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Growth breaks and growth spells in sub-Saharan Africa
This IMF Working 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).
Growth accelerations are generally associated with improved external conditions, increased investment and trade openness, declines in inflation, better fiscal balances, and improvements in the institutional environment. Transitioning from growth accelerations to growth spells often requires additional efforts beyond what is needed to trigger an acceleration.
Growth spells are sustained by fiscal policy that prevents excessive public debt accumulation, monetary policy geared toward low inflation, outward-oriented trade policies, and structural policies that reduce market distortions, as well as supportive external environment and improvements in democratic institutions.
Overall, determinants of growth spells in sub-Saharan Africa are different from those in the rest of the emerging and developing countries.
Introduction
After nearly two decades of strong growth, average economic activity in sub-Saharan Africa decelerated sharply in 2016, against the backdrop of lower commodity prices, a less supportive global environment, and in some countries, a delayed policy response. While the broad-based slowdown now appears to be abating, two related questions arise: How can growth be revived in the hardest-hit countries? And for countries that are still growing fast, how can growth be sustained? To answer these questions, we depart from the traditional cross-country investigation of average growth rates and focus on growth turning points and episodes of sustained growth.
The emphasis on turning points recognizes that cross-country differences in per-capita income are more closely related to differences in the volatility of growth and less to structural differences in the levels of growth rates. Some related literature finds that the higher average growth in advanced and emerging economies compared to developing countries is explained by their relatively lower volatility of growth, with most developing countries alternating between episodes of very fast growth and episodes of stagnation or decline. Several papers have then sought to characterize growth patterns as accelerations, plateaus and hard-landings, and explain these patterns using proxies of the macroeconomic, institutional and geographical environment. Overall, evidence from this literature suggests that traditional growth determinants are not necessarily associated with growth accelerations.
Subsequent work has focused on better understanding what determines the duration of sustained growth episodes or growth spells, and the duration of growth declines. This literature is motivated by the fact that even though growth accelerations are just as common in emerging and developing economies as in advanced countries, growth spells are found to be significantly shorter in emerging and developing economies; this factor accounts for a fair share of the growth differentials between regions and across levels of income. Berg, Ostry, and Zettelmeyer (2012) find that the duration of growth episodes is positively associated with lower income inequality, democratic institutions, and macroeconomic stability. In addition, Tsangarides (2012) documents how the factors affecting growth spells in Africa differ from those in the rest of the world, highlighting the role of trade openness and droughts. In a similar vein, Kerekes (2012) characterizes countries according to the duration and level of growth and finds that the best performers share features such as favorable initial conditions, and strong institutions and macroeconomic policies. Finally, exogenous factors, political institutions, ethnic cleavages, financial and political crisis, and a measure of export sophistication have been found to be associated with the duration of growth declines.
Building on these elements from the literature, we follow Berg et al. (2012) to first define structural turning points or breaks in economic growth, classified as upbreaks (periods of higher growth than before, or growth accelerations) and down-breaks (periods of lower growth than before, or growth decelerations). Then, episodes of durable growth or growth spells are identified as the periods between growth up-breaks and downbreaks. Next, using growth breaks and growth spells as the units of analysis, we examine the changes in factors and policies that coincided with turning points and then investigate what influences the duration of growth spells.
We find that growth turning points are common in sub-Saharan Africa, but with substantial variation across time. While both up-breaks and down-breaks were frequent in the region before 2000, the region has experienced relatively fewer down-breaks since 2000. Growth spells are also frequent in sub-Saharan Africa – both among resource-intensive and nonrecourse-intensive countries – and have become more frequent over the last 15 years. But what differentiates sub-Saharan Africa from the rest of the world is that growth spells have tended to be shorter, start from worse growth positions, and more often end in “hard landings” compared to spells elsewhere – a result that still holds after controlling for armed and political conflicts.
Growth accelerations in sub-Saharan Africa are generally associated with improved external conditions, increased investment and trade openness, better fiscal balances, and more diversified economies, while the opposite is associated with growth decelerations. However, some factors seem to operate asymmetrically. Typically, up-breaks tend to be characterized by declines in inflation, increased fiscal revenues and foreign direct investment, improvements in the institutional environment and social indicators, and reductions in inequality. For their part, down-breaks coincide more often with increased public expenditure, higher debt ratios, increased aid flows, and overvalued exchange rates.
Ensuring that growth turnarounds become periods of sustained growth often requires additional efforts beyond what is needed to trigger a growth up-break. Our findings, which are robust to several tests, suggest that in addition to improved external environment, spells are sustained by better macroeconomic policies proxied by lower inflation, reduced debt-to-GDP ratios, more outward-oriented trade policies, and higher investment-to-GDP ratios. In addition, improved macro-structural policies captured by smaller market distortions and better-quality institutions help sustain growth spells.
Overall, we find that in the case of sub-Saharan Africa there are differences between the factors associated with growth accelerations and the factors that prolong periods of sustained growth. We also find that the determinants of the duration of growth spells in sub-Saharan Africa are somewhat different from those in the rest of the world.
In terms of policy implications, our findings suggest that in the current context of a less supportive external environment, the impetus to revive growth where it has faltered, and sustain it where it has remained relatively strong in sub-Saharan Africa, must come primarily from within, that is, a strong domestic policy response. For countries where growth has slowed down, the priority is to maintain macroeconomic stability and set the stage for a growth turnaround that can then be sustained. For countries currently enjoying a growth spell, the focus should be on prolonging it and avoiding a hard landing.
The research underlying this paper was initiated in the context of the preparation of IMF’s April 2017 Regional Economic Outlook for Sub-Saharan Africa.
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tralac’s Weekly e-newsletter is posted: The battle over safeguards on poultry imports from the EU continues
Profiled African trade and industrial policy events:
(i) Growing businesses of scale in Sub-Saharan Africa: job creation, innovation and industrialization (11 September, London): this event will launch a new Chatham House Africa Programme report on growing businesses of scale in sub-Saharan Africa
(ii) Developing inclusive and sustainable global value chains in the digital age (18-19 September, Kiel): The conference will also delve into current research on GVCs and explore ways to translate the lessons learnt from the Asian integration in global production networks into smart strategies for Africa and other developing regions. The conference, with themes that reflect the interests of the G20 under Germany’s presidency, will be organized under the auspices of the Think20 network and co-sponsored by the Federal Ministry for Cooperation and Development (BMZ).
(iii) Third industrial development decade for Africa (2016-2025): from political commitments to actions on the ground (22 September, New York)
Launched yesterday by the Atlantic Council’s Africa Center:
(i) Capturing the African consumer market. For America’s consumer goods companies, the latest shifts in African consumer trends hold much promise. Africa’s population is growing at an outstanding rate and spending by consumers and businesses on the continent is forecast to grow significantly over the next decade. However, US investors often oversimplify and misunderstand African markets, which remain highly segmented, fluid, and absent of a discernible “middle.” The report unpacks this complexity, and in doing so offers effective strategies for American companies to capture the opportunities afforded by Africa’s growth. [The author: Aleksandra Gadzala]
(ii) Escaping China’s shadow. China’s major financial commitments to Africa, coupled with its double digit returns, have discouraged American companies from breaking into African markets. Amid growing concerns regarding China’s expanding economic influence on the continent, a reassessment of America’s business edge and overall competitiveness is past due. Rather than engaging in a fist-fight for influence with Chinese competitors, the report argues that US companies should instead focus on their strengths and be more artful in leveraging the United States’ competitive advantages in unoccupied or less occupied spaces. Hruby outlines these ripe investment opportunities for US companies and maps a path to American business success on the continent. [The author: Aubrey Hruby]
China-Africa trade developments and impacts: case of China-Zambia relations (pdf, ZIPAR)
Against the forgoing observations, the study offers a number of policy suggestions for Zambia, Africa and China, including the following: (i) In order to cope with and mitigate the effects population growth and urbanization pressures, particularly the pressures on environmental sustainability in China and Africa, the blocs should formulate a common, standardized monitoring and evaluation system for measuring the “greenness” [“labour intensity”] of FDI funded activities and various China- and Africa-sponsored developmental projects. (ii) China and Africa should establish a common platform such as a Sino-Africa stock exchange through which investment vehicles, companies and project operators can be listed, and equity options offered. (iii) In order to prevent a potentially divisive scramble for Chinese financial resources among African countries, FOCAC should establish pro-rata quota-based and performance-based mechanisms for determining the allocations (of at least some portion) of FOCAC financial resource to African countries. [The authors: Caesar Cheelo, Pamela Nakamba-Kabaso, Zhun Che ]
Zambia: 83% of projects are done by Chinese companies – Mulusa (Lusaka Times)
National Planning and Development Minister Lucky Mulusa says over 10 years from 2011 to 2021, Zambia is envisaged to spend about $20bn of which 83% will be undertaken by Chinese companies. And Mr. Mulusa says in as much as Zambia has enjoyed the relationship with China, there is need to fine-tune to make sure that beneficiation is not skilled towards one partner against the other.
East Africa: SWIFT’s messaging traffic grows by 20.1% (SWIFT)
Data from SWIFT shows that FIN traffic growth in East Africa has outperformed the total growth of SWIFT globally. In the year to date, total message traffic volumes grew by 20.1% versus 8.2% growth for SWIFT worldwide. Data also shows that intra-regional FIN payments traffic is up 19.8% from 2015, and now accounts for 69% of FIN payments traffic in the region. The average daily number of messages has almost double since 2013, from 15,234 to 27,907 in 2016. SWIFT traffic growth in the East African Community is significantly higher than the rest of the continent, which also saw major growth. Total message traffic volumes in Africa have increased by 15.4% this year. This is still greater than in EMEA overall at 9.4%, the Americas at 7.8% and Asia Pacific at 5.4%.
Uganda paves the way for implementation of Regional AEO Electronic Identifier in the EAC (WCO)
While URA is the first country in the region to achieve this milestone, four other countries of the EAC region (Burundi, Kenya, Rwanda, Tanzania) have committed to deploy the regional AEO identifier on their systems by the end of September 2017. Once this critical landmark is achieved, the level of application of the regional AEO benefits across the region will be enhanced and customs clearance time of regional AEO declarations be reduced, hence contributing to regional economic development.
COMESA Sindiso Ngwenya: Harmonized policies to underpin mineral resource gains in Africa
Speaking at the Africa Down Under conference on mining in Perth, Mr Ngwenya said sound institutional frameworks will enable COMESA’s national and sub-national governments to have a say in decisions regarding the use of the resources located in their territories. “Good governance underlines the sustainable exploitation of mineral resources,” Mr Ngwenya said. “Harmonization of national and regional mining policies will thus underpin sustainable and broad-based socioeconomic development in the African region for the benefit of all the citizens.”
Geography, international economic agreements, and foreign direct investment: evidence from emerging markets (World Bank)
How do international economic agreements influence the investment patterns of firms from emerging economies? This paper studies the ways in which bilateral investment treaties and preferential trade agreements interact with geographic and cultural distance to influence firms’ investment patterns. How does geographic and cultural proximity affect the impact of international economic agreements on foreign direct investment flows? This question is answered using data from an original survey of 700 firms from four emerging (or newly-emerged) economies: Brazil, India, the Republic of Korea, andSouth Africa. The findings suggest that bilateral investment treaties and preferential trade agreements increase the likelihood of foreign direct investment. Yet, the effects of these agreements on foreign direct investment depend on the distance between the origin and potential destination countries. Moreover, trade and investment agreements appear to interact differently with distance.
Sustainability provisions in RTAs: options for multilateralisation (Tutwa)
Sustainable development is increasingly becoming mainstream in trade agreements. The past few years have seen a significant upsurge in the inclusion of SDPs in regional trade agreements, particularly in deep-integration RTAs – i.e. those seeking commitments beyond WTO obligations. There has been interest in using RTAs as building blocks towards the multilateralisation of SDPs. [The authors: Peter Draper, Nkululeko Khumalo, Faith Tigere]
Raghuram Rajan: Govt’s export-led growth strategy a failure so far (Livemint)
Former Reserve Bank of India governor Raghuram Rajan on Thursday said that the export-led growth strategy of the Narendra Modi government as part of its Make In India campaign has been a failure so far. “One of the things that was implicit in the Make In India campaign was that we are going to get export-led growth for the next few years. That export-led growth thus far measured by exports is a failure,” Rajan said, speaking at the launch of his book I Do What I Do, following a year of self-imposed silence after leaving office in September last year. Rajan said the government used to say that our exports are not picking up because the world economy is growing slowly. “But the rest of Asia is seeing their exports grow. How much is it because our small and medium industry is in difficulty because of the series of hits they have taken? Can we focus on things like building the logistics infrastructure, can we focus on improving the export promotion we do? Why is it that we are not pushing our exports stronger than we are?” Rajan asked.
India-Singapore trade can reach $25bn by 2019-20: FIEO (Business World)
“We can easily reach $25bn trade with Singapore by 2019-20, up from the current level of $17bn,” Federation of Indian Export Organizations chief Ganesh Kumar Gupta said here on Thursday. India’s export to Singapore grew by 23% in the last fiscal though overall exports grew by only 4%, he said, pointing out that the bilateral trade between India and Singapore was only 2.52% of India’s overall trade. FIEO will be increasing participation by its small and medium scale manufacturers and retailers, Gupta said at the opening of the four-day Singapore International Indian Expo.
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‘Harmonized policies to underpin mineral resource gains in Africa’
The Common Market for Eastern and Southern Africa region holds the highest potential for minerals development in the continent.
According to the Secretary General of COMESA Sindiso Ngwenya, this potential can be sustainably harnessed through establishment of governance structures and leveraging on the existing multinational trade agreements.
Speaking at the Africa Down Under (ADU) conference on mining that is taking place in Perth, Australia 6-8 September 2017, Mr. Ngwenya said sound institutional frameworks will enable COMESA’s national and sub-national governments to have a say in decisions regarding the use of the resources located in their territories.
“Good governance underlines the sustainable exploitation of mineral resources,” Mr. Ngwenya said. “Harmonization of national and regional mining policies will thus underpin sustainable and broad-based socioeconomic development in the African region for the benefit of all the citizens.”
In his address titled; Promoting Sustainable Mining Development through Cross-Sector Alliances and Multi-Stakeholder Partnerships in Common Market for Eastern and Southern Africa (COMESA)’ Mr. Ngwenya noted that more and more types of mineral resources can be more fully tapped as COMESA’s countries adopt the Mining Vision of Africa.
The ADU event is an annual event aimed at raising awareness of Australia’s interests in African mining and energy. It is attended by governments, investors, mining service industry, suppliers and mining consultants.
He said: “The introduction of an appropriate policy mix and the best global mining practices in line with country specific circumstances would improve institutional capacities and fiscal governance.”
Further, he noted that multilateral trade agreement such as the Tripartite Free Trade Area signed by COMESA, East African Community and Southern Africa Development Community provides the necessary framework for multinational mining companies to do business.
COMESA national governments should improve their mining policies in line with the African Mining Vision (AMV)’s principles of “transparent, equitable and optimal exploitation of a country’s mineral resources to underpin broad-based socioeconomic development”
COMESA’s mining industry is dominated by Zambia, Democratic Republic of Congo and Zimbabwe. The Secretary General said current surge in exploration and mining in the region indicates that COMESA countries, have tremendous potential for mineral deposits.
He said COMESA countries need to play a key role in proactively regulating the conditions for investments to secure the long-term development of their countries.
“While improved governance of institutions is critical at sector level, COMESA national governments’ forging optimal partnerships in building spatial linkages for economic diversification can have a multiplier effect on development outcomes, particularly in its landlocked low-income economies,” he noted.
Hence, they are advised to leverage private investment portfolio efficiently in developing critical infrastructure for cross-sector development since most of their mining MNCs typically need to invest in infrastructure such as electricity generation plants, roads and ports.
In 2014, COMESA signed a Memorandum of Understanding with the Government of Western Australia which established a framework for the cooperation in mineral and petroleum resources, agriculture, vocational training and capacity building.
Subsequently, a Joint Working Group has been implementing Annual Work programmes. On 7 September, the JWG met under to review the work Programme for 2017 and plan for 2018. The Group agreed to renew the MoU which is due to lapse in 2018.
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Consumers and competition: America’s business edge in Africa
A decade of robust economic growth, rising consumption, and improved business climates in Africa has caught the attention of investors around the world. But what are the keys to US business success on the continent?
On September 7, 2017, the Atlantic Council’s Africa Center launched two new issue briefs: Escaping China’s Shadow: Finding America’s Competitive Edge in Africa, by Senior Fellow Aubrey Hruby, and Capturing the African Consumer Market: Truths, Trends, and Strategies for the Road Ahead, by Aleksandra Gadzala.
Escaping China’s Shadow: Finding America’s Competitive Edge in Africa
Over the past decade, Africa has been cast as a new battleground for influence between the United States and China. China’s economy has experienced meteoric growth since the 1980s, and China has looked to Africa’s natural resources to help fuel this rise. In the process, China has rapidly increased its trade and commercial relationships with African nations.
The Donald Trump administration is hearing concerns from American companies that they face a competitive disadvantage against China in African markets. China’s major financial commitments to Africa, coupled with its double digit returns, have discouraged American companies from breaking into African markets. Amid growing concerns regarding China’s expanding economic influence on the continent, a reassessment of America’s business edge and overall competitiveness is past due.
But, while it is true that China’s presence on the continent has dramatically grown since 2001 – the trade relationship went from $10 billion to $220 billion in fourteen years – it is not true that the presence of Chinese companies precludes American business success. American companies simply need to be more artful in leveraging the United States’ competitive advantages.
Improvements in macroeconomic policy and business environments in countries throughout Africa are creating a rapidly expanding opportunity set, and there is plenty of room for American companies heretofore focused on domestic US growth to look to the continent for fresh opportunities.
Capturing the African Consumer Market: Truths, Trends, and Strategies for the Road Ahead
Headlines about Africa’s emerging middle class are grabbing the attention of analysts and investors. A decade of strong economic growth, rising consumption, an African shopping mall boom, and a growing number of gated residential communities in some urban centers seem to suggest that a significant societal shift, and an accompanying surge in spending, is afoot.
For America’s consumer goods companies, the latest shifts in African consumer trends hold much promise. Spending by consumers and businesses on the continent is forecast to grow significantly over the next decade.
There are real economic opportunities associated with the burgeoning African consumer market, but they are often exaggerated and poorly understood. As it exists today, the African consumer market is highly segmented and fluid – and absent a discernible “middle.”
Africa’s consumer market is continually reshaped, most significantly by technological advances and urbanization. These trends do not unfold linearly, and they have varying implications for different consumer groups. The picture is messy.
This brief will help potential investors unpack some of these details, better understand African consumers, and appreciate the complexities of the continent’s development. Finally, it will reflect on effective strategies for capturing the opportunities offered by Africa’s growth.
These issue briefs are part of a partnership between the Atlantic Council’s Africa Center and the OCP Policy Center and are made possible by generous support from the OCP Foundation.
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tralac’s Daily News Selection
Featured tweet, @MaureenAAchieng (IOM Ethiopia Chief of Mission and Representative to AU, UNECA, IGAD): @AUC_DPA Continental free movement in Africa is a step closer after 3 days of deliberation on a roadmap in Mauritius.
Featured African migration policy publications from IOM:
(i) Free Movement of Persons in the Common Market for Eastern and Southern Africa: trainer’s manual. The Manual builds on a needs assessment among representatives of the National Monitoring Committees, National Focal Points and the COMESA Secretariat to establish training needs. The assessment was designed to gauge current levels of knowledge, understanding and capacity to administer roles and responsibilities in relation to the COMESA Visa Protocol and the COMESA Free Movement Protocol. This Manual (pdf) therefore responds to the demand to provide trainers with a comprehensive, interactive, practical and flexible training guide for effective adoption and implementation of the COMESA Visa Protocol and COMESA Free Movement Protocol respectively. It is targeted at helping policymakers and practitioners to comprehend what adoption and implementation of the Protocols entail, as well as enable them to embark on concrete measures to undertake these tasks. The Manual focuses on the following key areas:
(ii) Regional guide to facilitate South–South labour mobility in Southern Africa. This document (pdf) has been prepared primarily for use by decision makers and labour migration practitioners within the SADC region and has drawn upon the current context of labour migration management in the Democratic Republic of the Congo, Madagascar, Malawi, Mauritius, Mozambique, Namibia, the United Republic of Tanzania, Zambia and Zimbabwe, as well as good practices in other regions of the world. Chapter 2 outlines the legal frameworks, examines the labour market conditions and determines the scope for potential labour management cooperation between Mauritius and Zambia. Chapter 3 offers a framework for an SADC circular labour migration model that could be used for a Mauritius-Zambia labour exchange, or more broadly throughout the region. We conceptualize an intra-SADC circular labour migration model in five phases: planning, recruitment, predeparture, preparation for employment and return. [Note: this report is also available in French, Portuguese]
UNCTAD’s Trade and Development Board (11-22 September): preview. Note: The Trade and Development Report 2017 will be launched on 14 September. The report links the issues of globalization, inequality and growth, with the SDGs, specifically, SDGs 1, 8 and 10, which define the inclusive growth agenda in the 2030 framework, as well as through the Fourth Industrial Revolution, macroeconomic aspects of gender issues, and the rise of rentier capitalism. The African Union launches the report at a briefing (14 September) to be addressed by the Commissioner for Trade and Industry, Amb. Albert M. Muchanga. He will discuss the key messages of report in the context of the AU’s Agenda 2063 and one of its flagship project, the Continental Free Area.
The Africa Agriculture Status Report 2017 is posted. Recognizing that Africa has experienced significant economic changes over the past decade, the Report calls for an agricultural transformation that is more focused on a market driven, business agenda that encompasses the entire food system, not just agricultural production. It argues for an inclusive transformation based on promoting small farms and SMEs on a commercial basis with the potential to create many more productive jobs, reduce poverty, improve nutrition outcomes, and make farming and value chains more resilient to shocks from climate change, and more attractive to young workers.
2017 Africa-China Poverty Reduction and Development Conference: update from Mauritus (GoM)
The theme of the two-day conference is Africa and China: rising to new challenges in poverty reduction. The objectives are to discuss poverty reduction challenges and strategies and practices in African countries. It also aims to address progress and challenges of poverty alleviation in Africa and the role of society engagement for Africa-China poverty reduction cooperation.
China’s Belt and Road Initiative: boosting trade opportunities for Sub-Saharan Africa (Commonwealth Trade)
The experience of five triennial summits as part of the FOCAC process should stand African countries, especially the 35 least developed countries, in good stead to take advantage of the letter, spirit and promise of the BRI. Thus far, the major recipient countries of BRI funding have been Indonesia, Kazakhstan, Laos, Pakistan and Russia. Next in line are Ethiopia, Kenya, Saudi Arabia, Tanzania and Vietnam. These countries provide the gravitational pull for the initial geographic focus on Central Asia and Southeast Asia, with subsequent expansions to Africa and the Middle East. Sub-Saharan Africa could benefit significantly as the BRI attempts to reshape the nodal structure of the global economy by establishing Kenya and Tanzania as new BRI hubs. What is important for Sub-Saharan African countries is how to take advantage of the strong initial BRI project focus on energy, transport, industry and trade, water and urban infrastructure, and agriculture. Much of the investment in these projects will come from Chinese state-owned enterprises with which African countries have had considerable negotiating experience and operational interaction. [The author: Garth le Pere]
US Congressional Delegation visits the African Development Bank (AfDB)
“I know the US is very concerned about the issue of security − as it should be − but the message I want to suggest is for you to think of this in the form of a disaster triangle. What I mean by that is that in every area where you have the three factors of extreme rural poverty, a very high level of unemployment among young people, and climate and environmental degradation, you always have terrorism,” said Akinwumi Adesina, President of the AfDB. He urged the delegation to consider the three areas in future engagement of the United States in Africa.
Admassu Tadesse: “Mauritius ought to be a bigger stakeholder in COMESA’s Bank” (L’Express)
On the 33rd annual general meeting of COMESA’s Trade and Development Bank, Weekly speaks to Admassu Tadesse, president and CEO of the bank, about its role in regional integration, Mauritius’ role in the bank and the region as well as where he sees its future heading. Q: How much has Mauritius committed into the bank? A: Well, Mauritius has committed funds to the TDB but it’s still not really a major shareholder. Given that it’s a middle-income country that is hosting the TDB’s headquarters, the perception is that Mauritius is still quite small as a shareholder. They’ve become more relevant and influential in the bank but nowhere near as influential as they should be in my view. Mauritius controls 1.77% of the shares of the TDB but it can easily grow that to, say, 5%.
Ghana: 2017 Article IV Consultation (IMF)
IMF comment on Ghana’s trade statistics (from the Statistical Issues section): Currently, the GSS is not publishing timely monthly trade statistics, although the data are available from the Customs, Excise, and Preventive Service. The staff has recommended that the GSS collaborate with the CEPS to process customs data within six weeks and with the Ministry of Trade and Industry and the BOG to identify and reduce discrepancies in trade statistics and to ensure that imports into bonded warehouses are not double-counted. Data collection procedures of the CEPS need to be improved, and there is also room for improving trade volume data collected by the CEPS through customs invoices, which would help the GSS to extract meaningful import and export unit values. Fund staff has recommended that the GSS produce export unit values for major export commodities, such as gold and cocoa. A high coverage of the country’s export bundle can be obtained from just three major exports – cocoa, gold, and oil. [Ghana: IMF Executive Board completes Fourth Review under the ECF]
Unlocking the potential of the power sector for industrialization and poverty alleviation in Nigeria (UNCTAD)
Enterprise surveys suggest that the total factor productivity (TFP) of Nigeria’s manufacturing sector is below its expected value relative to the country’s per capita income. For example, although Nigeria has a higher per capita income than Ethiopia and Ghana, the median manufacturing firm in Ethiopia has TFP that is two times higher than that of Nigeria, and in Ghana the median firm has TFP that is about three times higher than that of Nigeria. In principle, a country with a low TFP could remain competitive if it has relatively low wages. However, in Nigeria unit labor costs are higher than in some African countries. For the median firm in Nigeria, unit labor costs are about 31%of output compared to 10% in Ethiopia, 12% in Kenya, and 17% in Ghana. That said, the median firm in Nigeria has a lower unit labor cost than the median firm in South Africa (45%) and Cote d’Ivoire (34%).
India: Developing a logistics facilitation monitoring mechanism – the next step in trade facilitation reforms (RIS)
It is also critical to understand that customs and other clearances is just one leg of the entire process of logistics that supports connectivity to global value-chains. Thus, the concept of trade facilitation needs to address the infrastructural and regulatory bottle-necks all along the complete chain of transport, port and airport gateways, freight movement system in the railways, and ancillary services that make up the overall logistics solution for trading across borders from India (Box 1, pdf). Thus, there is a need to move away from what might be a limited perspective of trade facilitation to the broader concept of logistics facilitation that integrates both the ‘soft’ regulatory and ‘hard’ infrastructural performance measures and the means to monitor and improve them. A key first step in this process would be to establish a holistic framework that can identify the key elements of these individual activities in the logistics chain, and find an effective way to monitor their performance. Box 2 summarizes the key principles of such a framework. [The authors: Rajeev Kher, Pritam Banerjee]
Nigerian sovereign wealth fund grows to $2bn, CEO says (Bloomberg)
Nigeria’s sovereign wealth fund stood at $2bn this month with the investment agency seeking further growth through agriculture and the addition of asset management, its chief executive officer said. The government’s contribution stands at $1.5bn, with the rest including funds owned by the institution and those managed for several government agencies, Uche Orji of the Nigeria Sovereign Investment Authority said in an interview on Wednesday in Kazakhstan’s capital, Astana. The authority has revamped 11 fertilizer-blending plants so far this year as part of President Muhammadu Buhari’s initiative to boost farming output and reduce the economy’s dependence on oil, which contributes two-thirds of government revenue.
Local content in Tanzania’s gas and minerals sectors: who regulates? (CMI)
The implementation of Tanzania’s local content policy for the petroleum and mineral sectors has been hampered by inconsistency, confusion, and un-coordinated donor interventions. There is a need to replace overlapping institutional authorities by clear lines of regulatory authority to advance Tanzania’s vision of leveraging its gas and mineral wealth for industrial transformation. This is crucial in the areas of training and skills development, the development of small and medium enterprises, and the monitoring and enforcement of regulations. [The author: Jesse Salah Ovadia]
Abundant resources, absent data (PWYP)
This report analyses publicly available data in an attempt to draw a comprehensive picture of Australia’s extractive presence – by company, country and project. It shows stakeholders a regional snapshot of what a mandatory disclosure law would cover in the Australian context and how this would enable citizens and governments to ensure that they are receiving a fair deal for the extraction of the natural resources. It also demonstrates how Australian policy can support the sustainable development of natural resources in the countries it operates in. Using data, it argues for the introduction of a mandatory disclosure law which would align Australia with the global reporting standard set by the 30 countries who have already implemented it.
The AfDB has posted a revised strategic framework and action plan on the prevention of illicit financial flows in Africa 2017 - 2021
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Unlocking the potential of the power sector for industrialization and poverty alleviation in Nigeria
Nigeria is the biggest economy in Africa, and now, has the potential to play a more active role in the global economy than in the past. Actualizing this potential will depend largely on the degree to which it can achieve industrial development and create the conditions for long term sustained growth and poverty reduction.
So far, Nigeria has made very modest progress in terms of manufacturing development due to domestic policy failures, structural and infrastructural constraints and a challenging global economic environment.
This paper examines the role of poor power supply services in the challenge of industrialization in Nigeria. It also reviews recent reforms implemented by the Nigerian government to address the power problem and makes policy recommendations on what needs to happen for the power sector to play a more supportive role in the industrial development process.
The Nigerian industrial sector: structure and performance
In the medium to long term, developments in the industrial sector will, to a large extent, determine whether Nigeria achieves its development vision, and play a more active role in the global economy relative to its past. Economic theory and evidence suggest that achieving sustained growth and development requires structural change and that industry is the key driver of structural change. Nigeria has a rapidly growing labor force, most of which is currently employed in the agricultural sector. Given the constraint on expansion of agricultural employment imposed by the use of a fixed factor (land) and the need to improve agricultural productivity, labor has to move from agriculture into other sectors of the economy. This resource shift should lead to growth enhancing structural change – assuming that these resources move to more productive activities in manufacturing, agro-industry and tradable services.
Over the past few decades, some structural changes have taken place in the Nigerian economy. For example, the share of agriculture in total value added fell from 36 percent in 1980-89 to 26 percent in 2008-14, but the share of industry also fell from 34 percent to 30 percent over the same period. By contrast, the share of services rose from 30 percent to 45 percent; indicating that the services sector is now the most dominant sector of the economy. These facts suggest that Nigeria is deindustrializing at an early stage in the development process when the industrial sector should be expanding to generate additional employment, and absorb the growing labor force. The decline in the industrial sector’s contribution to output over the past few decades has gone hand in hand with a change in the composition of industrial output. The share of crude petroleum and natural gas in industrial output declined over the past three decades, while that of manufacturing increased significantly. For example, over the 1981-89 period, crude petroleum and natural gas accounted for 76 percent of industrial output while manufacturing accounted for 23 percent and solid minerals for about 1 percent. However, in the 2010-15 period, the contribution of crude petroleum and natural gas fell to 59 percent while that of manufacturing rose to 41 percent.
Within the manufacturing sub-sector, the category “Food, Beverages and Tobacco” is the most dominant component of manufacturing followed by “Textiles, Apparel and Footwear”. In terms of changes taking place in the manufacturing sub-sector, there are both positive and negative developments. For example, manufacturing has experienced significant growth over the past few decades. The average annual growth in manufacturing value-added increased from 1.6 percent in the 1980-89 period to 13.2 percent in the 2008- 14 period. Another positive development is that the share of manufactures exports in total merchandise exports increased from 0.1 percent in 1980-89 to 4.4 percent in 2008-14. Notwithstanding these positive developments, the contribution of manufacturing to total value added remains very low and this should be of concern because Nigeria depends heavily on manufactures imports, which indicate that there is a huge domestic demand for manufactures that is not being met through domestic production. Over the past three decades, the share of manufactures imports in total merchandise imports has been above 70 percent. The high dependence on manufactures imports has serious negative consequences for foreign exchange, the development of local industries, and employment creation. In this context, there is the need for the Nigerian government to make the reduction of dependence on manufactures imports a key item on its priority list in the medium term. There is also the need for the government to recognize that addressing this issue will require novel policy measures to effectively tackle the perennial challenges facing manufacturing and the private sector in general.
One of the main challenges facing manufacturing and the private sector in Nigeria is lack of access to stable and affordable power supply. Power supply is difficult to access, unstable and expensive. The power problem is a challenge and is an important factor militating against the ability of producers and consumers to effectively participate in the growth and development process. Relative to other developing countries, access to electricity in Nigeria is very low. For example, in 2013, the electrification rate in Nigeria was 45 percent compared with the developing countries average of 78 percent, and the North African average of 99 percent. The Manufacturers Association of Nigeria estimates that in 2014 an average manufacturer experienced power outages 5 times per day, and was supplied electricity for just 6 hours per day. A study by the World Bank found that power outage is a more serious problem in Nigeria compared to countries such as: Brazil, China, Cote d’Ivoire, Ethiopia, Ghana, Kenya, Russia and South Africa. An average manufacturing firm in Nigeria losses about 17 percent of its sales due to power outages compared with less than 1 percent for firms in China and Russia, 1 percent for those in South Africa and 5 percent for those in Ethiopia.
Poor access to affordable finance is also an important factor that militates against manufacturing development in Nigeria. In a 2014-15 enterprise survey, 33 percent of firms reported access to finance as the main obstacle for the private sector, while 48 and 45 percent reported electricity and corruption, respectively, as major obstacles. The survey also indicates that small firms are more affected by poor access to finance relative to large firms. One indicator of the degree of access to finance by domestic enterprises is domestic credit to the private sector as a percentage of GDP. In the 2008-14 period, domestic credit to the Nigerian private sector as a percentage of GDP was about 20 percent. This is very low compared with the average for Sub-Saharan Africa (51 percent), Latin America and the Caribbean (43 percent) and East Asia and the Pacific (136 percent). In addition to the low level of credit provided to the private sector in Nigeria, there is also the issue of the high cost of finance. In the period 2008-14 the average domestic lending rate was about 17 percent and the risk premium on lending was about 8 percent. The high domestic interest rates faced by domestic enterprises deter investment and is not conducive to the promotion of private sector development.
Another factor that has had a negative impact on manufacturing development is exchange rate volatility. Over the past decade, there has been a significant depreciation of the Nigerian Naira against most major currencies. For example, on the 13th of April 2010, the Naira was being exchanged for the US dollar at I47 Naira to the dollar and by the 13th of April 2017 it had depreciated to 305 Naira to the dollar. Big exchange rate changes of this magnitude present problems for domestic enterprises because they depend heavily on imported intermediate inputs. In 2014, about 54 percent of the raw materials used by manufacturing firms in Nigeria were imported. When imported intermediate inputs represent a large percentage of the inputs used by domestic firms, big depreciations of the exchange rate result in a significant increase in production costs and have a negative impact on investment decisions.
The other challenges of manufacturing in Nigeria include industrial disputes and the dumping of fake, counterfeit and smuggled goods in the domestic market. The manufacturers in the country have to grapple with the challenge of dealing with frequent industrial disputes. In 2014, Nigeria had 234 industrial disputes out of which 175 resulted in strikes. About 1,610 workers in the manufacturing sector were involved in these disputes and the sector lost about 355,128 man-days. Nigerian manufacturers have also raised serious concerns about the issue of fake, counterfeit and smuggled products dumped on the domestic market thereby displacing locally produced goods. In 2015, the Manufacturers Association of Nigeria called upon the government to address this issue because it negatively impacts local initiative and makes it challenging for domestic firms to compete and thrive.
Power and industrial development in Nigeria: linkages and impact
The history of industrial development in both advanced and emerging economies indicates that power plays a vital role in the industrialization process. Energy was a major driver of the English Industrial Revolution, and no country has been able to initiate and sustain an industrialization program without access to good, stable and affordable power supply. Against this backdrop, success in promoting industrialization in Nigeria depends largely on the extent that the government can effectively deal with the energy challenge, which has and continues to constrain the development of domestic enterprises. There are at least three principal channels through which the poor access, unstable supply, and the high cost of electricity in Nigeria has had a deleterious impact on industrialization. This includes: low manufacturing capacity utilization rates, low competitiveness of manufacturing firms, and lack of firm growth, particularly for small and medium enterprises (SMEs). One of the main effects of lack of access to stable and affordable power supply in Nigeria is its impact on the ability for firms to operate at full capacity. It also results in underinvestment in the sector, thereby, limiting the ability of domestic firms to expand capacity when need arises in the future.
Low rate of capacity utilization has been a major feature of manufacturing in Nigeria despite the high demand for manufactured goods in the country. Between 1981 and 2010, the annual average rate of capacity utilization in the manufacturing sector fell from a peak of 73 percent in 1981 to a low of 29 percent in 1995. Since 1998 the manufacturing capacity utilization rate has displayed an upward trend, increasing from 32 percent in 1998 to 56 percent in 2010. It is worth noting that the upward trend in the average manufacturing capacity utilization rates masks the fact that there are several sub-sectors of manufacturing that have experienced significant declines in utilization rates relative to the 1980s. For example, in the “Saw Milling” sub-sector, capacity utilization rates fell from 57 percent in 1981-90 to 36 percent in 2001-08. Over the same period, capacity utilization rates in the “Leather Footwear” sub-sector fell from 64 to 46 percent and in the “Beer and Stout” sub-sector it fell from 65 to 51 percent.
Another channel through which the power problem affects industrialization is the reduction in the competitiveness of domestic firms both on the domestic and international markets. Nigerian firms face frequent power cuts and they respond to these outages by buying generators which are expensive not only in terms of cost; but, operation and maintenance as well. Survey data indicate that 71 percent of Nigerian firms use generators. In addition, generator fuel alone accounted for about 23 percent of the total costs of intermediate inputs used in manufacturing in the 2010-12 period. It is also estimated that energy accounts for about 40 percent of the production costs of Nigeria’s manufacturing firms. Incessant power cuts impose additional costs on firms both in terms of wastage of raw materials and deterioration of machinery. They also increase the cost of production and maintenance of factories, making domestic manufactured goods uncompetitive. Enterprise surveys suggest that the total factor productivity (TFP) of Nigeria’s manufacturing sector is below its expected value relative to the country’s per capita income. For example, although Nigeria has a higher per capita income than Ethiopia and Ghana, the median manufacturing firm in Ethiopia has TFP that is two times higher than that of Nigeria, and in Ghana the median firm has TFP that is about three times higher than that of Nigeria. In principle, a country with a low TFP could remain competitive if it has relatively low wages. However, in Nigeria unit labor costs are higher than in some African countries. For the median firm in Nigeria, unit labor costs are about 31 percent of output compared to 10 percent in Ethiopia, 12 percent in Kenya, and 17 percent in Ghana. That said, the median firm in Nigeria has a lower unit labor cost than the median firm in South Africa (45 percent) and Cote d’Ivoire (34 percent).
Lack of firm growth, particularly in relation to small scale enterprises (SSE), is another channel through which the power problem has had a negative impact on industrialization. To build and sustain a dynamic and vibrant manufacturing sector, domestic firms have to grow and make the transition from small to medium and large firms. Good access to finance is vital to the survival and growth of small firms. Unfortunately, small firms in Nigeria have very limited access to finance. Table 4 shows that commercial banks’ loan to SSE in Nigeria is small and has declined significantly over the past few decades both in terms of value and shares. In 1992 commercial banks lent 20.4 billion Naira to SSEs representing 27 percent of total credit. By 2015 lending by commercial banks to SSEs had declined to 11.3 billion Naira; representing 0.1 percent of total credit. One of the reasons for the low access of small firms to bank credit is that commercial banks are often reluctant to lend to them because of the perception that; given the power supply problems, the risks of non-performing loans are likely to be much higher for small firms than for large ones. The power problem also affects small firms’ access to finance through its impact on the cost of funds. Energy cost is an important component of the operating costs of banks, and thus, affects the interest rates they charge for loans. In sum, the problems facing small firms in the power sector in Nigeria works against their effective participation in the domestic credit market, with serious consequences for manufacturing sector development.
This paper was prepared by Patrick N. Osakwe, Division for Africa, Least Developed Countries and Special Programmes at UNCTAD.
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Maiden Compact with Africa ministerial meeting held in Accra
Ghana hosts first CWA Ministerial Meeting
The first meeting of Finance Ministers from the seven African countries – Ghana, Côte d’Ivoire, Ethiopia, Morocco, Rwanda, Senegal, and Tunisia – has taken place in Accra.
The seven countries belong to the G-20 Compact with Africa (CWA) which was launched, following the G-20 Africa Partnership Conference in Berlin and the G-20 Summit in Hamburg, Germany.
The CWA seeks to support Africa Compact countries to improve macroeconomic, business and financial framework for attracting private investment; strengthen their public sector financial and debt management, and to encourage private investment from G-20 countries.
The objective of the meeting was, therefore, to explore what role the CWA could play in African economic transformation.
The CWA being central to the economic transformation agenda of Africa, the focus of the meeting was to express commitment and support to the Compact Agenda; provide stocktaking of progress made and to outline the next steps, including a peer learning framework to address common challenges over the next three years.
Also present at the meeting, which was organized by the Ministry of Finance (MoF) in collaboration with the African Center for Economic Transformation (ACET), were representatives from Burkina Faso, Benin, Gambia, Liberia and Guinea.
In an address to open the meeting, the Vice President of the Republic of Ghana, Dr Mahamadu Bawumia, noted that the pillars of the CWA fell in line with the Government of Ghana’s (GoG’s) overarching goal of building a very business-friendly environment un-paralleled in Africa which would create jobs and stimulate growth and wealth creation.
For example, Dr Bawumia said, under the macroeconomic framework pillar of CWA, GoG was focused on prudent expenditure management to reduce expenditure, broadening the tax base and enhancing tax compliance to reverse the unfavourable debt dynamics.
GoG, he said, was also pursuing domestic debt re-profiling to lengthen maturities and reduce the cost of credit.
He said under the business framework pillar, GoG was creating the Ghana Business e-Registry and developing model contracts in line with international best practice while under the financial framework pillar GoG was reducing government dominance in the domestic debt market and promoting corporate issuance.
Dr Bawumia said the CWA was central to the economic transformation agenda related to the three pillars, adding that even though the CWA was an initiative of the G-20, Ghana needed to own and drive the Compact’s implementation.
He stressed the need for Ghana to begin to contemplate a future beyond aid, that is a future with enhanced productive capacity, a robust private sector, and one where infrastructure gaps were met while urging Compact countries to use the Compact to harness the transformational opportunities as well as the capacity to learn from each other.
In his remarks, Ghana’s Finance Minister, Mr Ken Ofori-Atta, underscored the importance of the private investment to creating a modern productive agriculture and the industries that would process Africa’s resources, and generate productive employment for the growing youth population.
Mr Ofori-Atta said the CWA’s focus on better fiscal management and increasing private sector investment, fully identified with Africa’s agenda, adding that many African countries, including Ghana, were already pursuing national growth and transformation programmes that prioritized these objectives.
What the CWA offered, he said, was, therefore, an opportunity and support to re-double efforts in pursuing African countries’ own agendas and, more importantly, a framework that offered the opportunity to work together – through peer learning and mutual motivation – so as to accelerate our progress.
He said in order for Africa to meet its infrastructure requirements of about US$340 billion by 2040, the private sector had to be an important financing partner.
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China’s Belt and Road Initiative: Boosting trade opportunities for Sub-Saharan Africa
Despite the recent discourse about ‘Africa rising’, the continent’s growth and development prospects remain challenging.
Optimism about Africa’s future was based largely on aggregate pre-2008 growth rates of 5.5 per cent, and this owed mainly to robust global commodity demand, principally from China. Now, the contagion effects of the 2008 global financial crisis continue to haunt African countries in the form of volatile currencies, reduced inward investment flows, shrinking remittances from abroad and declining commodity prices. These effects point to several causal factors that still hamper Africa’s growth and development and underscore its vulnerability.
Poverty is a major factor, affecting close to 400 million Sub-Saharan Africans who continue to survive on less than US$1.25 a day. Levels of poverty are exacerbated by joblessness, particularly among 200 million youth aged between 15 and 24. However, there is also the collateral impact of other factors, such as rising levels of inequality, mortality, food and energy insecurity, destructive conflicts, religious extremism, ethnic and gender violence, environmental degradation and migration.
These vulnerabilities intersect with a harsh external environment in which Africa’s marginalisation has hardly been ameliorated, even during the pre-2008 boom. The continent’s share of global gross domestic product (GDP) has remained stagnant as a whole, at 2.4 per cent, and Sub-Saharan Africa’s share is barely above 1 per cent. Low growth is rooted in low or declining manufacturing output, domestic savings and investment, and trade and financial flows. Moreover, and as a whole, Africa represents a mere 1.3 per cent in global stock market capitalisation (most of which is concentrated in South Africa); 0.2 per cent of debt securities; and 0.8 per cent of bank assets; and the continent attracts a paltry 4 per cent of foreign direct investment (FDI). Most perniciously, unregulated finance has resulted in capital flight and illicit financial flows. The think-tank Global Financial Integrity estimates losses for both at US$854 billion between 1980 and 2009.
It is against this rather bleak backdrop that we can locate two promising developments for the countries of Sub-Saharan Africa. The first is the African Union’s Agenda 2063, which is an ambitious 50-year vision to achieve an integrated and prosperous continent, guided by 5- to 10- year plans. Here, the regional and international cooperation agenda will focus on the themes of inclusive growth and sustainable development; political and economic integration; good governance, democracy and human rights; peace and security; and building global partnerships.
The second concerns China’s Belt and Road Initiative (BRI). This is represented by land corridors that connect China to Europe and Africa, through Central Asia and Russia and West Asia; South Asia; and Southeast Asia; this is also known as the New Silk Road Economic Belt. Another strategic component of this connectivity infrastructure and its vast spatial geography are the sea corridors, or the 21st Century Maritime Silk Road, which links the South China Sea, the South Pacific Ocean, the Indian Ocean, the Persian Gulf, the Mediterranean Sea and the eastern coast of Africa.
Africa could receive significant reprieve with regard to its endemic development challenges through the building of synergies between Agenda 2063 and the BRI. This issue of Commonwealth Trade Hot Topics explores the linkages and the opportunities the BRI presents for Sub-Saharan African countries. This takes on added importance since China not only is Africa’s largest trading partner on a country basis but also has established a critical geopolitical presence across the continent.
Dr Garth le Pere is Visiting Professor at the University of Pretoria, South Africa, and a Senior Associate of the Mapungubwe Institute for Strategic Reflection. Any views expressed in this article are those of the author and do not necessarily represent those of the Commonwealth Secretariat.
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IMF Executive Board 2017 Article IV Consultation with Ghana
On September 6, 2017, the Executive Board of the International Monetary Fund completed the 2017 Article IV Consultation with Ghana as well as the fourth review of the arrangement under the Extended Credit Facility (ECF).
Ghana has shown mixed macroeconomic performance in recent years, with significant shocks being amplified by policy slippages and resulting external and domestic imbalances. Growth in 2016 was 3.5 percent, the lowest level in two decades.
A recovery of growth is expected in 2017-18, owing to an increase in oil production, declining inflation, and lower imbalances with the right policy implementation.
Following a sizeable fiscal slippage in 2016, the authorities are targeting a significant fiscal consolidation in 2017, which will require sustained revenue collections and spending controls. Inflation has continued to decline and the exchange rate has been broadly stable. The external position has continued to improve, supported by strong foreign investors’ participation in the domestic debt market.
Over the medium term, both the fiscal deficit and the current account deficit are projected to decline gradually.
Staff report
Key trends and recent developments
After over two decades of sustained and fairly inclusive growth and a boom from 2010-13, Ghana has witnessed a sharp slowdown in the last three years. Between 2000 and 2013, the average real growth rate was 6.6 percent, well above other low and lower-middle income SSA countries. The poverty rate fell sharply, from 53 percent in 1991 to 21 percent in 2012 (last data available), along with improvements in other social indicators. However, after the oil-related boom in 2010-13, growth started decelerating in 2014, and dropped to 3.5 percent in 2016, the lowest level since 1990.
Recurrent policy slippages have amplified the impact of external and domestic shocks, creating persistent imbalances and contributing to the recent slowdown.
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Over the last decade, large fiscal deficits have added to significant increases in public debt, eroding the fiscal buffers created by the earlier debt relief. Fiscal slippages have been particularly pronounced in election years, setting in motion an increase in external and domestic imbalances from which Ghana has only partially recovered.
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Market access tightened in the context of soaring external and domestic funding needs. The government resorted to central bank financing, with spillovers to inflation, weaker exchange rate, and even higher funding costs. Eurobond spreads and domestic real interest rates surged and domestic maturities shortened, exacerbating rollover risk. Meanwhile, the economy was also buffeted by adverse terms of trade shocks as the prices of key exports significantly dropped, further affecting the exchange rate, fueling inflation, and contributing to the economic slowdown as the external position adjusted.
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In the state-owned enterprises (SOE) sector, lack of timely utility tariff adjustment, accumulation of cross-arrears, and management inefficiencies translated into severe power shortages, further undermining investor confidence and compounding the economic slowdown.
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Feedback-loops from the domestic economy to the banking sector led to a sharp increase in nonperforming loan (NPLs), limiting the ability of the banking system to fund an eventual growth recovery.
In a repeat of previous election cycles, Ghana saw a sizable fiscal slippage in 2016. The overall deficit ended at 9.3 percent of GDP on a cash basis (against the Third Review target of 5.2 percent of GDP), reflecting revenue shortfalls and large expenditure overruns. In a glaring breach of expenditure controls, outstanding claims (3 percent of GDP) incurred in 2016 came to light in early 2017, with 2 percent of GDP outside the Ghana Integrated Financial Management Information System (GIFMIS).
The financial cycle amplified the downturn. Growth in banks’ balance sheets continued to slow down as growth declined, and financial conditions have generally tightened. Asset quality in the banking system continued to deteriorate, as shown by the findings of the 2016 Asset Quality Review. At the same time, growth in credit to the private sector declined and the spread between lending and deposit rates increased.
Despite an improvement in the external position, vulnerabilities persist. A sharp increase in gold exports and import compression narrowed the current account deficit to 6.7 percent of GDP in 2016. At the same time, strong FDI and inflows to the domestic debt market helped the Bank of Ghana (BoG) build up net international reserves (NIR) for the first time in six years. However, the gross reserves coverage remained low at 2.6 months of imports, lower than 3- to 3.6-month levels suggested by a reserve adequacy assessment. While the nominal exchange rate was relatively stable during 2016, according to the Fund’s exchange rate assessment (EBA-lite), Ghana’s external position was weaker than implied by fundamentals, with a REER gap of around 8 percent, largely explained by large fiscal slippages.
Some positive developments have emerged since the new government took office, though risks remain elevated:
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Preliminary data shows that overall growth in Q1 2017 was 6.6 percent, with non-oil growth at 3.9 percent.
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Disinflation finally appears to be taking hold. Since H2 2016, inflation has been declining, reaching 12.1 percent in June 2017, helped by exchange rate stability and earlier increases in the monetary policy rate (MPR).
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Declining inflation and an encouraging fiscal outturn through April 2017 (with an overall deficit of 1.3 percent of GDP) have created room for progressively less tight monetary policy. Accordingly, the Monetary Policy Committee (MPC) reduced the MPR to 21 percent in July 2017 (though real rates, while declining, remain elevated); and interest rates on domestic debt instruments have followed suit.
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Financing conditions have recently eased. Ghana’s external credit spreads have continued to decline from their peak in February 2016. Following the passage of the 2017 budget, the government had a record bond issuance of over GHc 9 billion (net basis) in April, mostly acquired by non-resident investors. With these inflows, over two thirds of the net domestic financing target for the year has been met, with the average maturity profile of domestic debt further lengthening (to almost two years as of May 2017). Partly in response to the large FX inflows, the exchange rate has recovered from the sharp depreciation experienced in Q1 2017.
Article IV Policy Discussions: Anchoring macroeconomic stability
Addressing Ghana’s long-standing challenges calls for an ambitious adjustment and reform agenda. Ghana’s objective of an irreversible path to growth and prosperity hinges on locking in macroeconomic stability, which cannot happen without reversing the fiscal deterioration that occurred in 2016. A comprehensive policy package – based on upfront fiscal adjustment but encompassing reforms across all policy areas – is needed to secure lasting progress. As fiscal discipline becomes entrenched, refinancing risks are reduced and fiscal buffers are rebuilt, the policy mix would be rebalanced away from tight monetary policy, with a reduction in real interest rates in turn spurring investment and growth.
Securing Stronger Growth
Structural reforms – especially in the financial and energy sector – are crucial to reignite and sustain growth. A lasting expansion of the non-oil economy will help absorb the growing labor force.
Ghana generally enjoys a favorable business environment in comparison to its peers, although longstanding challenges continue to constrain private sector activity. Ghana outperforms SSA and non-SSA LICs and LMICs in the latest World Bank Doing Business survey. But business surveys consistently identify lack of access to affordable credit, inadequate power supply and high cost of utilities topping the list of key constraints to growth. Thus, the financial and energy sectors stand out for their key role in enabling stronger growth.
Building a healthier financial sector
Financial depth and inclusion remain limited. Credit to the private sector as a percent of GDP is well below what one would expect for a country with Ghana’s level of income, reflecting low depth in the financial market and crowding out by the public sector’s borrowing. While access to affordable credit is a longstanding problem, financing constraints deepened in 2016, with negative real growth in private sector credit and sharply increased spreads between lending and deposit rates (from already high levels).
Greater financial intermediation hinges on a stronger financial sector. While aggregate financial soundness indicators remain adequate, banks’ capital adequacy and NPL ratios reflect significant heterogeneity. The 2016 Asset Quality Review (AQR), completed in March 2017, highlighted substantial provisioning shortfalls in a subset of banks (with capital needs of around 1.6 percent of GDP). Robust implementation of the Financial Sector Roadmap, including recapitalization of undercapitalized banks and timely resolution of insolvent institutions without prospects of private sector rehabilitation, remains imperative to ensure the soundness of the Ghanaian financial sector and safeguard the interests of depositors. Deficiencies in AML/CFT were also highlighted in the 2017 Mutual Evaluation Report.
The immediate and urgent priority is to bolster financial stability through full implementation of the BoG’s Financial Sector Roadmap. In the medium term, key priorities should be strengthening the supervisory and regulatory framework of the banking system through introduction of riskbased supervision with the implementation of the Basel framework. Steps should also be taken to strengthen the AML/CFT framework.
Rehabilitation of microfinance institutions (MFIs) will support financial inclusion. Although MFIs only account for a small portion of the Ghanaian financial sector, their number has grown significantly over time (to 573 in December 2016) leading the BoG to temporarily cease granting new licenses in June 2017. However, many MFIs are not compliant with minimum paid-up capital and there are indications that some MFIs are operating outside the scope of BoG supervision.
Stronger oversight and more rigorous enforcement of existing regulations and resolution of noncompliant institutions are key priorities to ensure that MFIs contribute to inclusive growth.
Tackling inefficiencies in the energy sector
Power shortages have been a recurring problem in Ghana over the past few decades, taking a heavy toll on growth. In recent years demand far outpaced added new capacity, with electricity-intensive sectors like manufacturing and mining being particularly affected.
The financial viability of the energy sector remains a key issue. Some positive steps were taken in the past, including electricity tariff adjustments and introduction of the Energy Sector Levy Act (ESLA). But continued inefficiencies and poor collections have taken a heavy toll on energy companies’ balance sheets, standing in the way of investment and capacity expansion, and creating contingent liabilities for the government, as underlined by a recent audit of SOE financial operations. The government is currently considering issuing an energy bond (GHc 10 billion, or about 5 percent of GDP) backed by ESLA revenues to address legacy liabilities and strengthen the sector’s financial position.
A holistic strategy is urgently needed to ensure the energy sector’s financial viability. A well-designed energy bond could be part of such strategy, but resolving legacy debt problems will not prevent a further build-up of new liabilities without restoring SOEs’ profitability.
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tralac’s Daily News Selection
Featured consultancy on the SADC Trade Protocol: TOR for sugar sector study
Forthcoming African trade and development events:
(i) 11th Joint Consultative meeting between AUPSC, UNSC (8 September, New York): to exchange views on peace and security issues in Africa, specifically, on conflict and crisis situations in Somalia, South Sudan, Lake Chad Basin.
(ii) Nepad Agency HLF on the margins of 72nd United Nations General Assembly: Harnessing skills for rural transformation and achieving the Sustainable Development Goals: what needs to be done? (20 September); Sustainable tourism development in Africa: transforming opportunity for inclusive growth
(iii) 3rd International Conference on Tax in Africa (25-29 September, Abuja): Building strong domestic tax regimes in Africa
(iv) Peace, Security and Development Nexus (28-29 September, Cape Town): expert group meeting
(v) OSAA Africa Week 2017 (16-20 October, New York): Towards the implementation of Agenda 2063 and the 2030 Agenda for Sustainable Development
Bernard Hoekman, Dominique Njinkeu: Integrating Africa – some trade policy research priorities and challenges (Robert Schuman Centre for Advanced Studies)
This paper (pdf) discusses opportunities for trade policy research to contribute more to efforts to integrate African markets, a stated policy priority for African leaders. Much of the economic research in this area has sought to quantify aggregate trade costs and the potential welfare impacts of reducing such costs, including through regional integration. This is important, but we argue that more focus is needed on the ‘micro’ dimensions of regional integration. These centre on the trade-restricting effects of nontariff measures and regulatory policies and their political economy underpinnings. Of particular importance is research on mechanisms to support market integration initiatives that recognize the multidimensional nature of the sources of trade costs in Africa, and the associated political economy forces within and between countries and regional economic communities. Specifically, we discuss four research challenges: Analysis of the effects of trade policy, especially NTMs affecting trade in goods and services; Research on issues related to inter-REC liberalization; Improving economic governance and regulatory frameworks; The design of mechanisms to enhance policy coherence and accountability. [RSCAS Working Papers]
Free Movement of Persons to stimulate African regional integration (GoM)
The implementation mechanism of a Draft Protocol on the Free Movement of Persons in Africa aimed at promoting regional integration across the continent was the focus of discussions during an Experts’ meeting which opened yesterday at the Hilton Hotel in Flic en Flac. The three-day event is organised by the AUC with the objective to develop a roadmap and establish a task force to guide the Commission on implementation strategies. Representatives from 55 African countries are participating. The Minister of Foreign Affairs, Regional Integration and International Trade, Mr Seetanah Lutchmeenaraidoo, said it is necessary to ensure the ease of movement of persons in parallel with the liberalisation process of trade in goods and trade in services. In her speech, the President of the Committee on the Free Movement of Persons Ambassador Catherine Jackden, outlined that this process encourages innovation and knowledge-transfer across the continent and helps societies to get acquainted with each other and to become more accepting.
Tunisia launches charm offensive to join ECOWAS as Maghreb Union crumbles (North Africa Post)
In the face of the paralysis crippling the Maghreb Union, Tunisia is following the example of Morocco by repositioning itself on the African continent. Tunisia’s bid to join ECOWAS is thus part of an endeavor to seek regional integration facilitating the flow of goods and investments in an increasingly globalized and competitive world. After the ECOWAS has in principle approved Morocco’s membership application, Tunisia is following suit looking forward to becoming a member of the regional bloc before the end of 2017. In line with this momentum, Tunisia will also open new embassies across the continent as well as trade representations. For its part, the North African country’s flagship carrier, Tunisair, will expand its African network to include new routes to Benin, Sudan, Cameroon, Gabon, Congo, Nigeria and Guinea over the next four years. Like Morocco, Tunisia also seeks to boost its soft power in Africa through increasing educational and cultural cooperation. In this respect, Tunis aims at receiving 20,000 Sub-Saharan students by 2020, compared to 7000 currently. [Tunisia eyes Africa with Tunisian African Empowerment Forum]
Sahel and West Africa: Cross-border flows of agricultural and livestock products, June 2017
Regional trade in agri-food products plays an important role in regional integration, in the fight against food insecurity in the Sahel and in West Africa. Apart from livestock, corn, millet, sorghum, parboiled rice and cowpea for which CILSS has set up a monitoring system since 2013, the system also monitors other products: cola, onion fish, tomatoes, Fruit and vegetable products. The volume of food products traded during the month of June 2017 increased by 11%, because of a considerable increase in banana volumes (98%), orange (95%), and eggplant (84%). In addition, the products such as pepper, sweet potato, cassava, ginger and carrot increased by more than 50%. However, these increases did not result in an increase. However, this overall increase did not result in an increase of the value which declined (-1%). The decline in value could be explained by the simultaneous declines in volume and the value of tomatoes and onions, which declined respectively by 486% and 137% in value.
Kenya, Zambia regional milk export dispute sucks in FAO (Business Daily)
Kenya’s long standing milk export standoff with Zambia has taken a positive turn with the regional trading bloc seeking intervention of the UN food agency. Comesa said it would engage the FAO and the Zambian government to resolve the 13-year-old stalemate. Zambia has for over a decade rejected Kenya’s milk on quality grounds, citing high level of bacteria which exceeds its national total bacteria count (TBC) of 200,000 per mililitre. Kenya follows the global benchmark of one million TBC per millilitre. Comesa director for trade customs and monetary affairs Francis Mangeni was quoted saying in local Zambian media that experts from FAO, the ministries of Commerce, Trade and Industry as well as Agriculture from both countries will meet to sort out the issue. “It’s about time the issue was finally resolved as it has been ongoing for the past 13 years,” he said. “As Comesa, we plan to engage international experts to meet with the Zambian government to find possible ways to resolve the conflicts that blocked Kenya export milk and milk products to Zambia.”
Agribusinesses, African smallholders seize $1trn food market (AGRF)
The Africa Agriculture Status Report, launched at this year’s African Green Revolution Forum in Abidjan, has identified Agriculture as Africa’s quiet revolution, with a focus on SMEs and smallholder farmers creating the high productivity jobs and sustainable economic growth that failed to materialise from mineral deposits and increased urbanisation. The report says that the power of entrepreneurs and the free market is driving Africa’s economic growth from food production, as business wakes up to opportunities of a rapidly growing food market in Africa, that may be worth more than $1 trillion each year by 2030 to substitute imports with high value food made in Africa. Adding that despite 37% of the population now living in urban centres, most jobs have been created in lower paid, less productive services rather than in industry, with this service sector accounting for more than half of the continent’s GDP. Smart investments in the food system can change this picture dramatically if planned correctly. Commenting on this year’s report findings, Dr. Agnes Kalibata, President of the Alliance for a Green Revolution in Africa which commissioned the study said:
Logan Wort: African countries must collaborate to fix tax challenges (Daily Maverick)
Earlier in August, the African Tax Administration Forum brought together 16 African Ministries of Finance and tax administrators, as well as legislators, academics and civil society, among others, in a high level dialogue to discuss ways of improving domestic revenue mobilisation on the continent. This was the first such occasion of an event that is likely to become an annual feature. The Tax Policy Dialogue in Kampala, Uganda, sought to forge a crucial network that will ensure coordinated tax policy and tax administration decisions and actions in the ever-changing global tax environment. Over 60 delegates spent two days devising a framework under which both tax policy and tax administrators could lay strategies to stem the steady drainage of Africa’s resources and seal any gaps that affect efficient domestic revenue mobilisation.
Trade boom lies in wait for Kazungula Bridge (Zambia Daily Mail)
Zambian Road Development Agency acting communication and corporate director Anthony Mulowa said the bridge project is progressing and will also see the construction of one-stop border facilities between Kazungula and Kasane in Zambia and Botswana, respectively. Mr Mulowa said the construction phase of the bridge has created about 450 jobs for both Zambians and Batswana. “Construction of phase two of the project is going on well for the one-stop border facility, which will have about 10 buildings. Phase three is at mobilisation stage with about 30 percent works done,” he said.
African traders feel the pinch as China produces fewer cheap products (ecns)
When he arrived in Guangzhou, South China’s Guangdong Province in 2005, Sid witnessed the heyday of the Tianxiu Building and the neighborhood in which it sits, the largest African enclave in China which has been called a hub of “low-end globalization.” Back then, hundreds of African traders from dozens of countries flocked to the malls located on the first few floors of the building every day to purchase everything from garments to key rings, from batteries to mobile phones. They would then ship them back to their homelands for sale. But that is now distant memory. As commodity and labor prices have surged in China in recent years, the Tianxiu Building has lost its luster among African traders. Business in the building is in sharp decline, and more and more African traders have opted to move to cheaper countries in Southeast Asia.
Robert B. Zoellick: Trump’s looming trade crack-up (WSJ)
Donald Trump’s trade policy is speeding toward a shipwreck. Under the Constitution, Congress has principal authority over trade, although it has delegated considerable powers to the executive. Congress needs to reassert control to block Mr. Trump’s crack-up.
A troubling snapshot of Indian manufacturing (LiveMint)
There are a handful of accepted truths about Indian manufacturing. Enterprises in this sector have a growth problem, often turning out to be “dwarfs” rather than “babies”. These dwarfs dominate the sector numbers-wise. They suffer from low productivity given that their small size prevents them from achieving economies of scale, among other disadvantages. However, they employ a huge chunk of the labour force. The recently released Ease Of Doing Business report by NITI Aayog and the IDFC Institute, based on an enterprise survey carried out in 2016, lends some welcome empirical heft to these truths, and delineates the problems sharply.
Today’s Quick Links: Project Syndicate: How African scholarship can reduce African unemployment Costa Vazquez, Supriya Roychoudhury, Caio Borges: New Development Bank is BRICS’ best card (FT) Egypt’s trade with BRICS hit $20bln in 2016 George Wachira: How EAC infrastructure plan has been evolving |
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Better off together: how regional trade can best boost economic growth
Strengthening economic cooperation among developing and developed countries will be examined during UNCTAD’s Trade and Development Board meetings.
The impact regional integration has on economic growth will be a key topic during a major meeting of trade, investment and policy experts that gets underway in Geneva next week.
During UNCTAD’s Trade and Development Board (TDB), which runs from 11 to 22 September, delegates will scrutinize strategies for fostering stronger and more integrated economies across the globe.
“Regional integration is an important catalyst to reduce trade barriers and increase developing country participation in regional and global value chains,” said UNCTAD Secretary-General Mukhisa Kituyi.
The meetings will also take stock of the work done since the fourteenth United Nations Conference on Trade and Development (UNCTAD XIV), held in Kenya in July 2016. The “Nairobi Maafikiano” report, adopted by governments at that summit, highlighted the link between regional integration and sustainable development.
In between the quadrennial conferences, the TDB meets up to three times a year to oversee UNCTAD’s activities and deal with urgent policy issues, as well as management and institutional matters.
This edition of the TDB – the 64th to date – will identify specific policy mechanisms through which regional integration can be strengthened to increase economic growth, maximize development gains and boost the implementation of the 2030 Agenda for Sustainable Development, which was set out by the international community two years ago.
A high-level dialogue taking place at the TDB will be an opportunity for senior figures 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 upcoming TDB will also offer an opportunity to review the evolution of the world economy in 2016 and 2017 and analyse 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. The session will examine how inequality and financial instability jointly pose structural limits to inclusive growth, and propose a global agenda to address them.
Some of the key agenda items will be:
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Globalization and Interdependence
The session will review the Trade and Development Report, 2017: Beyond Austerity – Towards a Global New Deal
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Building productive capacities in the least developed countries and graduated least developed countries: Lessons learned
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Economic Development in Africa: Tourism for transformative and inclusive growth
The session will conduct a review of the Economic Development in Africa Report 2017: Tourism for Transformative and Inclusive Growth
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Evolution of the international trading system and its trends from a development perspective
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Investment for development: Investment and the digital economy
The session will present the analysis, findings and proposals of the World Investment Report 2017: Investment and the Digital Economy
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The State of Commodities – Establishing development linkages in the extractive sector: Lessons from the field.
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Agribusinesses and African smallholders seize $1 trillion food market as meals replace minerals to restart African economic growth
The power of entrepreneurs and the free market is driving Africa’s economic growth from food production, as business wakes up to opportunities of a rapidly growing food market in Africa, that may be worth more than $1 trillion each year by 2030 to substitute imports with high value food made in Africa.
This is the main conclusion from the Africa Agriculture Status Report 2017 (AASR), launched on Tuesday at this year’s African Green Revolution Forum (AGRF) in Cote d’Ivoire.
According to the report, agriculture will be Africa’s quiet revolution, with a focus on SMEs and smallholder farmers creating the high productivity jobs and sustainable economic growth that failed to materialise from mineral deposits and increased urbanisation. Despite 37 percent of the population now living in urban centres, most jobs have been created in lower paid, less productive services rather than in industry, with this service sector accounting for more than half of the continent’s GDP. Smart investments in the food system can change this picture dramatically if planned correctly.
Commenting on this year’s report findings, Dr. Agnes Kalibata, President of the Alliance for a Green Revolution in Africa (AGRA) which commissioned the study said: “Africa has the latent natural resources, skills, human and land capacity to tip the balance of payments and move from importer to exporter by eating food made in Africa. This report shows us that agriculture involving an inclusive transformation that goes beyond the farm to agri-businesses will be Africa’s surest and fastest path to that new level of prosperity.”
To succeed, Africa’s agricultural revolution needs to be very different to those seen in the rest of world. It requires an inclusive approach that links millions of small farms to agribusinesses, creating extended food supply chains and employment opportunities for millions including those that will transition from farming. This is in contrast to the model often seen elsewhere in the world of moving to large scale commercial farming and food processing, which employs relatively few people and requires high levels of capital.
The report highlights the opportunity for Africa to feed the continent with food made in Africa that meets the growing demand of affluent, fast growing urban populations on the continent looking for high value processed and pre-cooked foods. Furthermore, it advocates that this opportunity should be met by many of the continent’s existing smallholder farmers. Currently part of this growing demand for Africa’s food is met by imports. These amount to $35bn p.a. and are expected to cost $110bn by 2025 unless Africa improves the productivity and global competiveness of its agribusiness and agriculture sectors.
The report acknowledges that the private sector holds the key to the transformation of the food system so far. “Impressive value addition and employment is being created by SMEs along value chains in the form of increased agricultural trade, farm servicing, agro processing, urban retailing and food services. Large agribusinesses like seed companies, agro processors and supermarkets are also playing an increasing role in the food value chain in many regions,” said Peter Hazell (IFPRI), the technical director of the report.
However, the study is clear that left to the private sector alone, growth in the agrifood system will not be as fast as it could, nor will it benefit as many smallholder farmers and SMEs as it could. Government support is needed to both stimulate and guide the transition. As a high priority, governments need to create an enabling business environment and in particular, meet targets to invest ten percent of GDP in agriculture, agreed at the 2003 African Union (AU) Summit as part of The Comprehensive Africa Agriculture Development Programme (CAADP).
The report also urges governments to nurture a globally competitive food production sector through measures such as increasing infrastructure investment in secondary cities and towns, improving the reliability of energy and water supplies, building more wholesale market spaces, promoting open regional trade, identifying and investing in first mover crops and introducing stricter standards for food safety and quality.
The authors also call on governments to stimulate new private public partnerships for more innovative financing and insurance provision which can lead to increased resilience for farmers and their households. While globally agricultural insurance is a $2 billion business, Africa accounts for less than two percent of the market. Other fiscal stimulus measures suggested include improving financial regulations, developing better credit-reporting processes, opening up special economic zones, supporting digital warehouse receipt systems and sharing risk with lenders through credit guarantees and matching funds.
The report points out other new opportunities to target support presented by digital technology such as satellite tracking and big data. These can help locate new high value agri-economic zones and smarter financing and food security polices, especially in the face of climate change.
“Smart support is just as important as scale of support for Africa’s highly diverse group of famers and agribusinesses. To step up their game, businesses needs assistance tailored to distinct groups of viable small farms and agribusinesses at different development stages, rather than blanket support for all,” added AGRA President, Dr. Kalibata.
The report’s authors conclude that although progress is being made, Africa needs to pick up the pace if it is to compete globally and turn itself from importer to exporter by feeding its people with food made in Africa. “Hopefully the prize of a rapidly growing and valuable market for food made in Africa will spark widespread political will and attract the best business talent to build a high value food sector,” said Peter Hazell. “This private public partnership will be essential to provide the trinity of high productivity employment, sustainable economic growth and food made in Africa for Africa and the world.”
Top five recommendations from 2017’s AARS report:
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Governments need to increase their investments in agriculture and rural infrastructure in line with their 10 per cent CAADP commitment
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Governments should take a holistic approach to improving the business environment for the entire agrifood system, from farm to fork
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Smallholder farmers need to be better organised to link to modern value chains
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Governments need to support the financial sector to meet the unserved financial needs of commercially oriented small farms and food producing SMEs
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Legislation and regulations that boost regional trade in agricultural products will make a significant contribution to the growth of Africa’s food production sector and have a tangible impact on reducing poverty
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Free Movement of Persons to stimulate African regional integration
The implementation mechanism of a Draft Protocol on the Free Movement of Persons in Africa aimed at promoting regional integration across the continent was the focus of discussions during an Experts’ meeting which opened on Monday at the Hilton Hotel in Flic en Flac.
The three-day event is organised by the African Union Commission (AUC) with the objective to develop a roadmap and establish a task force to guide the Commission on implementation strategies. Representatives from 55 African countries are participating.
In his opening address, the Minister of Foreign Affairs, Regional Integration and International Trade, Mr Seetanah Lutchmeenaraidoo, highlighted some of the major challenges that need to be overcome. It is much easier for a European citizen to go to Africa than for a citizen from an African country wishing to visit another country on the same continent, he said. However certain progress has been noted in different parts of the African continent such as in East and West Africa, he added.
Mr Lutchmeenaraidoo recalled that a liberal visa regime exists in Mauritius with visa at arrival on Mauritian territory provided to 67 nationalities. In the same vein, he said that Mauritius is accentuating its integration within continental Africa, and is in the process of joining the COMESA, SADC and East African Community Tripartite Free Trade Area, which represents a massive market of 650 million consumers.
According to the Minister it is necessary to ensure the ease of movement of persons in parallel with the liberalisation process of trade in goods and trade in services. It is thus primordial to ensure the movement of operators and professionals from different countries smoothly so as to promote intracontinental economic exchanges, he pointed out. He expressed his confidence that the African Union’s objective to come up with a single African passport will be achieved, given the numerous initiatives undertaken in the move to liberalise the circulation of people.
In her speech, the President of the Committee on the Free Movement of Persons Ambassador Catherine Jackden, outlined that this process encourages innovation and knowledge-transfer across the continent and helps societies to get acquainted with each other and to become more accepting.
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tralac’s Daily News Selection
Profiled African trade, regional integration, infrastructure events:
(i) Update on the outcome of third meeting of the CFTA Technical Working Groups (20 August – 1 September, Durban). From 21 August to 1 September 2017, the AU Department of Trade and Industry convened the third meeting of the CFTA TWGs, in line with the revised CFTA Calendar of Meetings. The meeting aimed at giving the CFTA experts the opportunity to further make technical inputs in the draft CFTA texts. At the same time a dedicated session of the CFTA Chief Negotiators was convened for the drafting of Annex A on Trade in Goods. The output of these meetings will be on the Agenda for the 7th meeting of the CFTA-NF scheduled to be held on the 2-7October 2017.
TWG meetings, 21-25 August: (a) TWG on Legal and Institutional Affairs; (b) TWG on Non-Tariff Barriers and Technical Barriers to Trade; (c) TWG on Rules of Origin; and (d) TWG on Trade in Services. TWG meetings, 28 August – 1 September: (a) TWG on Sanitary and Phytosanitary (SPS) Measures; (b) TWG on Customs Procedures and Trade Facilitation; (c) TWG on Trade Remedies; and (d) A dedicated session of CFTA Chief Negotiators to consider Annex A: Agreement on Trade in Goods. Key outcomes of each TWG: [download (pdf)]
(ii) Underway, in Nairobi: 2nd meeting to prepare the EAC Trade Investment Report 2016 (4-8 September)
(iii) Underway in Arusha: Regional validation workshop for the EAC research agenda
(iv) Starting tomorrow, in Accra: Ghana hosts G-20 Compact With Africa. Finance Ministers from seven African countries participating in the G-20 Compact with Africa initiative will meet as a group for the first time in Accra. Ghana’s Ministry of Finance is convening the event as the first peer-to-peer meeting, with technical support from the African Center for Economic Transformation. The seven Compact countries – Côte d’Ivoire, Ghana, Ethiopia, Morocco, Rwanda, Senegal, Tunisia – will participate in the meeting. Other observer countries expected to attend are Burkina Faso, Benin, Gambia, Guinea, Liberia and Togo. Representatives of the African Development Bank, the World Bank and the IMF will share perspectives on the three Compact frameworks – macroeconomic, business and financial – and the roles they will play to support countries in implementation. [Download: The agenda]
(v) Launching, 18 September in New York: NEPAD 5% Agenda – Mobilizing domestic pension and sovereign wealth fund capital for PIDA and other African infrastructure projects. Extracts from the concept note: Few African banks are truly active and experienced in project finance. Africa only managed to close 158 project finance deals with debt totaling $59bn over the decade 2004-2013, which represents only 5% of infrastructure investment needs and 12% of the actual financial flows. A coherent and coordinated approach is needed to address these challenges and mobilize institutional investors while limiting their risk exposure. This requires specific policies to reduce risks at source and instruments to mitigate risks. National, sectoral and financial regulations also need reforms to lift impediments to invest in those asset classes. The NEPAD Agency will steer a dialogue that convenes key stakeholders responsible for investment allocation decisions (e.g. investment banks, pension funds, SWFs, credit rating agencies, financial policy experts and regulators, policy makers, project owners etc.). These stakeholders will provide input to the above roadmap and shall be convinced to support the implementation of this roadmap. It is foreseen that the roadmap and the campaign will have the following impact:
(vi) Kenya to host Africa-France business summit, 5-6 October. Kenya is set to host the second edition of Africa-France Summit next month that is expected to bring over 200 French companies in the country for investment opportunities. It is also projected to bring together over 2500 investors from Kenya, France and other African countries.
Nigeria and South Africa both saw Second Quarter GDP releases this morning:
(i) Nigeria: GDP, Q2 2017 (National Bureau of Statistics). In the second quarter of 2017, the nation’s Gross Domestic Product grew by 0.55% (year-on-year) in real terms (pdf) , indicating the emergence of the economy from recession after five consecutive quarters of contraction since Q1 2016. This growth is 2.04% higher than the rate recorded in the corresponding quarter of 2016 ( –1.49%) and higher by 1.46% points from rate recorded in the preceding quarter, (revised to –0.91% from –0.52%). Quarter on quarter, real GDP growth was 3.23%. During the quarter, aggregate GDP stood at N26,986,005.20million in nominal terms, compared to N23,547,466.91 million in Q2 2016, resulting in a Nominal GDP growth of 14.60%.
(ii) South Africa: GDP, 2nd Quarter 2017 (Stats SA). South Africa’s GDP grew by 2,5% in the second quarter of 2017. The largest positive contributor to growth in GDP in the second quarter was the agriculture, forestry and fishing industry, which increased by 33,6% and contributed 0,7 of a percentage point to GDP growth. Finance, real estate and business services increased by 2,5% and contributed 0,5 of a percentage point. The mining and quarrying industry increased by 3,9%, and contributed 0,3 of a percentage point to GDP growth. In contrast general government services decreased by 0,6%, contributing -0,1 of a percentage point to GDP growth. [Various downloads available]
Mozambique to set up sovereign fund (AIM)
The Mozambican government intends to set up a sovereign fund, to create the reserves needed to finance development projects, according to the Minister of Economy and Finance, Adriano Maleiane. The new fund, Maleiane said, will be known as the National Development Fund, and one of its main sources of funding will be the capital gains tax paid on the sales of shares in the country’s mineral resources. This is clearly a Sovereign Wealth Fund in all but name. Setting up such a fund is a break with the policies of the previous government, headed by President Armando Guebuza, which repeatedly refused to put extraordinary revenues, such as those from capital gains tax, into a special account. It is likely that the first money to go into the sovereign fund will be the $350m in capital gains tax to be paid on the sale by the Italian energy company ENI to the US oil and gas giant ExxonMobil of a 25% share in Area Four of the Rovuma Basin.
Smart industrialisation through trade in the context of Africa’s transformation (ODI)
Africa’s experience of industrialisation has been disappointing. Globally, the share of manufacturing in total output rises with per capita income until countries reach upper-middle-income status, then declines as services become more prevalent at higher incomes; however, this has not been the case in Africa. Fresh thinking is needed on how to achieve Africa’s industrialisation objectives, and trade has a key role to play. This brief, produced in partnership with the United Nations Economic Commission for Africa, explores how the idea of using trade and trade policy to support industrialisation has experienced a recent resurgence, and provides a set of policy recommendations for African economies looking to industrialise smartly through trade. [The authors: Lily Sommer, Linda Calabrese, Maximiliano Mendez-Parra, David Luke]
Ninth BRICS Leaders’ Summit: Xiamen Declaration
In order to serve the demand arising from rapid growth of trade and investment among the BRICS countries, we agree to facilitate financial market integration through promoting the network of financial institutions and the coverage of financial services within BRICS countries, subject to each country’s existing regulatory framework and WTO obligations, and to ensure greater communication and cooperation between financial sector regulators. We agree to take an active part in the efforts to implement and improve International Standards on Combating Money Laundering and the Financing of Terrorism and Proliferation in FATF, including through cooperation among BRICS Heads of Delegation on AML/CFT, also in the context of the work of BRICS CTWG and by using other platforms and to safeguard integrity of national financial systems. We agree to communicate closely to enhance currency cooperation, consistent with each central bank’s legal mandate, including through currency swap, local currency settlement, and local currency direct investment, where appropriate, and to explore more modalities of currency cooperation. We encourage the BRICS Interbank Cooperation Mechanism to continue playing an important role in supporting BRICS economic and trade cooperation. We commend the progress in concluding the Memoranda of Understanding among national development banks of BRICS countries on interbank local currency credit line and on interbank cooperation in relation to credit rating.
African countries hope to attract more Chinese investment (Xinhua)
Delegates from African countries are hoping to attract more Chinese investment at the ongoing 11th China-Northeast Asia Expo in Changchun, capital of northeastern Jilin Province. Representatives from Ethiopia, Kenya, Zambia and Mozambique presented a variety of collaborative projects at the expo, ranging from grain and dairy processing, light manufacturing, to machinery and construction, in the hope of finding Chinese counterparts to invest in their countries.
Chinese carmaker plans aggressive push into South Africa with R1bn factory in Port Elizabeth (Business Tech)
In April 2017, BAIC announced its entry to the South African motor vehicle market through the launch of its D20. The group has now also launched its SUV – the X25 – to the local market, which is currently being produced in China ahead of going into local production in Port Elizabeth. Within the next two weeks, the X25 will be sold and served by BAIC dealers in Johannesburg, Pretoria, Polokwane and other cities. The carmaker said it plans to have a chain of dealers in 22 South African cities by the end of 2017.
Related: Africa hopes to become new growth pole through cooperation with BRICS; Xi asks Business Council, NDB to ensure more BRICS cooperation
India: Trade policy review only after resolving exporters’ cash woes, says Ministry (The Hindu)
The Commerce Ministry will come up with the mid-term review of the foreign trade policy, initially scheduled this month, only after resolving the liquidity issues faced by exporters under the Goods and Services Tax regime, a government official has said.
FAO Director-General calls for greater international support for Uganda’s growing number of refugees
The FAO Director-General José Graziano da Silva called for greater funding for a sustainable response to the refugee crisis in Uganda, after concluding a visit today to refugee settlements in the country’s north. Uganda is host to the fastest-growing refugee crisis in the world. Since July last year, more than one million South Sudanese refugees have crossed into Uganda. The refugees are predominantly women and young people and come from farming or livestock herding communities. [José Graziano Da Silva: Refugee influx - Africa’s largest silent crisis]
France’s Macron sets up advisory body to help shape Africa policy (France24)
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Update on the outcome of the Third Meeting of the CFTA Technical Working Groups (TWGs)
Convened by the African Union Department of Trade and Industry from 20th August to 1st September, 2017, in Durban, Republic of South Africa
I. Introduction
- From 21st August to 1st September 2017, the Department convened the third meeting of the CFTA TWGs in Durban, South Africa, in line with the revised CFTA Calendar of Meetings. The meeting aimed at giving the CFTA Experts the opportunity to further make technical inputs in the draft CFTA texts. At the same time a dedicated session of the CFTA Chief Negotiators was convened for the drafting of Annex A on Trade in Goods. The output of these meetings will be on the Agenda for the 7th meeting of the CFTA-NF scheduled to be held on the 2nd – 7th October 2017.
- The meetings were held over two weeks as follows:
From 21st – 25th August 2017:
- TWG on Legal and Institutional Affairs;
- TWG on Non-Tariff Barriers and Technical Barriers to Trade;
- TWG on Rules of Origin; and
- TWG on Trade in Services.
From 28th August – 1st September 2017:
- TWG on Sanitary and Phytosanitary (SPS) Measures;
- TWG on Customs Procedures and Trade Facilitation;
- TWG on Trade Remedies; and
- A Dedicated Session of CFTA Chief Negotiators to consider Annex A: Agreement on Trade in Goods.
II. Key outcomes
a. Dedicated Session on Annex A on Trade in Goods
- The Dedicated Session of Chief Negotiators had rich and extensive deliberations on the draft text of Annex A, on Trade in Goods and made preliminary comments. There were different proposals that were captured as options and where there was no agreement, either provisions were bracketed or decisions were deferred to next NF. They agreed that the draft text will require further work.
b. TWG on Non-Tariff Barriers & Technical Barriers to Trade (NTB&TBT)
- The TWG was to consider and finalize the Appendix 6 on TBT and also start the drafting of the Appendix on NTBs. The outstanding articles on the Appendix on TBT were finalized including the definitions chapter which was done at the end. During the discussions minor refinements were done on a couple of articles. The meeting considered the work on Appendix 6 on TBT complete (100%) pending NF determination on Article 11 on ‘transparency’ and the bracketed text.
- With respect to Appendix 5 on NTBs, the meeting managed to complete drafting Articles 2 to 4. They also considered Articles 5 to 7 but did not conclude on the text so it remains bracketed. Ten Articles including the article on definitions remain undone and will be considered at the next meeting. This gives a level of completion of approximately 20%. The outstanding work will take the whole of the next meeting and may actually require additional time judging from how the TBT and SPS Appendices drafting progressed.
c. TWG on Legal and Institutional Affairs (LIA)
- The TWG considered and concluded discussions on the draft main agreement. They adopted the change of the title of the legal text, arising from the decision of the 6th NF to “Agreement Establishing the Continental Free Trade Area”. Debate ensued regarding the titles of the attachments to the main Agreement. Specifically, the meeting debated whether the attachments to the main agreement should be referred to as ‘annexes’, ‘agreements’ or ‘protocols’. This question was referred to the NF for decision. The TWG has exhausted debate on the issues and the agreement may not need to go back to the TWG – if the NF can clear the outstanding issues.
d. TWG on Rules of Origin (RoO)
- The TWG on RoO made substantial progress towards concluding the draft text of Appendix 2. The TWG noted the final Situational Analysis Report and acknowledged it as a good basis for the drafting of Appendix 2 on RoO.
e. TWG on Customs Procedures and Trade Facilitation (CP&TF)
- The TWG considered the draft Appendix 4 on Trade Facilitation and Transit and agreed, with amendments, on a number of the Articles in that text. In considering the Appendix 4, the TWG noted that the two regimes Trade Facilitation and Transit have become topical both at regional and international level. The draft appendix was considered not comprehensive.
- The TWG agreed that there was need to split these into two separate appendices to ensure that the continent gives due attention to the subjects, which are both important to the movement of goods in Africa. Further the TWG noted that some trade regimes in Africa had separate appendices on Trade Facilitation and Transit and it was important for the CFTA to build on this acquis. The TWG took note of the need to draft a separate appendix on Transit and agreed to consider this at the next TWG when a draft will be made available.
f. TWG on Sanitary and Phyto-Sanitary (SPS) Measures
- The TWG was to consider and finalize the Article on ‘Definitions’ as the rest of the Articles had been finished at their 2nd meeting in Nairobi in May 2017. At the beginning of the meeting however, experts agreed to scan / review each of the other Articles in order to identify and collate the terms that needed to be defined. They also agreed that in so doing they would polish up and provide better clarity for any text requiring this. The result was that there were quite a lot of discussions again started mainly by delegates who had not been at the Nairobi meeting. Finalization of the draft Appendix which had been estimated to take just two days ended up taking the better part of 3.5 days. The stand in Chair however managed to control the meeting well and prevented unnecessary re-drafting of the Appendix. The little modification of text that was eventually done on some articles was actually needful and did improve on the clarity of text or better sequential flow of information.
- The meeting also reflected on its other functions and responsibilities as assigned in the TWG’s terms of reference particularly the issues on identification of technical areas for capacity enhancement activities and on work schedules and sequencing of work in the area of SPS measures. In this regard, the TWG concluded that the technical capacity enhancement needs following the launch of the CFTA would be addressed by the proposed Sub-Committee on SPS issues.
- The TWG also concluded that they had concluded their work (100% progress) and would only re-convene if the NF assigned them other work or requested them to re-visit parts of the SPS Measures Appendix. The December deadline is considered met unless NF directs that any additional work be done.
g. TWG on Trade Remedies
- The experts then considered the draft Appendix on Trade Remedies which contained a number of optional proposals for various Articles. The experts reviewed and adopted a good number of the Articles. On certain issues where there was no agreement, the technical experts decided to bracket the relevant articles and refer the provisions to the Negotiating Forum. With the consideration of four new articles and the remaining contentious articles to be agreed on, together with the negotiation of the Guidelines on implementation, the fourth session of the TWG is likely to be quite hectic and will need to be extremely efficient in carrying out the remaining work in order that the draft Appendix and Guidelines can be completed by the deadline for conclusion of the CFTA.
h. TWG on Trade in Services
- Significant progress was made in drafting the Framework Agreement which is almost finalized. The TWG envisages that a Framework Agreement for Trade in Services should be finalized by the end of 2017.
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First Compact with Africa Finance Ministerial Meeting
Finance Ministers from seven African countries participating in the G20 Compact with Africa (CWA or the Compact) initiative will meet as a group for the first time in Accra, Ghana on Wednesday 6 September at Mövenpick Ambassador Hotel.
The CWA is a G20 partnership programme to support the African Union Agenda 2063. The programme engages African countries in building a reliable financial and macroeconomic framework in order to expand investment opportunities, create employment and push for more sustainable infrastructure on the continent.
Following the G20 Africa Partnership Conference held in Berlin from 12-13 June 2017 and the G20 Summit in Hamburg of 7-8 July 2017, the G20 Compact with Africa was launched. Initially seven countries (Côte d’Ivoire, Ghana, Ethiopia, Morocco, Rwanda, Senegal and Tunisia) have agreed to participate in the CWA and additional countries will likely join.
The CWA seeks to support African Compact countries to improve their macroeconomic, business, and financial frameworks for attracting private investment and to strengthen their public sector financial and debt management; and to encourage private investment from G20 countries. The CWA is central to the economic transformation agenda related to these three pillars.
The Ministers of Finance of the CWA countries will meet on 6 September 2017 in Accra. The objective of this meeting is to express commitment and support for the Compact agenda; to provide a stocktaking of progress to date; and to outline next steps, including a peer learning framework to address common challenges over the next three years.
It will be important to ensure the Compact with Africa translates into action on the ground and boosts private sector investment in each CWA member country. This meeting will address the critical role that the Compact can play in the collective economic transformation agendas of Africa and how to overcome some of the challenges in its implementation. Challenges exist in each of the three pillars of the Compact, whether in terms of the need to improve the business environment through standardization and improved incentives or the need to, improve domestic resource mobilization and public investments through investment friendly tax regimes and the allocation of public investment toward transformational goals; or the need to enhance financing through the creation of robust debt markets or the access to de-risking instruments.
This meeting is an opportunity for Ministers of Finance to discuss how to leverage the Compact, ensure that a platform is in place to support it, and make it sustainable with enhanced private sector investment.
Ghana’s Ministry of Finance (MoF) is organising this event as the first peer-to-peer convening, with technical support from the African Center for Economic Transformation (ACET).
Ghana’s Finance Minister, Ken Ofori-Atta, said, “We are determined to put Ghana beyond aid, and this compact squarely fits into our broader agenda of increasing private sector investment to drive economic development on our continent.”
He added, “I look forward to welcoming my colleague Finance Ministers to this meeting, which presents us with the opportunity to make clear decisions on how to sustain a peer learning platform to deepen and sustain the CWA initiative.”
The seven Compact countries will participate in the meeting. Other observer countries expected to attend are Burkina Faso, Benin, Gambia, Guinea, Liberia and Togo.
Representatives of the African Development Bank, the World Bank and the IMF will share perspectives on the three Compact frameworks – macroeconomic, business and financial – and the roles they will play to support countries in implementation.
Download the Agenda: Compact with Africa Finance Ministers Meeting (PDF)
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Xi chairs summit to set course for next golden decade of BRICS
Chinese President Xi Jinping on Monday chaired the ninth BRICS summit, calling on the group of five emerging economies to intensify cooperation and contribute more to a world troubled by protectionism and imbalanced development.
“We must redouble our efforts to usher in the second golden decade of BRICS cooperation,” Xi told leaders of Brazil, Russia, India and South Africa at the summit in the southeastern city of Xiamen, Fujian Province.
It was the first time that Xi had presided over the BRICS summit and the third time for him to chair major international events in a year, following the G20 Hangzhou Summit and the Belt and Road Forum for International Cooperation in Beijing.
Brazilian President Michel Temer, Russian President Vladimir Putin, Indian Prime Minister Narendra Modi and South African President Jacob Zuma were welcomed by Xi before the opening of the summit, themed “BRICS: Stronger Partnership for a Brighter Future.”
The summit has been widely expected to set the future course for the group, which accounts for about 43 percent of the world’s population and has contributed more than half of global economic growth over the past decade.
Xi raised his vision to “comprehensively deepen” BRICS partnership, including seeking practical results in economic cooperation, strengthening complementarity of development strategies and making the international order more just and equitable.
People-to-people exchanges, “a worthy cause that deserves enduring commitment,” should be promoted, according to Xi.
He noted the different national conditions of the five countries, but stressed differences can be transcended and win-win results achieved.
He called on BRICS members to bring their comparative strengths in resources, markets and labor force to release growth potential and the creativity of 3 billion people.
Refuting claims that the group is losing its luster, Xi told the BRICS Business Forum on Sunday that the BRICS countries are “fully confident” about their growth potential and future outlook despite headwinds that have caused setbacks in growth.
From G20 Hangzhou Summit in September last year to the BRICS summit in Xiamen, China’s approach to global development is becoming more evident via partnership, open economy and win-win cooperation.
A trading port since ancient times and a gateway for China’s opening up, Xiamen is where Xi started when he came to Fujian Province to take up a new official post in 1985.
He hoped the BRICS countries could set sail from the city to deliver greater benefits to the people of the five countries and around the world.
Results-oriented
While uncertainties and downside risks persist with inward-looking policies weighing on global growth prospects, Xi stressed promoting results-oriented economic cooperation, “the foundation of BRICS cooperation,” he said.
The potential for BRICS cooperation has yet to be fully unleashed, Xi said, citing the five countries’ foreign investment totaling 197 billion U.S. dollars in 2016, only 5.7 percent of which took place among BRICS members.
He urged advancing cooperation in sectors such as trade and investment, monetary and finance, connectivity, sustainable development and innovation.
In the latest demonstration that BRICS is a task force that gets things done, the president announced China will launch an economic and technological plan for BRICS countries with 500 million yuan (about 76 million U.S. dollars) for the first term to facilitate exchanges and cooperation in the economic and trade fields.
China will also provide 4 million U.S. dollars for projects of the BRICS New Development Bank, which opened in 2015.
Five with one voice
As a stabilizer in regional and international relations, BRICS has been working hard to gain a bigger say on the international stage.
The stance was reaffirmed by Xi at the summit.
“We the five countries play a more active part in global governance. Without our participation, many pressing global challenges cannot be effectively resolved,” Xi said. “We should speak with one voice and jointly present our solutions to issues concerning international peace and development.”
He said the BRICS should work for a new type of international relations and push for economic globalization that is “open, inclusive, balanced and beneficial to all.”
Xi’s speech was echoed by his counterparts at the summit.
Zuma said the BRICS should strengthen contact with other emerging economies and developing countries to pursue common development.
The five countries should strengthen cooperation and improve global economic governance to create a sound external environment, said Temer.
For his part, Putin said the BRICS should build an open world economy, oppose protectionism and promote inclusive and sustainable growth.
Modi said BRICS countries should explore potential for economic cooperation, safeguard the multilateral trade system and promote people-to-people exchanges.
To consolidate their common ground, leaders of BRICS countries adopted the Xiamen Declaration, expressing consensus on various issues including the support for the UN’s central role in international affairs, opposing protectionism, condemning terrorism and deploring the latest nuclear test conducted by the Democratic People’s Republic of Korea.
“BRICS Plus”
During the Xiamen summit, China will hold a Dialogue of Emerging Market and Developing Countries, in which leaders of Egypt, Guinea, Mexico, Tajikistan and Thailand will join the BRICS leaders in discussing global development cooperation.
The China-proposed model is considered part of a bid to promote BRICS as a leading platform for South-South cooperation.
For emerging economies and developing countries, “we should stick to openness rather than protectionism, multilateral trade mechanisms rather than benefiting oneself at the expense of others, mutual benefit rather than a zero-sum game,” Xi said at a smaller meeting of BRICS leaders Monday morning.
“It is easy to break one arrow, but hard to break 10 arrows bundled together,” Xi cited the Chinese proverb in his Sunday speech to call for involving more emerging market and developing countries in cooperation and mutually beneficial endeavors.
Iqbal Surve, head of the South Africa chapter of the BRICS Business Council, said “BRICS Plus” would be warmly welcome among developing countries as the initiative is aligned with the common purpose of shaking off poverty and realizing dreams.
Working Together to Usher in the Second “Golden Decade” of BRICS Cooperation
Speech by Chinese President Xi Jinping at the opening ceremony of the BRICS Business Forum, 3 September 2017
Good afternoon! It is my great pleasure to have all of you with us in the beautiful city of Xiamen, renowned as the “Egret Island”. The BRICS Summit will be held tomorrow. On behalf of the Chinese government and people and the people of Xiamen, and also in my own name, I warmly welcome all of you to the Business Forum.
Xiamen has been a trading port since ancient times as well as a gateway of China’s opening up and external cooperation. Embracing the vast ocean, the city has hosted visitors from around the world. On a personal note, Xiamen is where I started off when I came to Fujian Province to take up a new post in 1985. Back then, being one of the earliest special economic zones in China, the city was at the forefront of China’s reform and opening up endeavor and was brimming with development opportunities. Three decades later, Xiamen has become well known for its innovation and entrepreneurship, with burgeoning new economic forms and new industries, robust trade and investment and easy access to the world with air, land and sea links. Today, Xiamen is a beautiful garden city with perfect harmony between man and nature.
There is a popular saying here in southern Fujian, “Dedicate yourself and you will win,” which embodies an enterprising spirit. Xiamen’s success is a good example demonstrating the perseverance of the 1.3 billion-plus Chinese people. In close to 40 years of reform and opening up, under the leadership of the Communist Party of China, we Chinese have forged ahead, fearless and determined, and we have successfully embarked on a path of socialism with distinctive Chinese features. We have encountered difficulties and challenges on the way forward. But we have persevered and kept pace with the times. With dedication, courage and ingenuity, we are making great progress in pursuing development in today’s China.
BRICS cooperation has now reached a crucial stage of development. In assessing its performance, it is important to bear two things in mind: the historical course of global development and evolving international landscape and the historical process of development of the BRICS countries, both individually and collectively, in the context of which BRICS cooperation is pursued.
We are in a great era of development, transformation and adjustment. Although conflict and poverty are yet to be eliminated globally, the trend toward peace and development has grown ever stronger. Our world today is becoming increasingly multipolar; the economy has become globalized; there is growing cultural diversity; and the society has become digitized. The law of the jungle where the strong prey on the weak and the zero-sum game are rejected, and peace, development and win-win cooperation have become the shared aspiration of all peoples.
Against such a backdrop, a large number of emerging market and developing countries have come to the fore, playing an ever greater role in international affairs. BRICS cooperation is a natural choice made by our five countries, as we all share a desire for peace and development. In the past decade, we BRICS countries have surged ahead and become a bright spot in the global economy.
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The past decade has seen the BRICS countries making headway in pursuing common development. The sudden outbreak of the 2008 global financial crisis left the world economy reeling, which is yet to fully recover. Facing the external shock, our five countries have held the ground by strengthening the domestic economy, boosting growth and improving people’s livelihood. In the past ten years, our combined GDP has grown by 179%, trade by 94% and urban population by 28%. All this has contributed significantly to stabilizing the global economy and returning it to growth, and it has delivered tangible benefits to three billion and more people.
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The past decade has seen the BRICS countries advancing results-oriented and mutually beneficial cooperation. Leveraging our respective strengths and converging interests, we have put in place a leaders-driven cooperation framework that covers wide-ranging areas and multiple levels. A number of cooperation projects have been launched that are in keeping with our five countries’ development strategies and meet the interests of our peoples. In particular, the New Development Bank and the Contingent Reserve Arrangement have provided financing support for infrastructure building and sustainable development of the BRICS countries, contributing to enhanced global economic governance and the building of an international financial safety net.
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The past decade has seen the BRICS countries endeavoring to fulfill their international responsibility. Committed to multilateralism, fairness and justice, our five countries have staked out our positions on major regional and international issues and made our proposals to address them. We have promoted reform of global economic governance to increase the representation and say of emerging market and developing countries. As a champion of development, we have taken the lead in implementing the Millennium Development Goals and Sustainable Development Goals, and engaged in close dialogue and cooperation with other developing countries to pursue development through unity.
As an old saying goes, the construction of a tall building starts with its foundation. We have laid the foundation and put in place the framework of BRICS cooperation. In reviewing the past progress of BRICS cooperation, I believe there are three important practices that should be carried forward.
First, treating each other as equals and seeking common ground while shelving differences. In terms of BRICS cooperation, decisions are made through consultation among us all, not by one country alone. We respect each other’s path and model of development, accommodate each other’s concerns and work to enhance strategic communication and political mutual trust. Given differences in national conditions, history and culture, it is only natural that we may have some differences in pursuing our cooperation. However, with strong faith in cooperation and commitment to enhancing trust, we can achieve steady progress in our cooperation.
Second, taking a results-oriented, innovative approach to make our cooperation benefit all. BRICS is not a talking shop, but a task force that gets things done. Our goal is to build a big market of trade and investment, promote smooth flow of currency and finance, improve connectivity of infrastructure and build close bond between the people. In pursuing this goal, our five countries are engaged in practical cooperation across the board, covering several dozen areas, including economy, trade, finance, science, technology, education, culture and health, thus giving concrete expression to the endeavor of building a new type of international relations featuring win-win cooperation.
Third, developing ourselves to help others with the well-being of the world in our mind. Having gone through an arduous course of development, we BRICS countries share the agony of those people who are still caught in chaos and poverty. Since the very beginning, our five countries have been guided by the principle of dialogue without confrontation, partnership without alliance. We are committed to observing the purposes and principles of the UN Charter, international law and basic norms governing international relations in conducting state-to-state relations. When developing ourselves, we are ready to share development opportunities with other countries. The philosophy of BRICS cooperation has gained growing appreciation and endorsement, and it has become a positive energy in the international community.
All this is what the BRICS spirit is about. It is the shared value that has bound us in the past decade’s cooperation. This spirit, constantly enriched over the years, has not only benefited our peoples but also enabled us to make a difference in the world.
Reviewing past progress helps us forge ahead in the right direction. Currently, the global economy has resumed growth, with emerging market and developing countries delivering a strong performance. A new round of technological and industrial revolution is in the making, and reform and innovation are gaining momentum. We have enough reason to believe that our world will be a better place.
On the other hand, more than 700 million people are still living in hunger; tens of millions of people are displaced and become refugees; so many people, including innocent children, are killed in conflicts. The global economy is still not healthy enough and remains in a period of adjustment featuring weak growth, and new growth drivers are yet to emerge. Economic globalization is facing more uncertainties. Emerging market and developing countries find themselves in a more complex external environment. The long road to global peace and development will not be a smooth one.
Some people, seeing that emerging market and developing countries have experienced growth setbacks, assert that the BRICS countries are losing their luster. It is true that affected by complex internal and external environments, we BRICS countries have encountered headwinds of varying intensity. But the growth potential and trend of our countries remain unchanged, and we are fully confident about it.
It is time to set sail when the tide rises. Going forward, we BRICS countries have a major task to accomplish, which is growing our economies and strengthening cooperation. We should build on past success, chart the course for future cooperation and embark on a new journey to jointly usher in the second “Golden Decade” of BRICS cooperation.
First, we should boost BRICS cooperation to create new impetus for economic growth of our five countries. In recent years, thanks to our strengths in terms of commodities supply, cost of human resources and international market demand, our five countries have driven global growth. As our five economies continue to grow, however, issues concerning resources allocation and industrial structure have become more acute. At the same time, the global economic structure is going through profound changes, evidenced by shrinking global demand and rising financial risks. All this has posed challenges to the traditional strengths of the BRICS economies, taking us to a crucial stage where we must work harder to overcome difficulties.
How should we get through this stage? Growth rate alone is not the answer. Instead, we should, on the basis of our current conditions and bearing in mind the long-term goal, advance structural reform and explore new growth drivers and development paths. We should seize the opportunity presented by the new industrial revolution to promote growth and change growth model through innovation. We should pursue innovation-driven development created by smart manufacturing, the “Internet Plus” model, digital economy and sharing economy, stay ahead of the curve and move faster to replace old growth drivers with new ones. We should eliminate impediments to economic development through reform, remove systemic and institutional barriers, and energize the market and the society, so as to achieve better quality, more resilient and sustainable growth.
Despite different national conditions, we BRICS countries are at a similar development stage and share the same development goals. We should jointly explore ways to boost innovation-driven growth. This requires us to improve macroeconomic policy coordination, synergize our respective development strategies, leverage our strengths in terms of industrial structure and resources endowment, and create value chains and a big market for shared interests, so as to achieve interconnected development. Basing ourselves on our own practices of reform and innovation, we should blaze a new path which may also help other emerging market and developing countries to seize opportunities and meet challenges.
Economic cooperation is the foundation of the BRICS mechanism. With this focus in mind, we should implement the Strategy for BRICS Economic Partnership, institutionalize and substantiate cooperation in various sectors, and continue to enhance the performance of BRICS cooperation. This year, we have made progress in the operation of the New Development Bank and Contingent Reserve Arrangement, and in e-commerce, trade and investment facilitation, trade in services, local currency bond issuance, scientific and technological innovation, industrial cooperation and public-private partnership, thus expanding and intensifying economic cooperation. We should continue to implement agreements and consensus already reached and better leverage the role of current mechanisms. We should also actively explore new ways and new areas of practical cooperation and strengthen our ties to ensure durable and fruitful BRICS cooperation.
Secondly, we BRICS countries should shoulder our responsibilities to uphold global peace and stability. Peace and development underpin and reinforce each other. People around the world want peace and cooperation, not conflict or confrontation. Thanks to the joint efforts of all countries, global peace has reigned for more than half a century. However, incessant conflicts in some parts of the world and hotspot issues are posing challenges to world peace. The intertwined threats of terrorism and lack of cybersecurity, among others, have cast a dark shadow over the world.
We BRICS countries are committed to upholding global peace and contributing to the international security order. This year, we have held the Meeting of High Representatives for Security Issues and the Meeting of Ministers of Foreign Affairs/International Relations. We have put in place the regular meeting mechanism for our permanent representatives to the multilateral institutions, and convened the Foreign Policy Planning Dialogue, the Meeting of Counter-Terrorism Working Group, the Meeting of Cybersecurity Working Group, and the Consultation on Peacekeeping Operations. These efforts aim to strengthen consultation and coordination on major international and regional issues and build synergy among the BRICS countries. We should uphold the purposes and principles of the UN Charter and basic norms governing international relations, firmly support multilateralism, work for greater democracy in international relations, and oppose hegemonism and power politics. We should foster the vision of common, comprehensive, cooperative and sustainable security, and take a constructive part in the process of resolving geopolitical hotspot issues and make our due contributions.
I am convinced that as long as we take a holistic approach to fighting terrorism in all its forms, and address both its symptoms and root causes, terrorists will have no place to hide. When dialogue, consultation and negotiation are conducted to create conditions for achieving political settlement of issues such as Syria, Libya and the Palestine-Israel conflict, the flame of war can be put out, and displaced refugees will eventually return to their homes.
Thirdly, we BRICS countries should contribute to enhancing global economic governance. Only openness delivers progress, and only inclusiveness sustains such progress. Due to sluggish global growth in recent years, such issues as uneven development, inadequate governance and deficit of fairness have become more acute, and protectionism and inward-looking mentality are on the rise. The global economy and global economic governance system, having entered a period of adjustment, face new challenges.
We should not ignore problems arising from economic globalization or just complain about them. Rather, we should make joint efforts to find solutions. We should work together with other members of the international community to step up dialogue, coordination and cooperation and contribute to upholding and securing global economic stability and growth. To this end, we should promote the building of an open global economy, advance trade and investment liberalization and facilitation, jointly build new global value chains, and rebalance economic globalization. Doing so will bring benefits to people across the world. We five countries should open more to each other, expand converging interests in this process, take an inclusive approach and share opportunities, so as to create even brighter prospects for growing the economies of the five countries.
The development of emerging market and developing countries is not intended to move the cheese of anyone but to make the pie of the global economy bigger. We should join hands to steer the course of economic globalization, offer more vision and public goods, make the governance model and rules more balanced and inclusive, and improve and reshape international division of labor and global value chains. We should work to reform the global economic governance system to make it commensurate with the reality of the global economic architecture. We should also improve governance rules for the new domains of deep sea, polar regions, outer space and cyberspace, so as to ensure that all countries share both rights and responsibilities.
Fourthly, we should increase the influence of BRICS and build extensive partnerships. As a cooperation platform with global influence, BRICS cooperation is more than about our five countries. Rather, it carries the expectations of emerging market and developing countries and indeed the international community. Guided by the principle of open and inclusive cooperation, we BRICS countries place high premium on cooperation with other emerging market and developing countries and have established effective dialogue mechanisms with them.
As a Chinese saying goes, “It is easy to break one arrow but hard to break ten arrows bundled together.” We should leverage our respective strengths and influence, promote South-South cooperation and North-South dialogue, pool the collective strengths of all countries and jointly defuse risks and meet challenges. We should expand the coverage of BRICS cooperation and deliver its benefits to more people. We should promote the “BRICS Plus” cooperation approach and build an open and diversified network of development partnerships to get more emerging market and developing countries involved in our concerted endeavors for cooperation and mutual benefits.
During the Xiamen Summit, China will hold the Dialogue of Emerging Market and Developing Countries, where leaders of five countries from different regions will be invited to join the BRICS leaders in discussing global development cooperation and South-South cooperation as well as the implementation of the 2030 Agenda for Sustainable Development.
Mutual understanding and friendship among peoples are crucial to enhancing BRICS cooperation and building extensive partnerships. We should fully leverage the role of people-to-people and cultural exchanges and encourage extensive public participation in BRICS cooperation. We should hold more events like cultural festivals, movie festivals and sports games that are popular among the people so that the BRICS story will be told everywhere and the exchanges and friendship of the peoples of our five countries will become an inexhaustible source of strength driving BRICS cooperation.
The past decade has not only seen solid progress in the BRICS cooperation mechanism; it has also witnessed the unfolding of all-round reform and opening up in China and its rapid economic and social development. Over these ten years, China’s economic aggregate has grown by 239% and its total volume of exports and imports in goods risen by 73%. China has become the world’s second largest economy, the lives of its 1.3 billion-plus people have been significantly improved, and China has made increasingly greater contribution to both regional and global economic development.
It is true that as China’s reform endeavors have entered a crucial stage where tough challenges must be met, some underlying difficulties and problems have surfaced, which must be addressed with resolve and determination. As a Chinese saying goes, “Effective medicine tastes bitter.” The medicine that we have prescribed for ourselves is to carry out all-round reform. Over the past five years, we have adopted over 1,500 reform measures covering all sectors, with breakthroughs made in multiple areas, and the reform is being pursued with greater intensity. The pace of economic structural adjustment and industrial upgrading has accelerated. China’s economy has maintained steady and sound performance, and new drivers sustaining development have grown in strength. In the first half of this year, China’s economy grew by 6.9%, the value added from services accounted for 54.1% of the GDP, and 7.35 million urban jobs were created. All these achievements have proven that deepening all-round reform is the right path that we should continue to follow.
Going forward, China will continue to put into practice the vision of innovative, coordinated, green, open and inclusive development. We will adapt to and steer the new normal of economic development, push forward supply-side structural reform, accelerate the building of a new system for an open economy, drive economic development with innovation, and achieve sustainable development. China will stay firmly committed to peaceful development and make even greater contribution to global peace and development.
Last May, China successfully hosted the Belt and Road Forum for International Cooperation, which was attended by 29 heads of state or government and over 1,600 representatives from more than 140 countries and 80-plus international organizations. This ushered in a new stage of translating the Belt and Road Initiative from vision to action and from planning to implementation. Forum participants discussed ways of promoting cooperation and development and reached broad consensus. Let me make this clear: The Belt and Road Initiative is not a tool to advance any geopolitical agenda, but a platform for practical cooperation. It is not a foreign aid scheme, but an initiative for interconnected development which calls for extensive consultation, joint contribution and shared benefits. I am convinced that the Belt and Road Initiative will serve as a new platform for all countries to achieve win-win cooperation and that it will create new opportunities for implementing the 2030 Agenda for Sustainable Development.
The business community of the BRICS countries is the main force driving our economic development. Over the last decade, you have incorporated business development into BRICS cooperation, thus making important contribution to forging BRICS economic partnerships. The reason why we are holding the Business Forum on the eve of the Summit is to solicit your views and advice, so that we can work together to make the Xiamen Summit a success and enable BRICS cooperation to deliver. I hope you will leverage your strengths in terms of information, technology and funding to launch more practical and mutually beneficial cooperation projects that benefit our countries and peoples. What you do will help spur economic and social development and improve people’s lives. The Chinese government will continue to encourage Chinese companies to operate and take root in other countries, and likewise, we also warmly welcome foreign companies to invest and operate in China.
We BRICS countries will enter a second decade of more vibrant growth. Let us work together with other members of the international community. Let our cooperation deliver more benefits to the peoples of our five countries. Let the benefits of global peace and development reach all the people in the world.
In conclusion, I wish the Business Forum every success.
Thank you!
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Ninth BRICS Leaders’ Summit: Xiamen Declaration
Extract from the Xiamen Declaration
Adopted at the Ninth BRICS Leaders’ Summit on 4 September 2017
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We, the Leaders of the Federative Republic of Brazil, the Russian Federation, the Republic of India, the People’s Republic of China and the Republic of South Africa, met on 4 September 2017 in Xiamen, China, at the Ninth BRICS Summit. Under the theme “BRICS: Stronger Partnership for a Brighter Future”, we endeavor to build on our achievements already made with a shared vision for future development of BRICS. We also discussed international and regional issues of common concern and adopted the Xiamen Declaration by consensus.
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We reiterate that it is the overarching objective and our desire for peace, security, development and cooperation that brought us together 10 years ago. BRICS countries have since traversed a remarkable journey together on their respective development paths tailored to their national circumstances, devoted to growing their economies and improving people’s livelihoods. Our committed and concerted efforts have generated a momentum of all-dimensional and multi-layered cooperation fostered by the previous Leaders’ Summits. Upholding development and multilateralism, we are working together for a more just, equitable, fair, democratic and representative international political and economic order.
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Our cooperation since 2006 has fostered the BRICS spirit featuring mutual respect and understanding, equality, solidarity, openness, inclusiveness and mutually beneficial cooperation, which is our valuable asset and an inexhaustible source of strength for BRICS cooperation. We have shown respect for the development paths of our respective choices, and rendered understanding and support to each other’s interests. We have upheld equality and solidarity. We have also embraced openness and inclusiveness, dedicated to forging an open world economy. We have furthered our cooperation with emerging markets and developing countries (EMDCs). We have worked together for mutually beneficial outcomes and common development, constantly deepening BRICS practical cooperation which benefits the world at large.
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We draw satisfaction from the many fruitful results of our cooperation, including establishing the New Development Bank (NDB) and the Contingent Reserve Arrangement (CRA), formulating the Strategy for BRICS Economic Partnership, strengthening political and security cooperation including through Meetings of BRICS High Representatives for Security Issues and Foreign Ministers Meetings, and deepening the traditional ties of friendship amongst our peoples.
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Recalling our Summits in Ufa and Goa, we will work together to further enhance BRICS strategic partnership for the welfare of our peoples. We commit ourselves to build upon the outcomes and consensus of our previous Summits with unwavering conviction, so as to usher in the second golden decade of BRICS cooperation and solidarity.
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Believing in the broad development prospects of our countries and the vast potential of our cooperation, we have full confidence in the future of BRICS. We commit to further strengthen our cooperation.
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We will energize our practical cooperation to boost development of BRICS countries. We will, inter alia, promote exchanges of good practices and experiences on development, and facilitate market inter-linkages as well as infrastructure and financial integration to achieve interconnected development. We shall also strive towards broad partnerships with EMDCs, and in this context, we will pursue equal-footed and flexible practices and initiatives for dialogue and cooperation with non-BRICS countries, including through BRICS Plus cooperation.
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We will enhance communication and coordination in improving global economic governance to foster a more just and equitable international economic order. We will work towards enhancement of the voice and representation of BRICS countries and EMDCs in global economic governance and promote an open, inclusive and balanced economic globalization, thus contributing towards development of EMDCs and providing strong impetus to redressing North-South development imbalances and promoting global growth.
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We will emphasize fairness and justice to safeguard international and regional peace and stability. We will stand firm in upholding a fair and equitable international order based on the central role of the United Nations, the purposes and principles enshrined in the Charter of the United Nations and respect for international law, promoting democracy and the rule of law in international relations, and making joint efforts to address common traditional and non-traditional security challenges, so as to build a brighter shared future for the global community.
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We will embrace cultural diversity and promote people-to-people exchanges to garner more popular support for BRICS cooperation through deepened traditional friendships. We will expand people-to-people exchanges in all dimensions, encourage all fabrics of the society to participate in BRICS cooperation, promote mutual learning between our cultures and civilizations, enhance communication and mutual understanding among our peoples and deepen traditional friendships, thus making BRICS partnership closer to our people’s hearts.
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BRICS Practical Economic Cooperation
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We note that against the backdrop of more solid global economic growth, enhanced resilience and emerging new drivers, BRICS countries continue to play an important role as engines of global growth. Noting the uncertainties and downside risks that persist, we emphasize the need to be vigilant in guarding against inward-looking policies and tendencies that are weighing on global growth prospects and market confidence. We call upon all countries to calibrate and communicate their macroeconomic and structural policies and strengthen policy coordination.
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We note that practical economic cooperation has traditionally served as a foundation of BRICS cooperation, notably through implementing the Strategy for BRICS Economic Partnership and initiatives related to its priority areas such as trade and investment, manufacturing and minerals processing, infrastructure connectivity, financial integration, science, technology and innovation, and Information and Communication Technology (ICT) cooperation, among others. We welcome the first report on the implementation of the Strategy for BRICS Economic Partnership, and the broad package of outcomes delivered by the sectoral ministerial meetings. We commit to use all policy tools – fiscal, monetary and structural – and adopt innovation-driven development strategies to enhance resilience and potentials of our economies, so as to contribute to strong, sustainable, balanced and inclusive global growth.
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Stressing the role of enhanced trade and investment cooperation in unleashing the potential of BRICS economies, we agree to improve and broaden trade and investment cooperation mechanism and scope, with a view to enhancing BRICS economic complementarity and diversification in BRICS countries. We welcome the positive outcomes of the 7th BRICS Trade Ministers Meeting in terms of the cooperative frameworks, roadmaps and outlines on trade and investment facilitation and connectivity and enhanced policy sharing, information exchange, capacity building, through enhanced joint efforts on trade and investment facilitation, trade in services, E-commerce, IPR (in synergy with the cooperation activities among BRICS IP authorities), economic and technical cooperation, SMEs and women economic empowerment. We welcome the setting up of the BRICS E-Port Network that will operate on a voluntary basis and the establishment of the BRICS E-commerce Working Group. We also welcome China’s initiative to host an International Import Expo in 2018 and encourage our business communities to actively participate in it.
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We stress the importance of enhancing BRICS financial cooperation to better serve the real economy and meet the development needs of BRICS countries. We note the agreement by the finance ministers and central bank governors on cooperation on Public Private Partnerships (PPP), including through PPP experience exchange and application of the BRICS Good Practices on PPP Frameworks. We acknowledge the establishment of a temporary task force to conduct technical discussion on various ways of cooperation, including utilizing existing facilities of the MDBs based on national experiences, exploring the possibility of establishing a new PPP Project Preparation Fund and other options. We encourage cooperation and coordination by our accounting standards setters and audit regulators and agree to explore convergence of accounting standards and continue discussion on cooperation on auditing oversight in the area of bond issuance, so as to lay the groundwork for bond market connectivity among BRICS countries, with due regard to applicable national legislation and policies. We agree to promote the development of BRICS Local Currency Bond Markets and jointly establish a BRICS Local Currency Bond Fund, as a means of contribution to the capital sustainability of financing in BRICS countries, boosting the development of BRICS domestic and regional bond markets, including by increasing foreign private sector participation, and enhancing financial resilience of BRICS countries.
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In order to serve the demand arising from rapid growth of trade and investment among the BRICS countries, we agree to facilitate financial market integration through promoting the network of financial institutions and the coverage of financial services within BRICS countries, subject to each country’s existing regulatory framework and WTO obligations, and to ensure greater communication and cooperation between financial sector regulators. We agree to take an active part in the efforts to implement and improve International Standards on Combating Money Laundering and the Financing of Terrorism and Proliferation in FATF, including through cooperation among BRICS Heads of Delegation on AML/CFT, also in the context of the work of BRICS CTWG and by using other platforms and to safeguard integrity of national financial systems. We agree to communicate closely to enhance currency cooperation, consistent with each central bank’s legal mandate, including through currency swap, local currency settlement, and local currency direct investment, where appropriate, and to explore more modalities of currency cooperation. We encourage the BRICS Interbank Cooperation Mechanism to continue playing an important role in supporting BRICS economic and trade cooperation. We commend the progress in concluding the Memoranda of Understanding among national development banks of BRICS countries on interbank local currency credit line and on interbank cooperation in relation to credit rating.
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We highlight the importance of innovation as a key driver for mid and long term economic growth and global sustainable development. We commit to promote cooperation on science, technology and innovation (STI) to forge synergy in tapping new growth momentum for our five economies and continue to address the development challenges we face. We commend the selection of BRICS research and development projects under the BRICS STI Framework Program and note the launch of the 2nd call for projects. We welcome the BRICS STI Cooperation MOU and support enhanced cooperation on innovation and entrepreneurship, including by promoting technology transfer and application, cooperation among science and technology parks and enterprises as well as mobility of researchers, entrepreneurs, professionals and students. We encourage increased participation of the academia, businesses, civil society and other stakeholders in this process, and support the promotion of STI investment and cross-border investment through existing funding, institutions and platforms including the NDB. We agree to continue to work on a cooperation platform for innovation and entrepreneurship and support the implementation of the BRICS Innovation Cooperation Action Plan 2017-2020.
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We reaffirm our commitment to BRICS industrial cooperation, including on industrial capacities and policies, new industrial infrastructure and standards, and among small, micro and medium-sized enterprises (SMMEs), so as to jointly seize the opportunities brought about by the new industrial revolution and expedite our respective industrialization processes. We encourage exploring the establishment of BRICS Institute of Future networks. We will enhance joint BRICS research, development and innovation in ICT including the Internet of Things, Cloud computing, Big Data, Data Analytics, Nanotechnology, Artificial Intelligence and 5G and their innovative applications to elevate the level of ICT infrastructure and connectivity in our countries. We will advocate the establishment of internationally applicable rules for security of ICT infrastructure, data protection and the Internet that can be widely accepted by all parties concerned, and jointly build a network that is safe and secure. We will increase investment of ICT, recognize the need to further increase investment in ICT Research and development, unleash the dynamics of innovation in producing goods and services. We encourage identification and facilitation of partnership between institutes, organizations, enterprises in the implementation of proof of concepts and pilot projects by leveraging complementary strengths in ICT hardware, software and skills through developing next generation of innovative solutions in the areas of smart cities, health care and energy efficient device, etc. We support active collaboration in implementing the BRICS ICT Development Agenda and Action Plan.
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We reaffirm our commitment to fully implementing the 2030 Agenda for Sustainable Development. We will also advocate equitable, open, all-round, innovation-driven and inclusive development, to achieve sustainable development in its three dimensions – economic, social and environmental – in a balanced and integrated manner. We support the important role of the United Nations, including the High Level Political Forum on Sustainable Development (HLPF), in coordinating and reviewing global implementation of the 2030 Agenda, and support the need to reform the UN Development System with a view to enhancing its capability in supporting Member States in implementing the 2030 Agenda. We urge developed countries to honor their Official Development Assistance commitments in time and in full and provide more development resources to developing countries.
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Underlining the strategic importance of energy to economic development, we commit to strengthen BRICS cooperation on energy. We recognize that sustainable development, energy access, and energy security are critical to the shared prosperity and future of the planet. We acknowledge that clean and renewable energy needs to be affordable to all. We will work to foster open, flexible and transparent markets for energy commodities and technologies. We will work together to promote most effective use of fossil fuels and wider use of gas, hydro and nuclear power, which will contribute to the transformation toward a low emissions economy, better energy access, and sustainable development. In this regard, we underline the importance of predictability in accessing technology and finance for expansion of civil nuclear energy capacity which would contribute to sustainable development in BRICS countries. We encourage continued dialogue on the establishment of a BRICS Energy Research Cooperation Platform and urge relevant entities to continue to promote joint research on energy cooperation and energy efficiency.
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We commit to further promote green development and low-carbon economy, in the context of sustainable development and poverty eradication, enhance BRICS cooperation on climate change and expand green financing. We call upon all countries to fully implement the Paris Agreement adopted under the principles of the United Nations Framework Convention on Climate Change (UNFCCC) including the principles of common but differentiated responsibilities and respective capabilities, and urge developed countries to provide financial, technological and capacity-building support to developing countries to enhance their capability in mitigation and adaptation.
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Stressing the importance of environmental cooperation to sustainable development of our countries and the well-being of our peoples, we agree to take concrete actions to advance result-oriented cooperation in such areas as prevention of air and water pollution, waste management and biodiversity conservation. We recognize the importance of an environmentally sound technology platform and of improving urban environmental sustainability, and support BRICS joint efforts in this regard. Brazil, Russia, India and South Africa appreciate and support China’s hosting of the meeting of the Conference of the Parties to the Convention on Biological Diversity in 2020.
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Noting the fruitful agricultural cooperation over the past years, we recognize the unique characteristics and complementarity of BRICS countries in agricultural development and vast cooperation potential in this area. In this connection, we agree to deepen cooperation in the five priority areas such as food security and nutrition, adaptation of agriculture to climate change, agricultural technology cooperation and innovation, agricultural trade and investment, and ICT application in agriculture to contribute to stable global agricultural growth and achievement of Sustainable Development Goals. We welcome the establishment in India of the Coordination Center of BRICS Agriculture Research Platform, a virtual network which will facilitate addressing these priority areas.
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We express concern over the challenges faced by the African continent in achieving independent and sustainable development and in wildlife conservation. We reaffirm our commitment to strengthen cooperation with Africa and help the continent to address illegal wildlife trade, promote employment, food security, infrastructure development and industrialization including through connectivity and developmental initiatives and projects. We reaffirm our strong support for African Union’s implementation of its various programs under Agenda 2063 in pursuit of its continental agenda for peace and socio-economic development.
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Keenly aware of the negative impact of corruption on sustainable development, we support the efforts to enhance BRICS anti-corruption cooperation. We reaffirm our commitment to intensify dialogue and experience sharing and support compiling a compendium on fighting corruption in BRICS countries. We further acknowledge that illegal flow of the proceeds of corruption impairs economic development and financial stability, and support enhanced cooperation in asset recovery. We support the strengthening of international cooperation against corruption, including through the BRICS Anti-Corruption Working Group, as well as on matters related to asset recovery and persons sought for corruption. We acknowledge that corruption including illicit money and financial flows, and ill-gotten wealth stashed in foreign jurisdictions is a global challenge which may impact negatively on economic growth and sustainable development. We will strive to coordinate our approach in this regard and encourage a stronger global commitment to prevent and combat corruption on the basis of the United Nations Convention against Corruption and other relevant international legal instruments.
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Living in the era of digital economy, we are ready to use opportunities it provides and address challenges it poses for the global growth. We will act on the basis of principles of innovation, partnership, synergy, flexibility, open and favorable business environment, trust and security, protection of consumer rights in order to ensure the conditions for a thriving and dynamic digital economy, that will foster global economic development and benefit everyone.
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We appreciate the efforts and contribution of the BRICS Business Council and Business Forum to strengthening our economic cooperation in infrastructure, manufacturing, energy, agriculture, financial services, e-commerce, alignment of technical standards and skills development. We welcome the establishment of a working group on regional aviation within the framework of the Business Council and in this connection acknowledge the Brazil’s proposal on an MOU on regional aviation partnership. We encourage business communities and associations to actively participate in BRICS cooperation, and give full play to their role as trade and investment facilitation institutions in promoting mutually beneficial cooperation.
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We recognize the importance of transformation that is taking place in the labor market and the opportunities and challenges it brings. We note with satisfaction the progress in BRICS cooperation with regard to human resources, employment and social security, fostering strong labor market information systems and networking of BRICS of Labor Research Institutes and BRICS Social Security Cooperation Framework. We welcome the achievement of a BRICS common position on governance in the future of work and agree to further strengthen exchanges and cooperation in ensuring full employment, promoting decent work, advancing poverty alleviation and reduction through skills development and achieving universal and sustainable social security systems.
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We recognize the importance of competition protection to ensure the efficient social and economic development of our countries, to stimulate innovative processes and to provide quality products to our consumers. We note the significance of the interaction between the Competition Authorities of our countries, in particular, in identifying and suppressing restrictive business practices that are of a transboundary nature.
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We note with satisfaction the progress made by Customs Administrations in their cooperation on trade facilitation, security and enforcement, capacity building and other issues of mutual interest, including through such mechanisms as BRICS Customs Cooperation Committee and BRICS Customs Working Group. We encourage broadened cooperation under the guiding principles of mutual sharing of information, mutual recognition of customs control, and mutual assistance in enforcement so as to boost growth and promote people’s welfare. In order to strengthen mutual cooperation in customs matters, we reaffirm our commitment to finalize BRICS Customs Mutual Assistance Agreement at the earliest.
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We adhere to the principle of utilizing outer space for peaceful purposes and emphasize the need to strengthen the international cooperation in space activities in order to use space technologies to respond to global climate change, environmental protection, disaster prevention and relief and other challenges faced by humankind.
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Recalling the Saint-Petersburg and Udaipur Declarations of BRICS Ministers for Disaster Management and the decision to establish a BRICS Joint Taskforce on Disaster Risk Management, we underline the importance of consistent joint work of emergency services of BRICS countries aimed at building a safer future by reducing existing disaster risks, including exchange of information on best practices concerning disaster risk management and cooperation in the field of forecasting and early warning for effective response to natural and human induced disasters.
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We note with satisfaction the progress in BRICS cooperation in such fields as audit, statistics and export credit and agree to further advance cooperation in these fields.
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Africa hopes to become new growth pole through cooperation with BRICS
African leaders said at the BRICS Business Forum that ended in Xiamen on Monday that the continent hopes to become a new growth pole through cooperation with BRICS countries, namely Brazil, Russia, India, China and South Africa.
About 1,200 business elites from more than 600 enterprises gathered in Xiamen of southeast China’s Fujian Province to attend the BRICS Business Forum. The two-day forum that started Sunday is an important side event of the BRICS summit.
South African President Jacob Zuma and Egyptian President Abdel Fattah al-Sisi delivered speeches at the forum, while Guinean President Alpha Conde attended a panel discussion under the theme of interconnectivity.
Sustainable development, robust trade
In a speech delivered Sunday, Zuma said he hopes BRICS countries can enhance cooperation to make their economies more robust and sustainable and bring benefits to their people.
Amid a decrease in global demand for raw materials, South Africa, whose exports are mainly driven by raw materials, are facing great challenges, Zuma said.
Against such a backdrop, South Africa hopes to realize comprehensive and inclusive development through cooperative projects with other BRICS countries, he added.
South Africa is carrying out large-scale economic reform in efforts to spur economic growth, Zuma said, adding that such sectors in mining, agriculture and energy are eying more investment while other areas such as technology and infrastructure construction are also prioritized.
Besides, Zuma expressed the hope that trade with high added value among BRICS countries can be promoted.
As Africa’s main economy and a member of BRICS and the G20 group, South Africa’s trade with the other BRICS countries reached 31.2 billion U.S. dollars in 2016, according to Zuma.
Describing Africa as a new frontline of growth and prosperity, Zuma said the continent enjoys broad prospects and opportunities for investment.
The International Monetary Fund has predicted that Africa will become the continent that sees the second fastest growth in the world in four years and it is the “youngest” continent in terms of the population’s age.
Zuma quoted a McKinsey report as saying that spending by Africa’s consumers and businesses along with household consumption in the continent will exceed 5 trillion U.S. dollars by 2025.
Zuma also mentioned the New Development Bank’s Africa Regional Center that launched in mid-August in Johannesburg, saying that the project highlights BRICS’ commitment to the development of the African continent and emerging markets.
Al-Sisi also said Egypt has adopted a series of policies for reforms in the subsidy system, social security and monetary policies as well as improving the investment and business environment, and expressed the hope that the country can realize sustainable development through BRICS countries” support.
South-South cooperation
During the Xiamen Summit, China held the Dialogue of Emerging Market and Developing Countries, where leaders of Egypt, Guinea, Mexico, Tajikistan and Thailand joined the BRICS leaders in discussing global development cooperation and South-South cooperation.
“BRICS is symbolic of the South, but it really, for its legitimacy, needs to embrace other countries of the South so that their voices can be heard” on the global stage, said Jeremy Stevens, an economist with Standard Bank, Africa’s largest bank headquartered in South Africa.
Conde, the Guinean president, said the attendance of Guinea, which holds the rotating presidency of the African Union, in the Xiamen summit has great significance to Africa.
The development of BRICS cooperation has brought hope to all marginalized countries in the world, Conde said, adding that he expected the partnership between Guinea and BRICS countries will make Africa a new landscape.
Guinea is one of the least developed countries in the world, according to the United Nations. Cooperation with BRICS nations has injected great dynamism into the Guinean economy.
Statistics from the Chinese Customs showed the China-Guinea trade in 2016 reached 1.78 billion U.S. dollars, up 36.2 percent from a year ago.
“Africa is the future of the world,” Conde said, “The future of BRICS is determined by cooperation with Africa... let’s jointly face our challenges.”
Dialogue of the Emerging Markets and Developing Countries on the Margins of the 9th BRICS Summit
Remarks by President Jacob Zuma
I would like to take this opportunity to thank President Xi Jinping for bringing together a new configuration of like-minded partners from amongst the group of Emerging Markets and Developing Countries (EMDCs) with whom the BRICS nations share common aspirations and challenges.
As the unfolding multi-polar world order takes shape, formations such as BRICS are indicative of the shared resolve to assume ownership of our development paths.
Such formations are intended as a conduit for addressing the needs of all global citizens.
Addressing common development challenges is integral to building a better future for all humankind, as evidenced by the collaboration that exists between the BRICS nations and their various international partners.
Our joint efforts were further manifested in the successful adoption of the 2030 Sustainable Development Agenda. Full implementation of the Sustainable Development Goals (SDGs) has the potential to eradicate poverty.
Revitalising the Global Partnership for Sustainable Development can only be fully achieved if supported by the concrete policies and actions outlined in the Addis Ababa Action Agenda on Financing for Development, also adopted in 2015; and which is an integral part of the 2030 Agenda.
The Means of Implementation is fundamental to the success of countries meeting their developmental needs, and achieving the SDGs, yet it is the one area that has received neither the appropriate attention, nor the requisite priority.
African countries are implementing the 2030 Agenda and Agenda 2063 of the African Union in an integrated manner.
This is to ensure that we secure and utilise natural resources sustainably.
In the lead up to the 23rd Conference of the Parties to the United Nations Framework Convention on Climate Change, we are confident that international solidarity will prevail and that countries will encourage and support each other in the implementation of their various contributions and obligations.
Excellencies, the world has witnessed a number of terror attacks in recent times.
South Africa strongly condemns these horrendous acts and believes that, in order to fight this scourge, it is imperative for the global community to unite as one and to intensify its collective efforts to counter the challenges that this poses to the international community at large.
It remains our conviction that, given terrorism’s global reach, international cooperation in countering this threat is critical. South Africa, therefore, fully supports the global campaign against terrorism within the framework of the United Nations.
BRICS partners have established their first financial institutions to notably address their own needs.
The New Development Bank is supporting its founding members.
Hopefully soon, it will also support our partners through providing development financing for infrastructure and sustainable development projects.
The leadership of the African Union engaged the BRICS leadership at an early stage indicating its strong support for this project and the recent launch of the Africa Regional Centre is a most welcome signal of an intensifying partnership for development.
As the Global South, it remains our collective responsibility to increase our role in agenda setting and rule formulation in relevant fora, notably in the United Nations.
In its current state, the United Nations has been unable to curb unilateral actions by powerful nations. These practices risk the reversal of gains made by the collective and we must continue to address its inherent biases.
This dialogue with our fellow partners from the group of EMDCs has certainly created an opportunity for us to work towards finding solutions for our common challenges.
It provides an opportunity as well to craft a paradigm for mutually beneficial South-South cooperation, to positively impact on the lives of our people, and to constantly strive for justice, equity and development.
Each of the countries present here today enjoys comparative and competitive advantages in specific fields.
Cross fertilisation, the exchange of ideas, joint projects and skills training can go a long way towards promoting economic development and social progress for all. South Africa will continue to explore these mutually beneficial cooperation ties with all our partners.
I thank you.
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Smart industrialisation through trade in the context of Africa’s transformation
This brief, produced by the ODI in partnership with the United Nations Economic Commission for Africa, explores how the idea of using trade and trade policy to support industrialisation has experienced a recent resurgence, and provides a set of policy recommendations for African economies looking to industrialise smartly through trade.
The importance of industrialisation
Africa’s experience with industrialisation has been disappointing. Globally, the share of manufacturing in total output rises with per capita income until countries reach upper-middle-income status, then declines as services become more prevalent at higher incomes. This has not been the case in Africa. In 2014, Africa’s average share of manufacturing value added in gross domestic product (GDP) was 9.8%, 3 percentage points less than the 12.8% of 1990. The share of manufacturing exports in Africa’s total exports similarly declined from 25.6% in 1995 to only 18.9% in 2014.
By moving labour and other resources from lower- to higher-productivity activities and raising within-sector productivity growth, industrialisation contributes to economic transformation. Moving forwards, transformation of African economies through industrialisation will be key to achieving economy-wide productivity improvements, job creation and sustained progress in growth and poverty reduction.
Using trade as a tool to drive Africa’s industrialisation
Fresh thinking is needed on how to achieve Africa’s industrialisation objectives. Trade has a key role to play. Intra-regional trade has particular potential to facilitate increased economies of scale, diversification and value addition. In 2014, manufactured goods accounted for 41.9% of intra-African exports, compared with only 14.8% of Africa’s exports to outside the continent. Intra-African trade is, however, underexploited, owing to high trade costs in the region. As a share of total African trade, it was 15.3% in 2015. As a comparison, trade among developing economies in Eastern Asia as a share of total Eastern Asian trade was 32.1%.
Although the idea of actively using trade and trade policy to support industrialisation is not new, it has recently experienced a resurgence. Trade has greater prominence in the United Nations’ Sustainable Development Goals than it did in the Millennium Development Goals, with trade-related targets included as means of implementation. The African Union’s vision contained in Agenda 2063 calls for developing productive capacities, boosting intra-African trade, establishing a Continental Free Trade Area (CFTA) and improving regional infrastructure, among other trade-related priorities. African countries recognise the role the CFTA can play in achieving its industrialisation and have designated industrialisation as the central pillar of the CFTA project. The African Union’s Regional Economic Communities (RECs) also recognise that industrialisation needs to take centre stage in regional integration and development agendas.
The remainder of this brief provides a set of policy suggestions on what needs to be done for African economies to industrialise smartly through trade, based on recent research by the ECA and ODI.
This policy brief was prepared by the Overseas Development Institute (ODI), UK, and the African Trade Policy Centre (ATPC) in the United Nations Economic Commission for Africa (ECA).
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