income levels to miss out on the productivity gains that trade makes possible by allowing for increased specialization and scale. Closing markets would lower growth potential, and it is highly probably that slower growth, with fewer job opportunities, would make for politics even uglier than what we are seeing today.
In sum, making trade work for the 99% is more important than ever, in the world’s poorest countries and its richest. This is a moral necessity and necessary for meeting international targets. But is also a practical imperative: growth needs to be inclusive, or else, as recent events show, anti-growth policies will grow in popularity.
Inclusive, sustainable growth is at the heart of the UN Global Goals. The SDGs are well-known for seeking to eradicate extreme poverty by 2030. But it’s also important to remember that the SDGs aim to boost incomes for people in the bottom 40% in all countries.
Eradicating extreme poverty gets more attention, since it not long ago seemed an unattainable dream. But the income growth target matters too. Evidence suggests that even as extreme poverty and income inequality are decreasing, the proportion of the world population earning less than half the global median income has risen. Put differently: the global median income is rising, which is a good thing. But a growing number of people are being left behind relative to it. It’s not difficult to imagine how this might carry the seeds of future instability.
Maximising trade’s contribution to inclusive growth is at the heart of ITC’s mandate. It’s why we focus on micro-, small and medium-sized enterprises. MSMEs are the key to inclusive trade. The reason why is straightforward: jobs and incomes are how most people either share – or don’t share – in economic growth. MSMEs account for about 70% of jobs and over nine out of every ten businesses. Because the productivity gap between large companies and smaller ones is especially wide in developing countries, it means wages and working conditions are substantially worse for large sections of the workforce, particularly for women and young people. More productive MSMEs translate to better paying jobs in the segments of society that most need them.
Trade is a critical part of this story. Why? Because when MSMEs are able to ‘internationalize’, whether directly or by tapping into multinational supply chains, they register particularly high productivity, employment, and wage gains. Young MSMEs that manage to break into international markets are far likelier to thrive and expand. If enough companies are involved in trade, rising incomes in these firms in turn put upward pressure on wages in the rest of the economy.
Unfortunately, MSMEs are underrepresented in world trade. That’s why ITC works to empower more MSMEs to trade, especially in LDCs, small and vulnerable economies, landlocked countries, and fragile states. When successful MSMEs are run by women or young people, the socioeconomic dividends are especially large. That’s why we place particular emphasis on connecting women- and youth-owned businesses to markets through our SheTrades and youth programmes. It’s why we support governments to build trade strategies that take into account gender and environmental implications while tackling the bottlenecks impeding export success in promising sectors.
Equipping more MSMEs with the tools and policy environment they need to trade would foster job creation and inclusive growth. The 2030 agenda has recognised the importance of MSMEs. At ITC, we have aligned our entire project portfolio with the ten SDGs we directly support. Foremost among the ten are Goal 8, decent work and economic growth, and Goal 17, namely partnerships for the SDGs, followed by poverty elimination and gender equality.
Information matters for companies seeking to trade across borders. ITC’s surveys of more than 20,000 enterprises in 38 developing countries have found that “information transparency issues” are among the biggest obstacles faced by would-be traders. Before companies can seize international opportunities, they need to understand where they are, and what they need to do for market entry. The cost and effort of accessing information about market trends and tariff and non-tariff barriers weighs heavily on smaller firms, especially from poorer developing countries. This is why market intelligence has been at the center of ITC’s work since day one in 1964. Our suite of market intelligence tools have over 600,000 registered users, and enabled an estimated $300 million in trade transactions last year. But we think we can do even better.
Access to information is just one way businesses, governments, and international agencies can work together to lower the obstacles facing MSMEs in world markets. There are other ways to reduce fixed costs related to trade. Implementing the WTO Trade Facilitation Agreement is one. Another is for big businesses to help small-scale suppliers meet the costs of complying with international standards.
Before closing, I want to stress a point very much in keeping with the spirit of this Trade and Development Board. Economic rules, trade policy included, are critically important, but they cannot solve development challenges by themselves. They need to be complemented with other support policies. For example, the WTO rulebook supports development more effectively when accompanied by Aid for Trade, and by national social policy and skills-building.
On environmental sustainability, nothing can replace national and international rules that price in environmental externalities. But complementary initiatives to help MSMEs produce more sustainably can make a material difference. ITC’s Trade for Sustainable Development Forum later this month will focus on practical action to build sustainable supply chains. Please consider all of yourselves invited.
Finally, to help MSMEs make the most of regional and multi-regional value chains, accompany regional trade agreements with cooperation among trade promotion organisations, business associations, and other trade and investment support institutions. This is one of the lessons to emerge from the third edition of ITC’s flagship research report, the SME Competitiveness Outlook, which will come out next month. The report will include new econometric analysis on the relationship between deep regional agreements and value chain trade. It sheds new light on how best to bolster the competitiveness of MSMEs in a world where some regions are intensifying trade and investment integration, even as others step back from it.
In conclusion, MSMEs are central to making trade, and growth, more inclusive and more sustainable. There is much we can do to help MSMEs use international markets to generate the hundreds of millions of decent jobs needed to achieve Agenda2030.
ITC looks forward to working with you.
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G20 Compact with Africa Finance Ministers call for African ownership of CWA
Strong leadership, macro-economic stability, adequate infrastructure, entrepreneurial skills, tax reforms and African ownership of the Compact with Africa process were issues high on the agenda of Finance Ministers attending the first G-20 Compact with Africa meeting in Accra, Ghana, on 6 September 2017.
The meeting, convened by Ghana’s Finance Minister, Ken Ofori-Atta, with technical support from the African Center for Economic Transformation (ACET), provided a platform for the finance ministers to discuss what role the G-20 Compact could play in the collective economic transformation agendas of Africa, as well as how to overcome challenges in its implementation.
The CWA seeks to support African Compact countries to improve their performance under three pillars – macroeconomic, business and financial – to attract private investment and strengthen their public sector financial and debt management.
Seven African countries namely, Côte d’Ivoire, Ghana, Ethiopia, Morocco, Rwanda, Senegal, and Tunisia have signed on to the Compact. Although Ethiopia and Tunisia did not attend the meeting, other countries represented as observers at the meeting were Burkina Faso, Benin, Gambia, and Guinea.
Ghana’s Vice President H.E. Dr. Mahamudu Bawumia, in his welcome address, said the CWA presents an opportunity to re-focus attention on areas of investments in Ghana. “For Ghana, the CWA has been an opportunity to re-focus our attention on areas where investment is badly needed, and where we have created a positive business environment,” Dr. Bawumia said. “This includes areas such as renewable energy, agriculture and agro-processing, the financial sector, infrastructure, manufacturing and tourism sectors,” the Ghanaian Vice President continued.
He gave examples of work under the CWA pillars. “Under the macroeconomic framework pillar of CWA, we are focused on constraining expenditures to reduce expenditure overruns and pursuing domestic debt re-profiling to lengthen maturities and the cost of credit. Under the business framework pillar, we are creating the Ghana Business e-Registry and developing model contracts in line with international best practice,” the Vice President said.
Ghana’s Finance Minister, Hon. Ken Ofori-Atta, emphasised the need for private investment in infrastructure and the manufacturing industries to add value to agriculture and create jobs. “Africa needs to spend about US$340 billion on infrastructure by 2040 to drive investment to the continent,” the Finance Minister said, quoting the African Development Bank.
He stressed the importance of African ownership of the CWA but noted that the CWA’s focus on better fiscal management and increasing private sector investment fully meshes with Africa’s agenda.
Minister Ofori-Atta noted moreover that the CWA offers a framework through which the Compact countries can work together through peer learning and mutual motivation to accelerate growth on the continent.
In closed sessions, finance ministers and representatives of Compact and observer countries took turns to explain aspects of their national economies for which the Compact could be useful, challenges to implementation of the Compact and solutions to the challenges.
Discussions also underscored the need to widen the tax base to include the informal sector as a source of domestic resource mobilization in an era of declining aid financing. Economic growth that impacted positively on the lives of people in the area of poverty reduction and social inclusion, regional integration, efficient communications, diversification of economies and strong tax regimes were identified as key interventions to attract private investment. A peer-review mechanism among CWA countries was seen as key to promoting mutual accountability and peer learning, and ACET was asked to assist in developing such a platform.
Development partners including the World Bank, the International Monetary Fund (IMF), the AfDB and the African Capacity Building Foundation (ACBF) also committed their support to assisting the seven countries to achieve the objectives of the Compact. The German Ambassador to Ghana thanked the Government for its commitment and leadership in the CWA process. The meeting concluded with strong commitment and a clear way forward on implementing the CWA amid rising expectations by African countries, development partners and G20 governments, and the adoption of a consensus document for the successful implementation of the Compact.
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7th African Green Revolution Forum: The Abidjan Communiqué
Decisions and Commitments from the 2017 African Green Revolution Forum
The Seventh African Green Revolution Forum (AGRF) was held in Abidjan, Côte d’Ivoire, from 4 to 8 September, 2017 as a premier platform for global and African leaders to develop actionable plans to move African agriculture forward. The forum was hosted by H.E. President Alassane Ouattara, a continental champion of inclusive agricultural transformation, and his team of senior government officials, including Vice President Daniel Kablan Duncan, Prime Minister Amadou Gon Coulibaly, Minister of Agriculture and Rural Development, Mamadou Sangafowa Coulibaly, and several other key cabinet members. The other co-hosts were the African Development Bank, the Alliance for a Green Revolution in Africa (AGRA), and the 15 members of the AGRF Partners Group. Additional resource and technical partnership was provided to the forum by another 10 partners who supported the cost of the forum and its sessions and content.
The Forum was attended by as many as 1300 delegates and high level dignitaries, including H.E. President Ellen Johnson Sirleaf of Liberia, H.E. Komi Selom Klassou, Prime Minister of Togo and Representative of H.E. Faure Essozimna Gnassingbe, President of Togo, H.E. John Kufuor, Former President of Ghana, H.E. President Olusegun Obasanjo, Former President of Nigeria, and H.E. Jakaya Kikwete, Former President of Tanzania. Other dignitaries included the President of ECOWAS, the African Union Commissioner for the Department of Rural Economy and Agriculture, eight ministers of agriculture and finance, business leaders, financial institutions, private agribusiness firms, farmers, NGOs, civil society, media, scientists, development partners, technical partners, and the next generation of African agripreneurs and leaders.
The theme of this year’s forum was Accelerating the Path to Prosperity: Growing Inclusive Economies and Jobs through Agriculture. This served as the guiding framework for a total of 52 sessions and more than 300 speakers around related topics, particularly youth employment, women in agribusiness, strengthening access to inputs, market access, financial inclusion, the enabling policy environment, and other critical barriers to value chain development and unlocking private sector investment. The forum was closely aligned with and built heavily upon key global and continental gatherings earlier in the year, including the African Development Bank Annual Meeting, the African Union Summit, the CAADP Partnership Platform Meeting, and the G20 and G7 Summits that have all focused heavily on the creation of jobs for the youth and driving rural development and prosperity through agriculture.
The 2017 African Agriculture Status Report (AASR), entitled The Business of Smallholder Agriculture, once again served to provide a technical foundation and set of key findings and recommendations for the forum. The report acknowledged the importance of governments working with the free market to drive Africa’s economic growth from food production. It emphasised the need to substitute imports with high value food made in Africa for a market forecast to be worth more than US$1 trillion a year by 2030.
The AGRF 2017 looked at how governments, businesses, and other partners are delivering on the political, policy and financial commitments worth over US$30 billion made at the AGRF 2016 in Nairobi, Kenya and the impact this is having on the lives and incomes of farmers and agribusinesses.
The AGRF 2017 benefitted from a series of six thematic working groups driven by the AGRF Partners throughout the year. These considered i) Youth, ii) Women, iii) Inputs, iv) Markets, v) Mechanization, vi) Finance. Results of the year‐long engagement included the launch of a toolkit on blended finance released at the forum, strengthened stakeholder communities for the youth and women working groups.
Assessing progress
The forum highlighted considerable progress over the last 12 months against the AGRF 2016 multi-year commitments guided by the 9 priority action points contained in the Nairobi communiqué.
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The African Union, NEPAD, and countries noted that seven countries have initiated the process of refreshing their investment plans to unlock 10 per cent of public expenditure in agriculture to leverage significant additional resources from the private sector and development partners.
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Private sector partners made investments, including OCP’s US$2.4 billion fertilizer plant in Ethiopia, with further plants planned in Rwanda, Cote d’Ivoire, Kenya, Tanzania and Nigeria. KCB working with the MasterCard Foundation launched a US$30 million partnership to promote financial inclusion for at least two million smallholder farmers in Kenya and Rwanda.
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Partners such as the African Development Bank, the Mastercard Foundation, and the International Fund for Agricultural Development (IFAD) advanced innovating financing mechanisms to develop SMEs and increase finance for the continents smallholder farmers. This included work on the Smallholder Agriculture Investment and Finance Network, SAFIN.
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Many countries are making progress in developing updated national agricultural strategies and investment plans aligned with expectations under the Malabo Declaration. The Food and Agricultural Organization (FAO) of the United Nations has provided support to a number of countries in the course of the last year, including Kenya, Ghana and the AGRF host country of Cote d’Ivoire.
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These and other countries are making progress in identifying and unlocking policy and regulatory bottlenecks critical to boosting agriculture sector growth. In Ethiopia, progress has been made on regulatory updates to enable contract farming, in the removal of a cereal export ban, and reduce restrictions around agricultural inputs and machinery. In Ghana, the government moved to strengthen the import distribution and subsidy systems. Malawi launched a fertilizer policy regulating fertilizer distribution. Burkina Faso, Ghana and Nigeria strengthened their legal systems to enable private sector involvement in the seed and fertilizer sectors.
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Significant progress has been made towards the completion of the first CAADP biennial review process, which the African Union and NEPAD are leading with countries and Regional Economic Communities in preparation for the African Union Summit in January 2018. Up to 30 countries have submitted their biennial review reports to date, and the process is on track to deliver the commitment of a one-page scorecard for Heads of State.
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A first ministerial roundtable and dialogue was held at the 2017 Global Open Data for Agriculture & Nutrition (GODAN) meeting hosted by Kenya, where ministers reviewed the progress they are each making in the development of data. The meeting resolved to establish an African intergovernmental network on Open Data for Agriculture and Nutrition.
Progress was exemplified by stakeholders across the agricultural community, including ongoing leadership by H.E. President Uhuru Kenyatta of Kenya and H.E. President Paul Kagame of Rwanda, who remain among the key leaders of inclusive agricultural transformation on the continent, and took measures such as allocating US$32 million to the Uwezo Fund and the Youth and Women Enterprise Fund.
Across all of this progress, partners noted that in order to achieve agricultural transformation, new models and new ways of doing business are required.
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The Alliance for a Green Revolution in Africa (AGRA), the Bill & Melinda Gates Foundation, the Rockefeller Foundation, and the United States Agency for International Development (USAID) launched a new partnership of up to US$280 million to increase incomes and improve the food security of 30 million smallholder households in 11 countries by 2021.
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The Farm to Market Alliance, a partnership of Syngenta Foundation, RaboBank, WFP, AGRA, YARA and Bayer that aims to enhance access for smallholder farmers, expanded to draw in more partners, including Intervalle.
The AGRF Partners Group agreed to continue tracking progress against its multi-year action items, as a key instrument for mobilizing additional partners and commitments, and ensuring accountability.
Securing new commitments and recognizing success
This year’s forum featured new types of partnership agreements providing innovative ways of doing business. A number of new partnerships were established as vehicles for resource mobilization and co‐ordination. These were contained in a number of MOUs covering areas such as increasing the productivity of maize smallholder farmers; building export capacity of agricultural enterprises; strengthening post-harvest management and increasing financial inclusion.
Most notably, a new MoU was signed between the AGRF host country, Cote d’Ivoire and the Alliance for a Green Revolution in Africa (AGRA) to facilitate the setting up of an AGRA office in the country to support the country and the Francophone West African region attain its agricultural transformation targets.
The forum set the narrative for inclusive agricultural transformation that involves millions of smallholder farmers, but which goes beyond the farm to include SMEs and agri-businesses in the entire food value chain.
Heads of State and other government leaders present made new commitments to sustain their economic and agricultural transformation drive.
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E. Alassane Ouatarra of Cote d’Ivoire stated his government’s commitment to increase its budgetary allocation to agriculture to 10 per cent of GDP, of which US$200 million has already been provided to cocoa and coffee farmers. He also committed to comply with actions of regional organizations in favor of agricultural development with the aim of feeding its population and becoming, ultimately, a net exporter of food.
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E. Komi Selom Klassou, the Prime Minister of Togo emphasised the need to work with other Heads of State to achieve policies that are coherent and that support smallholders in organising into cooperatives for ease of access to finance. He called for stronger partnerships between the public and private sectors to play a key role in the development of Africa’s agribusinesses.
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E Ellen Johnson Sirleaf of Liberia stressed the value of working with the private sector to double the yields of rice farmers by improving their access to inputs to enable them to transition to low land irrigated rice production.
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Dr. Owusu Afriyie Akoto, Minister of Agriculture, Ghana, who represented H.E Nana Akufo‐Addo, President Ghana expressed his country’s renewed support for the ‘Planting for food and jobs’ programme, with a pilot targeting 200,000 of the country’s five million farmers and fisherman in the first year. This five year project will improve productivity through improved seeds, fertilisers, market support and e‐agriculture.
Other commitments were made by the following institutions representing the private sector and the development partners:
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The European Union has signed a new European Consensus for Development initiative with a value of around US$1.5 billion. This adds to its existing blended finance facilities for Africa and the neighbouring region with an estimated budget of US$2.6 billion to leverage more than US$44 billion of investment in Africa until 2020.
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Germany’s Federal Ministry of Economic Cooperation and Development (BMZ) expressed its commitment to African development with agriculture as a key driver. Under Germany’s presidency, the G20 this year launched an initiative on rural youth employment with a focus on job creation for young people. This is contained in the Berlin Charter that has been adopted by civil society, the private sector and science community. It also reaffirmed its commitment to the One World No Hunger initiative with €1.5 billion per year invested in agriculture. Its Marshall Plan with Africa will guide the corporation and development of initiatives between Africa and Germany.
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Yara, the global fertilizer company, has dedicated more that US$100 million in downstream operations and US$130 million to develop a mine in Ethiopia. Yara is also part of the Farm to Market Alliance, but noted that investment could increase further with continued improvements in the enabling environment.
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The Rockefeller Foundation committed US$130 million over seven years to improve working practices with partners across the private and public sectors, technology manufacturers and financiers
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The Bill and Melinda Gates Foundation has built on its US$350 million investment in Africa, with US$250m going to agriculture, through a partnership with the Rockefeller Foundation, and the United States Agency for International Development (USAID) for a new US$250 million commitment to AGRA as a leading pan-African institution that works with multiple players and governments to increase the incomes and food security of millions of smallholder households.
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The African Union has committed to the creation of a CAADP-Malabo business plan to create a tool to implement the seven goals.
Close to US$6.5 billion worth of investments in palm oil, pulses, potato and rice – mainly in West Africa – over the next eight years, were made.
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The rice value chain received significant boost in investments including a crowd funding facility to support 10,000 farmers and SMEs with loans of $100 – $10,000 within the next 18 months, plans to establish the West African Regional Rice Task Force to unlock US$ 470 million to achieve rice self-sufficiency. A US$500 million infrastructure investment deal is also under development to improve acces to farms and markets.
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Maslaha Seed Limited and Sygenta committed a US$1 million investment in increased rice seed production while the expansion of the Farm to Market Alliance to include of Intervalle will increase rice marketing in West Africa.
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Black Pace Nigeria committed to invest US$1,03 million in Nigeria and to another US$ 120 million for for potato processing in Rwanda while Kenya’s Agricultural Finance Corporation committed to invest $2 million lending to Potato farmers.
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ITC committed to develop and launch a free palm oil market intelligence and information app
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US$4 billion will be invested in the palm oil sector by 2025
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Mahindra Agribusiness committed to buy all green grams produced in Africa including the setting up of a processing plant with a crushing capacity of 40,000 metric tons in Ethiopia.
A high‐level ministerial roundtable agreed on a collaborative deal to accelerate agricultural growth in the continent, adopting a framework to ensure that all countries on the continent grow in unison, and an accountability tool that will track the delivery on the pledges made by participating countries in the current and previous fora. The ministers committed to:
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Strengthen their coordination to ensure accountability against pledges, commitments and plans made, especially within the framework of a continental scorecard.
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Re-orient their relationship with the donors from one of a donor‐recipient to that of investment partners that deliver mutual value and benefits, especially to the African smallholder farmers.
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Strengthen their leadership and continue building an environment that attracts private sector investments.
Other contributions came from a variety of stakeholders, all focused on how to improve the business of smallholder agriculture to achieve improvements in income and food security and to create of decent jobs. The youth present at the forum underlined their commitment to drive seize the opportunities in agri‐businesses.
Women in Agriculture featured prominently throughout the forum, including through a dinner that was keynoted by H.E. Daniel Kablan Duncan, Vice President, Cote d’Ivoire during which commitments were made towards ending malnutrition and hunger, as well as creating opportunities for women. During the event, it was unanimously agreed that investments made for projects led by women and youth were critical for the overall attainment of the agriculture development goals.
The forum also provided a premier platform to highlight the success of individuals and institutions driving significant progress across the continent for agricultural transformation and food security. Under the leadership of H.E. President Olusegun Obasanjo and the Africa Food Prize Committee – and witnessed by Heads of State and Government present – the 2017 Africa Food Prize was awarded to two individuals who have made outstanding individual contributions to African agriculture and are forging a new era of sustainable food security and economic opportunity that elevates all Africans:
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Professor Ruth Khasaya Oniang’o, for her pioneering leadership in academia, research, and policy to improve food security and nutrition for millions in Africa; and for her groundbreaking work, with farmers' groups and rural communities, that connects agriculture and nutrition both in research and practice.
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Coulibaly Maimouna Sidibe, for her illustrative business success in producing, packaging,and distributing improved and high‐yielding seeds that have significantly improved the food security and incomes of smallholder farmers throughout Mali and West Africa; and for her inspiring combination of world‐class business practices and sound technical skills exemplifying the best of Africa’s agri-business sector.
Recognizing the importance of youth in driving the future of agriculture across the continent, the forum also recognized the winners of a Pitch Agrihack competition that honours outstanding youth e-agriculture start-ups. Projects from Nigeria and Ghana were announced as winners in the early stage category and youth from Senegal and Ghana feted in the advanced stage category.
Next steps
Following the presentations and discussions at AGRF 2017, key actions were identified for immediate execution, to lead the path to Africa’s prosperity through agriculture. Heads of State and regional institutions led by the African Union Commission and NEPAD Agency reaffirmed their commitment to driving the CAADP biennial review process and implementing the scorecard on agricultural transformation for tracking progress in realising the aims of the Malabo Declaration.
The Heads of State and Government present further committed to honor all financial, policy and political commitments made during this forum and in other past meetings.
The actions taken over the next four months until the January 2018 AU Summit will be critical to delivering on this agenda and contributing to the achievement of the goals laid out in the Malabo Declaration. The AGRF partners intend to build on the momentum established at AGRF 2017 by developing a work plan that will tie together the most important moments and forums of the African agriculture community to secure further support for the biennial review process.
The AGRF 2017 closed under the leadership of H.E. Amadou Gon Coulibaly, Prime Minister Cote d’Ivoire and with the participation of the AGRF Partners Group. All partners thanked the Government of Cote d’Ivoire for its leadership of the continental forum, and the partners noted a location for the next AGRF will be chosen before the end of the year through discussions with governments that step forward as the next leaders.
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Development efforts are frustrated by tax evasion
Widespread tax evasion causes developing countries to lose more money each year than the total amount of aid they receive.
Developing countries are most affected by the phenomenon of tax evasion, which deprives states of billions of euros in public revenue every year.
“It is estimated that Africa loses 90 billion dollars (€75 billion) annually due to illicit financial flows, including tax evasion,” Friederike Röder, Director of ONE France, told a conference on tax evasion and development finance. Africa receives $27 billion (€23 billion) in development aid per year, according to the OECD (Organisation for Economic Cooperation and Development).
Held during the Convergences World Forum, which draws development actors to Paris every year, the conference detailed the latest advances in fiscal transparency and financing for development.
“Every year, developing countries experience a loss of about 1% of their GDP due to tax evasion,” said Anne-Marie Geourjon of the Foundation for International Development Studies and Research (Ferdi).
In total, development aid worldwide amounts to $130 billion (€107 billion) per year. With the African continent alone losing $90 billion (€75 billion) in tax evasion, the loss far exceeds the funds transferred to the countries of the South.
The majority of the big donor countries, such as the United States, France, and Japan, are now well below their commitment to spend 0.7% of Gross National Income on development aid. On average, member countries of the OECD Development Assistance Committee, which represents the major donors, spend only 0.32% of their GNI.
National Revenue
Loss of income in developing countries related to tax evasion and to illicit financial flows hinders their development.
On the other hand, competitive fiscal regimes remains a weapon for attracting foreign investors to a number of countries. “In a number of African countries, there are a lot of tax incentives that are enacted to attract foreign companies without real impact studies being done,” says Julien Jarrige of the OECD’s Tax Administration Centre.
In practice, these exemptions, coupled with the low ability to collect taxes in some developing countries, seriously undermine the amount of resources that these countries can devote to their own development.
“In developing countries, tax revenues account for about 20% of GDP in receipts, which is much lower than the average for OECD countries,” explained Anne-Marie Geourjon.
Slow progress
While tax evasion is a global problem, the fight against it has so far involved mainly developed countries, within the OECD or the European Union.
To reduce aggressive tax practices, several avenues are being explored: country-by-country public reporting, which requires large companies to disclose details of their activities in each country where they report revenues.
One way is to ensure that profits are well declared and taxed in the country where the activity actually takes place, instead of being diverted to a lower-tax jurisdiction.
Another way: declaring the real beneficiaries of trust companies. “Many of these companies are used as empty shells. And still today, many countries do not demand to have the information of the person behind these companies,” explains Friederike Röder.
However, all these different solutions are now being developed at European and OECD levels, making effective participation for the poorest countries difficult. “The least developed countries are struggling to take advantage of the OECD’s progress, automatic data exchange is already a challenge for France. How can these countries benefit from the advances in the fight against tax optimization?” asked the director of ONE France.
“Some developing countries are not yet able to take part in the exchange of tax information but we are investing heavily in training and technical assistance so that they can achieve it,” acknowledged Julien Jarrige. “Today we do not expect developing countries to send in a lot of tax information. The goal is that they can benefit from it,” he explains.
This article was originally published on EURACTIV France. Translated from French by Paola Tamma.
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COMESA Industrialization Strategy adopted
COMESA Ministers responsible for industry have adopted the regional Industrialization strategy which defines key interventions at both regional and national levels to speed up industrial development in the region.
This adoption has been done following the decision of the COMESA Council of Ministers which directed the Secretariat to develop an implementing strategy of the COMESA Industrial Policy adopted by the same council in March 2015.
The Industrialization strategy is for a ten-year period from 2017 to 2026. This strategy aims at structural economic transformation for the creation of jobs and wealth in the region.
“This strategy has included various stakeholders who are important for its success. The document defines different responsibilities for the private sector as an engine in driving the strategy, Member States in creating an enabling business environment and COMESA Institutions are also involved,” COMESA Director of Industry Mr Thierry Mutombo said.
Taking into consideration their respective mandates, COMESA institutions have been given specific tasks to do in supporting the implementation of the strategy. The diaspora is part of the strategy because of their contribution in providing not only financial resources but also skills and technology capabilities.
The Ministers commended COMESA Secretariat for having efficiently improved the organization and running of the meetings and they urged Member States to proactively start implementing this strategy.
The meeting was attended by Ministers from Burundi, the Democratic Republic of Congo, Ethiopia, Madagascar, Mauritius, Seychelles, Sudan, Uganda and Zambia. Egypt, Kenya, Libya, Malawi, Rwanda, Swaziland and Zimbabwe were represented by Permanent Secretaries, High Commissioners and Ambassadors.
COMESA Institutions that attended the meeting are: the COMESA Business Council (CBC), the COMESA Competition Commission (CCC), the COMESA Monetary Institute (CMI) and the Leather and Leather products Institute (LLPI).