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Etching gender into trade policy in the COMESA region
Putting gender issues at the heart of trade policy is vital if development is to be inclusive, and training decision makers is a key way to achieve that goal.
Building upon the success of its online course on trade and gender, UNCTAD has broadened the scope of this initiative by tailoring its training for different regions of the globe.
First in line has been the 19-country COMESA, the largest regional economic organization in Africa. Nearly 50 Representatives from COMESA – the Common Market for East and Southern African – have wrapped up their eight-week online course and committed to strengthening the gender perspective in trade policy.
“Together we can make trade policy more gender sensitive, and pave the way for more inclusive prosperity that leaves no one behind,” said UNCTAD Secretary-General Mukhisa Kituyi.
The objective of the course, which was delivered jointly by UNCTAD’s Trade, Gender and Development Programme and COMESA’s Division on Gender and Social Affairs, was to share knowledge on how to analyse the nexus between trade and gender and to provide participants with the skills necessary to formulate gender-related policy recommendations.
Graduates said the course has empowered them with knowledge on the relationship between trade and gender – an important consideration for a regional body which promotes commerce across countries whose combined population is about 390 million.
“The course was an eye opener,” said Mr. Benjamin Masila, Head of the Information and Resource Center at the COMESA secretariat. “I got to learn and understand gender dimensions in various sectors that I would not have taken note of without this course.”
Participants also said the course will help them support gender-responsive policy-making in their respective countries, matching the main goals of the course.
“The course has enabled me to always consider the gender perspective in trade policy formulation, especially with regard to export processing zones,” said Ms. Zodwa Mabuza, Coordinator of the Tripartite Free Trade Agreement, which links the economies of COMESA, the East African Community (EAC) and the Southern African Development Community (SADC).
Ms. Nancy Gitonga, Regional Coordinator of the East African Women in Business Platform (EAWiBP), also hailed the course.
“I am now able to identify and analyse a country’s economy through a gender lens and asses how gender biases operate and affect women in the multiple roles they play as workers and producers, traders, consumers, users of public service and as taxpayers,” she said.
The knowledge acquired will enable participants to ensure that gender considerations are front and centre in their research, teaching, policy-making, advocacy and fieldwork.
The online course for COMESA was accompanied by a new teaching module – Trade and gender linkages: An analysis of COMESA – which complements the existing teaching material with data, case studies and an in-depth analysis of the linkages between trade performance and gender equality in the COMESA region.
The course is part of a capacity-building project on trade and gender funded by the governments of Finland and Sweden.
Trade and gender linkages: An analysis of COMESA
This document is the fourth module in the first of two volumes of the teaching manual on trade and gender prepared by the United Nations Conference on Trade and Development (UNCTAD). The manual was developed with the aim of enhancing the capacity of a global audience of policymakers, civil society organizations, and academics to mainstream gender into trade policy.
Building upon the content of the previous modules, Module 4 applies the analytical grid previously developed to the member countries of COMESA. The concepts and transmission mechanisms introduced in the training material are employed to understand and outline the interactions between trade and gender inequalities in COMESA countries.
Since COMESA involves countries that differ greatly in terms of economic structures and social development, this module examines the trade and gender nexus through a thematic lens, focusing on common features across the different economic sectors, namely agricultural, manufacturing, and services.
Gender mainstreaming in COMESA
Articles 154 and 155 of the COMESA Treaty recognize the importance of ensuring the effective and equal participation of women, men, and youth to achieve sustainable economic and social development in the region. COMESA members adopted the Regional Gender Policy and the Addis Ababa Declaration on Gender in 2002, and committed to mainstream gender across all areas of socio-economic life and regional integration and cooperation. The COMESA Gender Policy provides a comprehensive gender and development strategy to redress gender inequalities and advance gender-responsive measures at the national and regional levels. It also facilitates the engendering of national legislation by its member states.
In line with these principles, the COMESA Secretariat has been implementing its Gender Mainstreaming Strategic Action Plan since 2009. Sectoral guidelines have been developed and disseminated to provide a practical tool for policymakers to apply gender equality principles to all areas of the regional integration agenda. A specific framework to mainstream gender in the trade sector is also in place to provide insights into measures that help assess the gender redistributive effects of trade. These include strengthening sex-disaggregated data, providing a knowledge base through gender analysis and impact assessments of national and regional trade instruments, formulating a dedicated gender policy for the trade sector, and implementing interventions that advance women’s economic empowerment.
Agricultural sector
The gender implications of agricultural trade policy are complex and multidimensional, as discussed in the core training manual. Trade integration policies do not have clear-cut positive or negative effects on women in agriculture: the effects vary across subgroups of women depending on the agricultural sectors and markets where they are active, and are often double-edged, with different impacts on women as consumers and producers. Note in this respect that the economic roles of men and women in agriculture reflect ingrained socio-cultural norms that vary across and within countries, which adds complexity to the analysis. Furthermore, the competitiveness implications for the sector of gender-based discrimination are complex. As discussed in the core training manual, gender-based inequalities adversely impact women’s productivity on-farm and off-farm, turning women into “underachievers of competitive advantage” in their own enterprises. Yet low-cost female labour can also enhance export competitiveness, turning gender inequality into a “source of competitive advantage” for labour-intensive, export-oriented agri-business. Against this backdrop, this section explores the trade and agriculture gender nexus in relation to the COMESA region. Based on descriptive statistics, it briefly reviews the gendered structure of agriculture in the COMESA region; assesses how gender-specific constraints and inequalities impact trade and agricultural trade potential in COMESA (i.e. how gender inequality affects trade); and considers the potential impacts of COMESA’s agricultural trade and regional integration on rural women (i.e. how trade affects gender).
Manufacturing sector
Although COMESA countries are relatively diverse along many dimensions (economic size, social development, production structures, etc.), this section concentrates on certain common features in order to understand how trade in manufacturing goods affects women in these countries. First to be explored is existing evidence on how women have been affected by similar export-oriented policies in the manufacturing sector adopted in COMESA countries, namely the setting up of export processing zones (EPZs). Second, the section investigates the consequences of tariff changes on gender labour outcomes in the context of future trade agreements of COMESA countries with the European Union and with the East African Community and the Southern African Development Community.
Services sector
COMESA has initiated programmes to promote services trade among its members. The COMESA Treaty explicitly identifies liberalization of trade in services as central to the community’s regional integration objectives. In particular, Articles 4(4)(c), 164, 148, 151, and 152 all present a mandate for COMESA and its member countries to collectively work towards removing barriers to services trade and promoting the free movement of services across the region. In 2009, the Committee on Trade in Services launched efforts to promote services liberalization and adopted the Guidelines for Services Negotiations under the COMESA Regulations on Trade in Services. Furthermore, though at present the TFTA negotiations are focused primarily on merchandize trade across COMESA, SADC, and EAC member states, services can be expected to factor importantly into future discussions. Given the attention this area is receiving from COMESA governments as well as regional and global development organizations, it is critical to consider the implications of liberalized trade in services on gender and women’s economic empowerment.
» Download: Trade and gender linkages: An analysis of COMESA (PDF)
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CCRED’s Barriers to Entry and Competition project: South African case studies, policy briefs
Baseline Agricultural Outlook report for 2017: Is Africa moving towards integrated agricultural food markets? (BFAP)
Extract (pdf): As a first step to facilitating regional integration, the level of applied duties on food imports faced by African exporters are relatively low and declining over time (Table 20). Over the past 11 years the average ad valorem equivalent tariff rate on food products faced by African exporters fell by 3.2%. Across the 19 food product categories traded intra-regionally, Vegetable & Roots and Cereals were the only two categories that experienced an increase in the applied import duties between 2005 and 2016. The actual realization of intra-regional trade is the growing share of total food imports supplied to SSA by Sub-Saharan African exporters. To date, though imports from non-SSA markets still dominate, the share of SSA imports coming from other SSA countries has risen; averaging an annual growth rate of 12% over the past fifteen years (Figure 126). The commodities accounting for the rapid growth are high-value products with some degree of processing. In 2015, of the $8.09bn in intra-regional trade of food products, cereals were the second largest product traded, accounting for 11% of the total imports. However, over the past 15 years, trade in vegetables, fi sh, and meat (fresh, semi-processed and processed) realized average annual growth rates above 13% compared to cereals, which grew by 10.4% per annum (Table 21). [An extract from the chapter, Regional Market Dynamics, from the Bureau for Food and Agricultural Policy’s Baseline Agricultural Outlook report for 2017]
Kenya: Illicit financial flows and political institutions (AfDB)
This paper explores the political economy view as an alternative explanation to the illicit financial outflows for one African country, Kenya. It aims to specifically answer two related questions: Why has Kenya continued to be characterized by corruption and debt-fueled capital outflows, even though these conditions stifle its economic development? Are these outflows a result of weaknesses in political institutions that leave the Executive unchecked? These questions remain very pertinent not only for Kenya but for other developing countries that are faced with the development challenge of debt-fueled, illicit capital outflows. To this end, this study assesses empirically the role of arbitrary powers of the Executive as a proxy for the influence of weak political institutions on illicit financial outflows. The evidence from this exercise supports the view that the extent of arbitrary executive powers is positively associated with illicit financial outflows. Thus weaknesses in political institutions matter for illicit financial flows (rent extraction) from Kenya. As robustness checks, this research uses constraints on the Executive from Polity IV Indicators as an alternative indicator of institutions. Using these alternative indicators, the study finds a strong support that constraining the Executive’s powers is likely to reduce the magnitude of illicit financial flows from Kenya.
Migration Dialogue for COMESA Member States: Investing in modern technologies will address the fear of free movement
The full integration of the economies of Eastern and Southern Africa will be realized if it is accompanied by the free movement of people in the region. According to the Minster for Home Affairs of Zambia Hon. Stephen Kampyongo, the fear of migrants was holding back the gains of social and economic integration that come through free movement of people. Speaking during the Regional Consultative Process meeting (28 July), the Minister said inherent security fears such as transnational crimes can be managed by investing in security institutions based on research and empirical evidence. Assistant Secretary General of COMESA Dr Kipyego Cheluget called upon Member States to sign and ratify the Protocol on Free Movement of Persons, Services, Labour and Right of Establishment. “Without ratifying the Protocols on Free Movement and implementation of Council Decision, there really is not free movement of people or process to talk about.”
COMESA Protocol on Free Movement of People: Chiefs of immigration meet to review status of free movement
The officials reviewed (26 – 27 July) the status of the signing and ratification of the Free Movement Protocol and the status of implementation of the Council of Ministers’ Decisions on the implementation of the Protocol. They also approved an information toolkit that has been developed to raising awareness on the implementation of the Protocol. Currently, three COMESA member States namely Mauritius, Rwanda and Seychelles are in the lead in the removal of visa requirements for almost all African countries. Rwanda and Kenya are implementing some of the aspects of the protocol. So far, Burundi is only State that has ratified it. Rwanda is in the process of doing so. Ambassador Kipyego Cheluget, the Assistant Secretary General for COMESA, called on member countries to build on the work done by eight member states that have started compiling and harmonizing data on migration. This, observed, will promote a regional approach to issues of migration. [Global Compact for Migration: East African Consultative Meeting]
ECOWAS steps up efforts at Management of Free Movement and Curbing Irregular Migration
The Migration Dialogue for West Africa Border Management Working Group began its two-day meeting in Abuja, preparatory to the Heads of Immigration Meeting being convened to review and make recommendations on the implementation of the Protocol of Free Movement of Persons, migration and irregular migration management as well as regional data sharing. The meeting, co-chaired by Togo and Nigeria, featured reviews of previous recommendations, country presentations, and an examination of the existing coordination groups at the national levels. The on-going exercise would lead to the finalisation of a Border Management Manual aided by expert contributions from heads of training schools and senior training personnel from all ECOWAS Member States. The Heads of Immigration meeting is meant to help arrive at a harmonised position by the immigration chiefs on the region’s pressing migration issues, including the stand to take at the upcoming Global Compact on Migration.
IGAD’s 9th Regional Consultative Process on Migration: climate change and human mobility
The RCP is aimed at increasing awareness around issues related to displacements caused by natural disasters as well as at forging a common understanding on the protection gaps and opportunities for IGAD member states. The participants to the dialogue are IGAD member states heads of immigration and labour departments dealing with climate change, as well as Academia, NCM focal points, UN agencies, civil society, Members of National Platforms for Disaster Risk Reduction (specifically those dealing with droughts, floods and environmental changes) and Experts on Disaster Risk Reduction. Mrs Fathia Alwan, speaking for the Executive Secretary of IGAD, underlined that climate change was “one of the leading causes of forced displacement in IGAD Region”.
China-Africa trade surges 19% in H1 (Xinhua)
Trade between China and Africa reached $85.3bn in H1, surging 19% year-on-year as the two sides strengthened cooperation in a wide range of areas, official data showed Thursday. The data reversed the negative growth trend since 2015, according to Gao Feng, spokesperson with the Ministry of Commerce. During January-June, Chinese imports from Africa, including minerals, agricultural products and fruits, amounted to $38.4bn, jumping 46% from the same period last year, while exports gained 3% to $47bn. Transport equipment has become a bright spot in China’s exports to African countries, with that of ships, trains and aerospace equipment up 200%, 161% and 252% respectively, thanks to stronger project construction cooperation.
Renminbi use continues to fall in international trade (GTR)
The Rmb fell from being the fifth most used global currency in June 2015 to the sixth in June 2017, while its share of international payments declined from 2.09% to 1.98% over the same period, according to new data from Swift. [Swift: Can the Belt and Road revitalise the RMB?]
Steven Gray: Can the West compete with the Asian dragon in the African infrastructure space? (Blavatnik School)
This model has led to a relatively low capacity and appetite for the Chinese financial institutions to undertake deep quantitative and qualitative analysis of commercial risks in more market-orientated infrastructure projects. This lack of capacity/appetite is evident through the fact that only a couple of Chinese-funded infrastructure projects with no government guarantees have achieved financial closure. Looking ahead, this infrastructure spending may result in a number of African governments defaulting on their debt obligations forcing China into yet another round of debt forgiveness. Will that force China into rethinking its approach to lending to African infrastructure projects and if so, what models are out there for them to compete with the wider market of infrastructure providers? A quick scan of the continent shows up three main alternatives, namely:
Turkish construction giant eyes more Africa projects after Ethiopia, Tanzania railways (Daily Sabah)
Turkish construction giant Yapı Merkezi hopes a $3bn modern railway-line project it is building in Ethiopia and Tanzania will showcase its skills and make it a “trusted development partner” in Africa. The consortium, which prides itself on successfully building some 2,600 kilometers of line (1,615 miles) and a dozen rail systems in different parts of the world, first set foot in the African infrastructure market with its Casablanca and Algiers light railway networks. The latest Ethiopian and Tanzanian standard-gauge railroad contract is the first African mega project for the company. The 3,910 km (2,430-mile) Awash-Kombolcha-Hara Gebya single-line railway project which began in 2015 at a cost of $1.7bn will link northern and eastern Ethiopia and also connect to a central rail network which stretches to the port of Djibouti. Construction of the first phase between Awash and Kombolcha, which consists of dozens of tall bridges and long tunnels, has been successfully completed, according to Öcal. When the project is totally completed in 2020 as planned, the company will have constructed 12 tunnels, 51 bridges, 14 overpasses and one underpass.
Yapı Merkezi’s Tanzanian project, which was signed in April 2017, is worth $1.2bn and its first 250-km (155 mile) section, will connect Dar es Salaam to Morogoro. According to a company document, the railroad will provide a ground speed of 160 kilometers per hour (99 mph). The project actually consists of five phases – the first won by Yapı Merkezi – totaling 1,224 kilometers that would link the Democratic Republic of Kongo and Uganda to the Indian Ocean. “Our model will be the same, in Ethiopia, Tanzania, and other future projects,” said Öcal. “We will provide durable European-standard technologies, empower local professionals with knowledge, and try to attract multiple financers.”
Abebe Aemro Selassie: A common cause for sustainable growth and stability in Central Africa (IMF)
Six countries in central Africa have been hit hard by the collapse in commodity prices. Oil prices dropped, economic growth stalled, public debt rose, and foreign exchange reserves declined. A delayed response from policy makers, and a regional conflict have worsened the situation further for people in the region. The countries of the Central African Economic and Monetary Community are Gabon, Cameroon, Chad, the Central African Republic, the Republic of Congo, and Equatorial Guinea. They share a common currency - the CFA franc - that is pegged to the euro, and have a common central bank that holds the region’s pool of foreign exchange reserves. In response to their current acute economic difficulties, the countries have devised a strategy to turn their economies around. Success depends on countries’ implementation of well-coordinated policies within and across their borders. The countries have also approached the IMF for support. In recent weeks, the IMF has approved new Fund-supported programs for Gabon, Cameroon, and Chad, and an increase in funding for the Central African Republic. Discussions are ongoing with the Republic of Congo and Equatorial Guinea.
Nigeria: IMF staff concludes visit
However, near-term vulnerabilities and risks to economic recovery and macroeconomic and financial stability remain elevated. At 0.8%, growth in 2017 will not be sufficient to make a dent in reducing unemployment and poverty. Concerns about delays in policy implementation, a reversal of favorable external market conditions, possible shortfalls in agricultural and oil production, additional fiscal pressures, continued market segmentation in a foreign exchange market that remains dependent on central bank interventions, and banking system fragilities represent the main risks to the outlook. Acting on an appropriate and coherent set of policies to enhance an economic recovery remains urgent. This includes: [IMF staff completes staff visit to Gabon]
Freedom of Investment Roundtable 26: summary of discussions (pdf, OECD)
Participants included representatives of governments of the 35 OECD members as well as the EU, of other governments that have adhered to the OECD Declaration on International Investment and Multinational Enterprises (Argentina, Brazil, Colombia, Costa Rica, Egypt, Lithuania, Morocco, Tunisia) as well as government representatives from P.R. China, the Russian Federation, South Africa and Thailand. The International Centre for Settlement of Investment Disputes and UNCITRAL also participated in the Roundtable. The discussions at Roundtable 26, held on 8 March, addressed several topics including:
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Trade, investment tops BRICS Ministers’ meeting
Issues related to trade and investment promotion were discussed at the 7th meeting of the BRICS Ministers of Trade in China.
“The Trade Ministers established collaborative mechanisms among BRICS [Brazil, Russia, India, China and South Africa] countries which are aimed at encouraging information sharing and capacity building, through activities such as expert dialogues and workshops, and build a common understanding on among others e-port network, investment facilitation, trade in services, e-commerce, intellectual property rights,” said the Department of Trade and Industry (dti).
In a statement following the two-day meeting in Shanghai, the dti said the key objective is to promote a better understanding of the regulatory framework, share best practices and promote practical cooperation with a view to enhance trade and investment.
Trade and Industry Minister Rob Davies said cooperation will be strengthened between the investment promotion agencies so as to promote exchange of information on investment facilitation measures to encourage peer learning.
Consideration will be given to organising investment promotion activities on the side-lines of the BRICS Summit with a view to enhance intra-BRICS investments. The summit will take place in China in September.
In the context of investment facilitation, Minister Davies elaborated on South Africa’s approach to investment protection and dispute settlement, as embodied in the Protection of Investment Act.
The Minister indicated the role of Invest South Africa, the investment one stop shop at the Department of Trade and Industry in assisting investors in the country.
BRICS countries have also agreed to promote technical cooperation and capacity building, and BRICS cooperation in multilateral forums such as the World Trade Organization.
At the meeting, Minister Davies emphasised the need for practical cooperation among BRICS countries, rather than rule-making.
“Cooperation among BRICS countries must be underpinned by development and the need to promote inclusive growth,” said Minister Davies, who also spoke of the need to promote complementary value-added trade so as to ensure that BRICS cooperation contributes to the industrial development agenda of its members.
“I believe that our cooperation must be underpinned by promotion of inclusive growth and job creation; technology transfer, technology development and the ability of BRICS countries to leverage the fourth industrial revolution,” said the Minister.
South Africa will be chairing BRICS in 2018. Minister Davies emphasised the need to take stock of trade and investment related initiatives in the recent years and ensuring that there is follow-through on those.
SA’s trade ties to BRICS
South Africa has strong and growing trade and investment ties with the other BRICS members, particularly China and India.
China has been South Africa’s top ranking export destination, as well as import supplier since 2009. In 2016, intra-BRICS exports amounted to the equivalent of R4 trillion. China accounted for 40%, India for 27%, Russia for 16%, Brazil for 10%, and South Africa for 7% of this.
In 2016, South Africa’s exports destined to BRICS countries amounted to R156 billion, while its imports from these four partners came to R273 billion.
In 2015/16, intra-BRICS investment amounted to R554 billion. South Africa received R34.5 billion from investors in these countries, while making investment there to the amount of R22.6 billion.
On the side-lines of the 7th BRICS Trade Ministers meeting, Minister Davies met with his Chinese counterpart Zhong Shan and agreed to enhance bilateral trade relations between the two countries, including promoting value-added trade.
The meeting began on Tuesday and concluded on Wednesday. Prior to the meeting Minister Davies participated in the Industry Ministers two-day meeting in Hangzhou, the capital of China’s Zhejiang province at the weekend.
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BFAP Baseline: Agricultural Outlook 2017-2026
The 2017 edition of the BFAP South African Baseline presents an outlook of agricultural production, consumption, prices and trade in South Africa for the period 2017 to 2026 and relates these to the agricultural sector’s footprint, and hence contribution, in the South African economy.
The information presented is based on assumptions about a range of economic, technological, environmental, political, institutional, and social factors. The outlook is generated by the BFAP system of models. A number of critical assumptions have to be made for baseline projections. One of the most important assumptions is that normal weather conditions will prevail in Southern Africa and around the world; therefore yields grow constantly over the baseline as technology improves. Assumptions regarding the outlook of macroeconomic conditions are based on a combination of projections developed by the International Monetary Fund (IMF), the World Bank and the Bureau for Economic Research (BER) at Stellenbosch University. Baseline projections for world commodity markets were generated by FAPRI at the University of Missouri.
Once the critical assumptions are captured in the BFAP system of models, the Outlook for all commodities is simulated within a closed system of equations. This implies that, for example, any shocks in the grain sector are transmitted to the livestock sector and vice versa. Therefore, for each commodity, important components of supply and demand are identified, after which an equilibrium is established through balance sheet principles by equalling total demand to total supply.
This year’s baseline takes the latest trends, policies and market information into consideration and is constructed in such a way that the decision maker can form a picture of equilibrium in agricultural markets given the assumptions made. However, keep in mind, markets are extremely volatile and the probability that future prices will not match baseline projections is therefore high. Given this uncertainty, the baseline projections should be interpreted as one possible scenario that could unfold, where temporary factors (e.g. weather issues) play out over the short run and permanent factors (e.g. biofuels policies) cause structural shifts in agricultural commodity markets over the long run.
The baseline, therefore, serves as a benchmark against which alternative exogenous shocks can be tested and interpreted. In addition, the baseline serves as an early-warning system to inform role-players in the agricultural industry about the potential effects of long-term structural changes on agricultural commodity markets, such as the impact of a sharp increase in input prices or the impact of improvements in technology on the supply response.
Executive summary
The South African agricultural and agro-processing industries as a whole are currently facing a mixed bag in terms of current and future prospects. Following the severe drought of 2015 and 2016, it is clear that despite the all-time record harvests being achieved for maize and soybeans in the current season, the recovery from the drought in the summer rainfall region will take more than one season. This is especially true in the livestock sector, where herd numbers will have to be rebuilt and a recovery in pasture quality takes time. While the summer rainfall regions are at different stages of recovery, the situation in the Western Cape remains dire with major long-term impacts due to severe restrictions on the availability of water for irrigation of high-value export industries. In the informal sector, there has been a general increase in economic activity, with approximately 300 000 more households who are involved in crop farming on less than 20 hectares since 2010. This translates to an additional 75 000 hectares added in rural areas, boosting supplies into informal value chains. However, these households have also been severely affected by the drought and apart from the farmers who are linked to well-structured support programs, the recovery from the drought will take some time.
Looking ahead, one has to consider the outlook for the South African agricultural sector in the global context. The world is awash in grain and oilseed stocks. The USA, along with South America, produced above average crop volumes on the back of higher acreage, but also above average yields. This resulted in soft commodity prices, with global prices hovering near 10-year lows for most of 2015 and 2016. In South Africa, during 2016, the impact of low global soft commodity prices was negated by the combination of drought impact and a rapidly weakening and highly volatile Rand. During 2017, however, reality set in with much improved weather conditions in the summer rainfall areas along with a rapidly strengthening Rand. The result is a return to export parity levels and South Africa catching up with the global lower price cycle.
The low grain and oilseed prices create significant risk to grain and oilseed producers, but offer opportunities for the intensive livestock industries to recover. Even though yields are exceptionally good in the summer rainfall areas, grain producers are experiencing immense pressure on their cash fl ow and payment ability given the low grain and oilseed prices and the prior impact of the drought. On the other hand, the intensive livestock operations such as broilers, pigs and dairy are finally catching a breather. Following two seasons of record high grain and oilseed prices, and hence exceptionally high feed costs, feed costs have shown a significant decrease. Feedlot operations are also faced by much lower feed prices, but weaner prices have shot up due to a lack of supply in the weaner market, which has curbed potential profit margins to some extent. The good news is, however, that beef exports are growing consistently and South Africa has in the past five years become a net exporter of beef. Lamb and wool prices have also increased sharply following the aftershocks of the drought and in all of these extensive livestock industries, significant growth can be unlocked mainly by means of improved productivity, especially in the informal rural areas.
In the Western and Eastern Cape, producers of all agricultural products are holding their breath to see whether the current season will provide sufficient rain. Given the continuation of the drought in these areas, grain, livestock, fruit, vegetable and dairy producers are facing severe pressure and the risk of significant production failures. Even though most horticulture crops as well as other long terms crops showed significant growth over the past decade, it is expected that these industries will face severe pressure in the short-term due to the lack of water, but also the costs associated with water and electricity. Expectations are therefore that growth is set to slow down in these industries, at least until water availability has returned to normal.
In terms of horticultural products, the rapid expansion in industries such as blue berries, macadamias and pecan nuts is worth noting. BFAP already flagged these industries in the NDP matrix in 2011 as high-growth labour intensive industries and growth over the past five years has been phenomenal. These are highly capital intensive and export orientated commodities and for growth in these industries to continue, the investment climate will have to remain positive.
Food prices are one of the key drivers of food security in the country. The recent drought has had a major impact on the affordability of staple maize, with the cost of a single serving of maize meal increasing by 43%, while the cost of the staple food basket increased by 22%. The good news is that the rate of staple food price inflation is projected to decline by 16% on the back of the improved weather conditions and the appreciation of the exchange rate. Yet, this rate is measured from a higher base and therefore, in absolute terms, staple food prices remain high.
Regional Market Dynamics
Strategic policy response to transformation in regional agri-food systems
Africa’s rapid population growth is changing global views on Africa, from merely a supplier of raw materials to a potentially major export market for food and other consumer goods. If African producers and agro-processors are to benefit from the projected growth in food demand by its citizens, Governments need to be strategic with respect to trade, agricultural productivity growth and agro-processing development.
Will African demand influence the growth in global agricultural commodity markets over the next ten years?
International perspectives on Africa are changing. At the turn of the century, Africa’s natural resource base was a source of raw material inputs for the global food system. Today the combined effect of a projected slowdown in China’s growth rates and Africa’s relatively young and growing population, is changing Western perspectives on Africa. Over the next 10 years, the U.S.A. and EU expect rising African demand for high-valued food commodities, making Africa an important output market for surplus agricultural commodities.
Over the next 85 years, Africa’s population is expected to grow from 13% to 35% of global population, more than doubling between 2015 and 2050. Given this rapid growth, major concerns exist over whether adequate supplies can be sourced through local production to meet this growing demand. Projections by the OECD and FAO of Africa’s consumption and production of high-valued and cereal commodities over the period 2016-2026 indicate that an increasing share of the region’s growing demand for food products will be met by imports. For example; exports of dairy products to Africa are expected to increase rapidly over the next 10 years, with African markets accounting for more than 20% of the growth in global dairy imports by 2026 relative to the 2014- 2016 base period (OECD-FAO, 2017).
World import demand for poultry meat is expected to rise, reaching 14 million tons by 2026. Key growth markets for poultry imports include Asia, sub-Saharan African and the Middle-East.
Is Africa moving towards integrated agricultural food markets?
As African consumers become contenders in global food markets, African leaders are attempting to move the continent towards self-sufficiency. The Malabo Declaration adopted at the African Union (AU) includes an ambitious and promising recommitment “to fast-track the establishment of the continental free trade area (CFTA), and the action plan for boosting intra-African Trade (BAIT)” (AU 2014). The intended aim is to triple intra-African trade by encouraging transparent and regulated policies that strengthen existing trade partnerships, foster long-term investment, and ensure continental food security.
As a first step to facilitating regional integration, the level of applied duties on food imports faced by African exporters are relatively low and declining over time. Over the past 11 years the average ad valorem equivalent (AVE) tariff rate on food products faced by African exporters fell by 3.2%. Across the 19 food product categories traded intra-regionally, Vegetable & Roots (HS 07) and Cereals (HS 10) were the only two categories that experienced an increase in the applied import duties between 2005 and 2016.
The actual realization of intra-regional trade is the growing share of total food imports supplied to SSA by Sub-Saharan African (SSA) exporters. To date, though imports from non-Sub-Saharan African (SSA) markets still dominate, the share of SSA imports coming from other SSA countries has risen; averaging an annual growth rate of 12% over the past fifteen years.
The commodities accounting for the rapid growth are high-value products (HVP’s) with some degree of processing. In 2015, of the USD 8.09 billion in intra-regional trade of food products, cereals were the second largest product traded, accounting for 11% of the total imports. However, over the past 15 years, trade in vegetables, fish, and meat (fresh, semi-processed and processed) realized average annual growth rates above 13% compared to cereals, which grew by 10.4% per annum.
» Download: BFAP Baseline: Agricultural Outlook 2017-2026 (PDF, 7.16 MB)
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Illicit financial flows and political institutions in Kenya
The conventional Neoclassical literature views illicit financial flows (capital flight) to be a result of portfolio choice decisions by utility optimizing agents. These flows are seen as a response to changes in an individual’s portfolio bundle arising from the standard risk diversification motive by economic agents due to relative risk incentives and return differentials.
This paper explores a political economy perspective as an alternative explanation to the illicit financial outflows for one African country, Kenya. The authors ask two specific questions: Why has Kenya continued to be characterized by corruption and debt fueled capital outflows, although these stifled its economic development. Are these outflows a result of weaknesses in political institutions that do not constrain the powers of the Executive?
Using unique institutional indices on Kenya, we find evidence that increased arbitrary executive powers are positively associated with illicit financial outflows. That is, in the Kenyan context, prevailing weaknesses in the political institutions do matter for illicit financial flows (rent extraction). This finding is robust to the constraints on the executive from Polity IV Indicators as an alternative indicator of institutions.
Introduction
Many African economies face tremendous development challenges, which are often aggravated by illicit financial outflows. The drivers of these outflows have been intensely debated in the literature. The typical explanation from the neoclassical economics tradition (henceforth, the conventional economic wisdom) equates these flows to capital flight. It purports that they result from rational reallocation of capital from developing countries in response to the favorable risk–return investment opportunities in the developed world and investors’ desire for portfolio diversification. In this context, the risk-adjusted returns on assets abroad are believed to be higher than those in developing countries. The level of investment risk is believed to be high in developing countries, in part, because of macroeconomic policy distortions, such as overvalued exchange rates, huge fiscal deficits, unfair taxation of capital gains, and interest rate controls under financially repressed markets.
However, recent developments in this field have questioned the conventional wisdom that portfolio motives are the primary drivers of capital flight from developing countries. The political economy literature and the new institutional economics literature suggest that the problem may result from corruption and rent seeking from unconstrained leaders and officials, in a context of extractive political institutions.
This paper explores the political economy view as an alternative explanation to the illicit financial outflows for one African country, Kenya. It aims to specifically answer two related questions: Why has Kenya continued to be characterized by corruption and debt-fueled capital outflows, even though these conditions stifle its economic development? Are these outflows a result of weaknesses in political institutions that leave the Executive unchecked? These questions remain very pertinent not only for Kenya but for other developing countries that are faced with the development challenge of debt-fueled, illicit capital outflows. To this end, this study assesses empirically the role of arbitrary powers of the Executive as a proxy for the influence of weak political institutions on illicit financial outflows. The evidence from this exercise supports the view that the extent of arbitrary executive powers is positively associated with illicit financial outflows. Thus weaknesses in political institutions matter for illicit financial flows (rent extraction) from Kenya. As robustness checks, this research uses constraints on the Executive from Polity IV Indicators as an alternative indicator of institutions. Using these alternative indicators, the study finds a strong support that constraining the Executive’s powers is likely to reduce the magnitude of illicit financial flows from Kenya.
Kenya becomes a particularly interesting ground on which to test the influence of political institutions on illicit capital outflows for a number of reasons. First, for the past four decades of the post-independence period, the country has faced high corruption levels and rent seeking sustained by an entrenched system of political patronage. There is also evidence of several incidences of reported grand corruption scandals involving the transfer of illicit money by the ruling political elites from the late 1970s to the early 21st century. Second, corruption and the illicit capital outflows from Kenya have been a cause for a concern for a number of ordinary Kenyans who remain poor, despite increasing debt acquired in their names by the ruling political elites. Illicit capital outflows and corruption are claimed to have depleted the already meager public resources, led to suboptimal investment and rising debt levels, and undermined tax moral accountability between citizens and the State. They have also added to the growing horizontal inequality within the country. Finally, testing the political economy channel for illicit financial flows is particularly suited for Kenya because of the existence of a unique and novel data set on institutional indices constructed by Letete (2015).
A similar data set is currently being developed for Nigeria. This implies that, in a future companion and comparative study, we will be able to test the political economy hypothesis for Africa’s major oil producer and major culprit for illicit financial flows. Given that illicit financial flows in Africa have been more pronounced in resource-rich countries, such a study would allow us to analyze whether the role of institutions are different in a resource-rich country compared to a resource-poor country. The present paper is therefore a first step towards this comparative study. In this regard, Kenya is interesting because it is the resource-poor (minerals and fuels) African country that exhibits the largest stock of capital flight. During the past four decades, it is estimated that the country lost over US$10.6 billion in accumulated illicit financial flows, a figure that exceeds the country’s stock of debt, which amounts to US$8.4 billion.
Emmanuel Letete is attached to the Department of Economics at the National University of Lesotho, while Mare Sarr is from the School of Economics at the University of Cape Town.
This paper is the product of the Vice-Presidency for Economic Governance and Knowledge Management. It is part of a larger effort by the African Development Bank to promote knowledge and learning, share ideas, provide open access to its research, and make a contribution to development policy.
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UN migration agency supports COMESA to host Regional Consultative Process for member states
IOM, the UN Migration Agency, and the Common Market for Eastern and Southern Africa (COMESA) Secretariat last week jointly organized the first Regional Consultative Process (RCP) meeting for COMESA Member States, Migration Dialogue COMESA (MIDCOM).
In an era of unprecedented human mobility, there is global recognition of the need for migration governance as reflected within the framework of the UN General Assembly and the proposed Global Compact on Migration.
COMESA recognizes the great importance of migration in the context of free trade, noting that for regional integration to be fully realized, citizens of its member states must be allowed to move freely to provide and enhance services, tourism, labour and cultural activities, among other aspects of the COMESA integration agenda.
The meeting – Enhancing Regional Cooperation and Mobility through Effective Governance Mechanisms, Data and Dialogue – represents an important step to join other regions with established RCPs in Africa, such as the Economic Community of West African States (ECOWAS), the Migration Dialogue for Southern Africa (MIDSA), the Migration Dialogue for West Africa (MIDWA) and the Intergovernmental Authority on Development (IGAD), which were established to provide a platform for dialogue on migration governance in a comprehensive and effective manner.
The MIDCOM dialogue serves to facilitate information exchange, cooperation among states and ultimately establish a regional and holistic approach for addressing migration. The MIDCOM also provides a forum for Member States to engage in non-binding dialogue.
Speaking at the same event, COMESA Assistant Secretary General Ambassador Dr. Kipyego Cheluget emphasized that there is urgent need to encourage more cooperation and less border controls to facilitate free movement of bona fide persons within the COMESA regions. He appealed to COMESA member states to ensure that the RCP is an annual event and called upon the member states to promote the speedy signature and ratification of the Free Movement Protocol.
“Migration is part and parcel of human development and COMESA will not achieve regional integration without free movement of people. We must therefore generate information to allay fears on migration and promote the positive contribution of migrants so that our people can appreciate that co-existing in our countries is fundamental in what we want to achieve in terms of sustainable development,” said Zambia’s Minister of Home Affair, Hon. Stephen Kampyongo (MP).
“IOM supports over 15 of such RCPs globally including all Regional Dialogues and RCPs in Africa, and COMESA will not be a exception,” added Charles Kwenin, IOM’s Regional Director for Southern Africa. Kwenin further stated that IOM has provided support to 11 COMESA member states to develop Migration Profiles, which serve to provide a comprehensive overview of migratory dynamic and realities and can provide the necessary information to inform evidence based policing.
The MIDCOM meeting in July 2017 was preceded by the 10th Meeting of the COMESA Chief of Immigration Officers. During the latter meeting, progress was made towards ratification of COMESA’s Protocol on the Free Movement of Persons, Labour, Services, Right of Establishment and Residence (otherwise known as the Free Movement Protocol).
During this event, a flagship training and awareness-raising programme was held for COMESA member states. It was funded by the IOM Development Fund, for the Governments of Zambia and Zimbabwe. The launch of the training, held on 27 July, included provision of awareness-raising materials on COMESA Protocol, and training tools on Free Movement of Persons in the Common Market for Eastern and Southern Africa.
Investing in modern technologies will address the fear of free movement
The full integration of the economies of Eastern and Southern Africa will be realized if it is accompanied by the free movement of people in the region.
According to the Minster for Home Affairs of Zambia Hon. Stephen Kampyongo, the fear of migrants was holding back the gains of social and economic integration that come through free movement of people.
Speaking during the Regional Consultative Process (RCP) meeting for COMESA Member States; Migration Dialogue for COMESA Member States (MIDCOM) on Friday July 28, 2017, the Minister said inherent security fears such as transnational crimes can be managed by investing in security institutions based on research and empirical evidence.
“We have in the world today adequate knowledge and technologies to manage migration without undermining our security and safety of migrants,” the Minister said noting that free movement of goods, capital and services have moved far ahead of the free movement of people owing to uncertainty in the minds of ordinary people and in the planning of governments.
He said that countries will overcome their fear of migrants if they learn the dynamics of migration.
“People move to places where they perceive and realize improvements in their lives. Migrants are therefore people determined to work and succeed. Contrary to popular beliefs and opinions, migrants give more to the host communities than they receive.
Noting that migrants take up whatever work they can find unlike members of the host communities, the Minister said they help their host economies expand and grow. Minister Kampyongo urged COMESA countries to put more resources in collecting and analyzing data on migration to counter anti-migration attitude.
The MIDCOM meeting took place at the COMESA Secretariat in Lusaka and was attended by delegates from COMESA Member States, diplomatic corps and development partners. It was organized by COMESA and the International Organization for Migration (IOM).
In his address, Mr. Charles Kwenin, the IOM Regional Director for Southern Africa said the regional consultative forums have provide platforms for common understanding and policy coherence. They play a vital role in shaping migration management and governance priorities among countries within a regional block and within the regional integration process.
“IOM has provided support to at least eleven COMESA Member States to develop Migration Profiles, which serve to provide a comprehensive overview of the migratory dynamic and realities and can provide the necessary information to inform evidence based policy making,” Mr Kwenin said.
Assistant Secretary General of COMESA Dr Kipyego Cheluget called upon Member States to sign and ratify the Protocol on Free Movement of Persons, Services, Labour and Right of Establishment.
“Without ratifying the Protocols on Free Movement and implementation of Council Decision, there really is not free movement of people or process to talk about,” Ambassador Cheluget said.
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Protectionism threat to global trade: BRICS
Trade ministers from the BRICS (Brazil, Russia, India, China and South Africa) discussed trade facilitation, economic and technological cooperation, and the multilateral trade system at a two-day annual meeting that began on Tuesday in Shanghai.
The BRICS ministers are looking at boosting cooperation of the bloc within the WTO and preparing for the 11th Ministerial Conference in December.
On Tuesday, Chinese Minister of Commerce Zhong Shan warned against trade favouritism.
“Safeguarding the multilateral trade system and rising against protectionism serve the common interests of emerging and developing economies,” Zhong said.
The zeal of protectionism pushed forth by Donald Trump’s electoral win has been a much-discussed topic at global economic summits including the G20 earlier this year.
“There will be no return to a world before globalization,” German Chancellor Angela Merkel said earlier this year, adding: “Isolation, new nationalism and protectionism will not help us in this.”
There is growing fear that the Trump administration will undo much of the cooperation frameworks on trade and sustainable energy in place between G20 nations.
Tensions are rising over Trump’s plan to use a Cold War-era law to restrict steel imports for national security reasons.
Trump launched an investigation into the matter in April, in a move that diplomats and trade experts say risks undermining the global rules-based trading system and sparking retaliatory action around the world in products beyond steel.
Meanwhile, in Shanghai, the BRICS trade ministers meeting focused on the issues of the electronic commerce, investments simplification and trade in services, according to the Chinese Commerce Minister.
China, which took over the BRICS presidency this year, will host the Ninth BRICS Summit in September in Xiamen, southeast China’s Fujian Province.
7th Meeting of BRICS Trade Ministers: Outcomes
The 7th Meeting of BRICS Trade Ministers was held in Shanghai from 1-2 August. A six-member Indian delegation led by Commerce and Industry Minister Smt. Nirmala Sitharaman, along with Ambassador J.S. Deepak, PR to WTO participated in the meetings. Mr. Zhong Shan, Minister of Commerce from China, presided over the meetings.
The other delegations were represented by Mr. Rob Davies, Minister of Trade and Industry (South Africa), Mr. Marcelo Maia Tavares de Araujo, Secretary of Commerce and Services of Ministry of Industry (Brazil), and Mr Maxim Oreshkin, Minister of Economic Development (Russia).
The Ministers adopted the following documents at the conclusion of the meeting:
pdf 7th BRICS Trade Ministers’ Joint Statement (143 KB)
pdf BRICS Trade in Services Cooperation Roadmap (361 KB)
pdf BRICS E-Commerce Cooperation Initiative (137 KB)
pdf BRICS IPR Cooperation Guidelines (274 KB)
pdf Framework on strengthening the Economic and Technical Cooperation of BRICS Countries (254 KB)
pdf Terms of Reference (ToR) of BRICS Model E-Port Network (270 KB)
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tralac’s Daily News Selection
Dangote Cement achieves massive revenue increase across Nigeria, other African countries (Premium Times)
Dangote Cement, Africa’s largest cement producer, has announced its unaudited results for the six months ended June 30, posting a 12.6 per cent increase in sales volume across Africa. Revenues from operations in Nigeria increased by 34.5%, to ₦291.4bn, while pan-Africa revenue increased by 63.7% - to ₦124.4bn, from ₦76bn - mainly as a result of increased volumes and foreign exchange gains when converting the sales from country local currency into Naira. Analysis of the half year result revealed that sales volumes of African operations increased by 12.6% to 4.7 million metric tons with Sierra Leone making a 53 kilo ton maiden contribution. Record of sales from its operations scattered around the African continent revealed that a total of 1.1 million ‘metric tons of cement was sold in Ethiopia, almost 0.7 million metric tons sold in Senegal, 0.6 million metric tons sold in Cameroon, and 0.5 million tons in Ghana. Also, 0.4 million metric tons of cement was sold in Tanzania and 0.3 million tons in Zambia.
FG begs Dangote to complete refinery before 2019 to end fuel importation (Premium Times)
In his welcome address, Dangote explained that his group is building the world’s largest single line refinery, petrochemical complex and the world’s second largest urea fertiliser plant. The refinery will have the capacity to refine 650,000 barrels of crude oil per day. The petrochemical plant will produce 780 KTPA Polypropylene, 500 KTPA of Polyethylene, while the fertiliser project will produce 3.0 million metric tonnes per annum of Urea. “We will also save over $7.5bn for Nigeria annually through import substitution and generate an additional $5.5bn per annum through exports of the refined petroleum products, fertilizer and petro chemicals. We envisage that these projects, which would cost over $18bn, would be completed in 2019.” [Uddin Ifeanyi: If agriculture is to supplant crude oil as the economy’s engine]
Nigeria: States to be ranked on attractiveness to investors (BusinessDay)
The World Bank Ease of Doing Business ranking of Nigerian states, due by the first half of 2018 could make or mar the states’ investment appeal, amid a tussle to attract private capital to complement dwindling federal cash hand-outs. The drag on government revenue caused by low oil prices has had a knock-on effect on the states, most of which have gorged on allocations from the federal purse. Workers’ salaries have gone unpaid, while actual capital expenditure has plummeted. The sub-national rankings will be undertaken by the World Bank Group, with the Enabling Business Environment Secretariat and the Nigerian Investment Promotion Council providing support to the state governments as they implement their priority reforms. The eleven indicator areas to be ranked include four World Bank indicators and seven additional areas of interest that are governed or implemented by state governments. The 2018 Nigerian sub-national rankings will be the fourth in the series, following similar efforts by the World Bank in 2008, 2010, and 2014.
Nigeria’s Dr Okechukwu Enelamah elected MC11 WTO Vice Chairperson for Africa (Premium Times)
The Minister of Industry, Trade and Investment, Okechukwu Enelamah, has been elected Vice-Chairperson (Africa) for the 11th WTO Ministerial Conference. “At a General Council meeting on 26 July, WTO members elected three officials to serve as Vice Chairs for the WTO’s 11th Ministerial Conference in Buenos Aires. The officials are: Dr Okechukwu Enelamah, Minister of Industry, Trade and Investment (Nigeria); Mr Todd McClay, Minister of Trade (New Zealand); Mr Edward Yau, Secretary for Commerce and Economic Development (Hong Kong, China).
Why the quest for a single currency for West Africa won’t materialise soon (The Conversation)
In the current circumstances, the necessity of a single currency is untenable if trade is the main motivation, except the regional commission is hoping West Africa will trade more with itself or attract more investors after the launch. But that will not happen overnight. Even the Francophone countries which have used CFA Franc as their common currency since 1945 record less than 16% of intra-union trade. [The author, Tahiru Azaaviele Liedong, is Assistant Professor of Strategy, University of Bath]
Aubrey Hruby, Lexi Novitske: Africa’s big opportunity lies in data (CNBC Africa)
African markets – from Nigeria to Tanzania, Mali to Kenya – are simultaneously rich and poor in data. Their economies remain highly informal, and, although billions of data points are created on the continent every day as billions of cash transactions are made, only a miniscule amount is recorded in any way. Without records that can be sorted and mined in meaningful ways that would allow for lending and borrowing, African markets such as Lusaka City Market and Abidjan’s Adjame neighborhood remain teeming pools of information that immediately disappears after transactions are made. In informal cash-based systems, data from vendor sales is rarely translated into an accessible and manipulatable format, rendering it effectively useless. Even in formalised and regulated African sectors, like banking and telecoms, where some aggregated data does exist on customers, it is owned by the individual companies and usually inaccessible to businesses seeking growth. A new generation of entrepreneurs across Africa, however, are forging a path through the data desert and aiming to make it green by collecting, analysing, and monetizing data.
USTR 2017 national trade estimate report on foreign trade barriers: US-South Africa (USTR)
Extract from the South Africa chapter (pdf): US exports face a disadvantage compared to EU goods in South Africa. The European Union-South African Trade and Development Cooperation Agreement of 1999 covers a significant amount of SA-EU trade. South Africa’s tariffs applied to imports from the EU on TDCA-covered tariff lines average 4.5% based on an unweighted average, while the MFN duty rate, which imports from the United States face, averages 18.4% for the same TDCA-covered lines. Final phase-in of the EU tariff preferences under the TDCA became effective in 2012. Key categories in which US firms face a tariff disadvantage include cosmetics, plastics, textiles, trucks, and agricultural products and machinery. The EU-SADC EPA will further erode US export competitiveness in South Africa and the region due to the greater disparities in tariff levels that US exports will face under the EPA compared to the TDCA. The US has raised concerns about the tariff disparity in bilateral discussions with South Africa, noting the unilateral benefits the US offers South African imports under the African Growth and Opportunity Act. South African authorities have emphasized that the only way to address this imbalance is through a free trade agreement.
South Africa: (i) International Cooperation, Trade and Security cluster briefing (GCIS), (ii) ANC statement following the NEC Lekgotla
Lesotho: Budget speech for the 2017/2018 fiscal year (GoL)
As we all know, Lesotho’s manufacturing activity is dominated by textiles and apparel and the sector’s exports are predominantly destined to the United States and South Africa. In 2015/16, 70% of Lesotho-made garments were exported to the United States under AGOA, while 30% terminated in South Africa. This represents a significant shift from reliance on the US market towards our neighbour, as only ten years ago, no more than 5% of Lesotho’s apparel entered the South African market. While textiles and clothing exports to non-AGOA destinations are expected to grow, exports to the US market are set to remain under pressure due to stiff competition from Asian producers.
Without fiscal consolidation, Government runs the risk of drawing down within the next year all its deposits, and thus jeopardise the parity between Loti and the Rand. Given Lesotho’s dependence on imports, a collapse in the peg between the Loti and the Rand would lead to fiscal and trade crises. Government will intensify efforts to reduce reliance on the volatile and pro-cyclical SACU receipts and move to a situation where all the recurrent expenditures are covered by domestic revenue sources. As it is, domestic taxes only cover wages and salaries, with the balance of spending funded by less reliable revenue sources. The development component of SACU revenue and any additional revenue resulting from over-performance of the revenue pool and donor funds should be used to finance one-off infrastructure and other capital expenditures and to build and maintain sufficient reserves for financing future capital spending. Capital expenditure should be directed to projects and programmes that aim at providing the minimum infrastructure required to support rapid private investment.
The Ministry will also present to Parliament the Business Licensing and Registration Bill, the Competition Bill and Trade and Tariff Administration Bill. When passed, these bills will simplify trade licensing, reduce uncompetitive firm behaviour, and consolidate the administration of tariffs under the SACU Agreement. [Delivered on 19 July by Dr Moeketsi Majoro, Minister of Finance]
Zimbabwe: Trade deficit narrows by 5% in first half (NewsDay)
Zimbabwe’s trade deficit in the first half of the year narrowed by 5% to $1,3bn, an indication that the country continues to rely on foreign-produced goods in spite of government efforts to halt the tide, latest trade data from the national statistics agency shows. In the same period last year, the trade deficit was $1,4bn. Information released by the Zimbabwe National Statistics Agency yesterday showed that imports to June amounted to $2,6bn against $1,3bn exports, which remain heavily skewed towards consumptive products. In the same period last year, the country’s imports were $2,5bn against exports of $1,1bn. Most of the imports in the first half of 2017 were consumptive products such as rice, bottled water, sugar, soap, mobile phone handsets, electronics, vehicle spares, vehicles, generators and second-hand vehicles.
South Africa offers cheaper frozen beef to Indonesia (Jakarta Post)
South Africa has offered frozen beef to Indonesia at prices that are roughly half of the current retail prices, Trade Minister Enggartiasto Lukita has said. The minister said his ministry would, in assessing the offer, refer to regulations set in the 2014 Animal Health and Husbandry Law, hygiene standards set by the Agriculture Ministry and halal standards set by the Indonesian Ulema Council. “South Africa has seriously asked us for a chance to export its beef. So far, most of our beef imports come from Australia. We have also imported meat from India, Mexico and Chili,” he told reporters on Monday. “We don’t mind getting the beef from South Africa as long as it meets the country’s standards.”
Tanzania: Govt now turns to AfDB to fund standard gauge railway project (IPPMedia)
Speaking in Dar es Salaam yesterday after meeting deputy minister of finance and planning Dr Ashatu Kijaji, AfDB’s executive director representing the East African region, Dr Weggoro Nyamajeje, pledged to work hand-in-hand with Tanzania on the landmark project by providing a soft loan. Nyamajeje said this was because the continental bank is satisfied with the work done by the fifth phase government led by President John Magufuli. He noted that the central railway line is important for the economies of not only Tanzania, but the entire Great Lakes region as it links countries like Rwanda, Burundi, Uganda and the DRC, and thereafter be connected with the northern railway on the Kenyan side.
Kenya: RVR finally loses its 25 year railway contract (Business Daily)
Kenya Railways has finally terminated Rift Valley Railways’ 25-year contract to run the Kenya-Uganda railway after the State corporation failed to resolve long-standing business disputes with the concessionaire. Kenya Railways managing director Atanas Maina and his RVR counterpart, Isaiah Okoth, Monday agreed that RVR will hand back operations, employees and assets of the 100-year-old railway to the agency within 30 days. The deal was sealed at the High Court, where RVR had in January rushed to contest Kenya Railways’ impending termination of the contract.
Kenya: Diaspora remittances hit a new monthly record (Business Daily)
Monthly data released by the Central Bank of Kenya showed that diaspora remittances reached $161.50 million (Sh16.78 billion) in May, a growth of 10.04% compared to $146.76 million (Sh15.25 billion) the same month last year. Month-on-month, the rise is 16.5% compared to $138.60 million (Sh14.40 billion) the previous month the CBK, which tracks inflows from formal channels, reported. “The May 2017 improvement reflects higher inflows from North America and Europe,” the CBK said in a remittances report (pdf).
Compilation of seven fisheries subsidies proposals circulated to WTO members (WTO)
As requested by members behind seven fisheries subsidies proposals, the chair of the WTO Negotiating Group on Rules (NGR), Ambassador Wayne McCook (Jamaica), circulated to WTO members on 28 July a document compiling these submissions in the form of a matrix. The compilation is intended to help WTO members prepare over the summer for intensive negotiations in September. The compilation matrix reflects seven textual proposals from: [Downloads available]
Iron Ore Market Report 2017 (UNCTAD)
The iron ore industry saw a marked improvement last year after the slower growth, lower prices and squeezed profit margins suffered in 2015, according to the new UNCTAD Iron Ore Market Report. The report shows the key indicators of demand and supply, seaborne trade and price, all made gains through the year and says the market outlook is steady. Although Chinese consumption remained relatively low, and prices did not improve for much of 2016, the market started to improve late in the year, with prices exceeding US$80/dry metric ton (dmt) in December 2016. Global iron ore production grew 5% year-on-year in 2016, according to the report, hitting a total of 2,106 million tons. This was primarily driven by an additional 30 Mt of direct shipping ore from Australia, which was the major source of new fine-products entering the Chinese market.
Mobile broadband subscriptions on track to hit 4.3 billion in 2017 (ITU)
New data from the International Telecommunication Union also show that 48% of the world’s population now uses the Internet. The proportion is 71% for the group of young people aged 15-24. Of the 830 million young people online worldwide, 320 million, or 39%, are in China and India, the report finds.
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Mobile broadband subscriptions on track to hit 4.3 billion in 2017 – UN report
Mobile broadband subscriptions are expected to reach 4.3 billion globally by the end of 2017, according to a new report released by the United Nations telecommunications agency.
New data from the International Telecommunication Union (ITU) also show that 48 per cent of the world’s population now uses the Internet. The proportion is 71 per cent for the group of young people aged 15-24.
“ITU’s ICT Facts and Figures 2017 shows that great strides are being made in expanding Internet access through the increased availability of broadband networks,” said ITU Secretary-General Houlin Zhao.
“Digital connectivity plays a critical role in bettering lives, as it opens the door to unprecedented knowledge, employment and financial opportunities for billions of people worldwide,” he added.
Of the 830 million young people online worldwide, 320 million, or 39 per cent, are in China and India, the report finds.
Youth at forefront of Internet adoption
In the least developed countries (LDCs), 35 per cent of the individuals using the Internet are young people aged 15-24, compared with 13 per cent in developed countries and 23 per cent globally.
In developed countries, 94 per cent of the youth population uses the Internet, while the proportion is 67 per cent in developing countries and only 30 per cent in LCDs.
The report also reveals that mobile broadband subscriptions have grown more than 20 per cent globally in each of the last five years.
Between 2012 and 2017, the LDCs saw the highest growth-rate of mobile broadband subscriptions. However, the number of mobile subscriptions per 100 inhabitants in these countries remained the lowest, at 23 per cent.
The number of fixed-broadband subscriptions has increased by nine per cent annually in the last five years.
There has been an increase in high-speed fixed broadband subscriptions parallel to the growth in the number of fibre connections. Most of the increase in high-speed fixed broadband subscriptions in developing countries can be attributed to China, which accounts for 80 per cent of all fixed-broadband subscriptions at 10 Mbit/s or above in the developing world.
Mobile broadband prices, as a percentage of gross national income per capita, dropped by half between 2013 and 2016.
Mobile broadband is more affordable than fixed broadband in most developing countries.
Digital gender divide
While the Internet user gender gap has narrowed in most regions since 2013, the proportion of men using the Internet remains slightly higher than the proportion of women using the Internet in two-thirds of countries worldwide.
In 2017, the global Internet penetration rate for men stands at 50.9 per cent compared to 44.9 percent for women.
In the Americas, the number of women using the Internet is higher than that of men.
ICTs for sustainable development
The report demonstrates that ICTs continue to play an increasingly critical role in achieving the global Sustainable Development Goals (SDGs).
“ICTs continue to be a key enabler of economic and social development, bridging the digital divide and fostering an inclusive digital economy,” ITU Telecommunication Development Bureau Director Brahima Sanou.
The World Telecommunication Development Conference 2017 will take place 9 to 20 October in Buenos Aires, Argentina, under the theme ‘ICT for Sustainable Development Goals’.
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Compilation of seven fisheries subsidies proposals circulated to WTO members
As requested by members behind seven fisheries subsidies proposals, the chair of the WTO Negotiating Group on Rules (NGR), Ambassador Wayne McCook (Jamaica), circulated to WTO members on 28 July a document compiling these submissions in the form of a matrix. The compilation is intended to help WTO members prepare over the summer for intensive negotiations in September.
The compilation matrix reflects seven textual proposals: from New Zealand, Iceland and Pakistan; the European Union; Indonesia; the African, Caribbean, Pacific (ACP) Group of States; a Latin American group composed of Argentina, Colombia, Costa Rica, Panama, Peru and Uruguay; the Least-Developed Countries (LDC) Group; and Norway. All seven proposals are aimed at reaching a decision by December at the 11th Ministerial Conference in Buenos Aires.
Earlier, at the 18 July meeting of the NGR, WTO members had assented to the preparation of this document. The chair had said that the proponents had asked him, with the help of the WTO Secretariat, to prepare the compilation matrix on their behalf. He emphasized that this will not be a chair’s proposed text, but a simple compilation of members’ proposals with nothing added or subtracted.
The chair said this document, with its side-by-side presentation of the various proposals, should help members as they prepare to consult with their capitals over the summer. The next cluster of meetings will be scheduled in September.
Fisheries subsidies talks move forward with seven proposals
WTO members on 18 July agreed to move to the next phase of negotiations on fisheries subsidies after a surge of new and revised proposals aimed at reaching a decision by December at the Ministerial Conference were submitted. Members assented to the preparation of a document compiling the proposals in the form of a matrix, which is intended to help members firm up positions over the summer ahead of intensive September negotiations.
“Thanks to the surge in effort, we are now in a position where we have all the promised textual proposals delivered,” the chair of the Negotiating Group on Rules, Ambassador Wayne McCook (Jamaica), said at the close of a cluster of informal meetings held on 13, 17 and 18 July.
At the 13 July meeting, revised submissions from the European Union and Indonesia were introduced, as was a new proposal from Norway. After that meeting, the African, Caribbean, Pacific (ACP) Group of States and the Least Developed Countries (LDC) Group submitted new textual proposals, and a group of six Latin American countries submitted a revised text. The Latin American group is composed of Argentina, Colombia, Costa Rica, Panama, Peru and Uruguay. All six of the new and revised proposals were discussed at the 17-18 July meeting. Along with a previously-discussed joint submission by New Zealand, Iceland and Pakistan, these make for a total of seven textual proposals on fisheries subsidies.
All seven proposals will be reflected in the compilation matrix which, the chair clarified, the proponents had asked him, with the help of the WTO Secretariat, to prepare on their behalf. He emphasized that this will not be a chair’s proposed text, but a simple compilation of members’ proposals with nothing added or subtracted. The chair said this document, with its side-by-side presentation of the various proposals, should help members as they prepare to consult with their capitals over the summer. The next cluster of meetings will be scheduled in September.
“We are now at the phase of our work where time is valuable,” the chair said. “Certainly when we come back, it will not be a time for generalities.”
A number of members reiterated calls – reflected in all of the proposals – for a fisheries subsidies agreement to be reached at the 11th Ministerial Conference, which will be held in December in Buenos Aires. Several members lauded, in particular, the timely inclusion of LDCs’ and ACP members’ interests in the text-based phase of the negotiations.
The chair, summarizing the meeting, said the discussions were “preliminary but useful”. In terms of prohibitions of subsidies that lead to overfishing and overcapacity, the chair said members are exploring various approaches to pinpoint such subsidies and needed to thresh out a solution.
On the issue of the geographic scope or how different parts of the seas and oceans would be covered by the disciplines, the chair said that interesting ideas have arisen and he encouraged members to continue to think these through. On another issue of scope, he remarked that there was a sense of “emerging clarity” that the agreement will be restricted to subsidies to maritime fishing and will exclude subsidies granted for aquaculture and inland fishing.
A further issue identified by the chair was what role, if any, certain determinations by national, regional, and international fishery management authorities should have in WTO rules. Special and differential treatment for developing countries and LDCs, he added, remains “a work in progress”.
The chair urged members to continue to check with their respective national fishery authorities. “It is incumbent on us to relate what we are discussing to the true realities of our own national policies and policy intents,” the chair said. “We are now in a true negotiating phase where each of us is an equal party with equal responsibility.”
Fisheries subsidies: Compilation matrix of textual proposals received to date
Introduction by the Chair
At the 18 July 2017 meeting of the Negotiating Group on Rules, I reported that the proponents collectively had requested that I produce a compilation, in the form of a matrix, of all of the textual proposals that had been received, to assist Members in analysing and comparing the proposals. As the Negotiating Group agreed with this request at that meeting, I have now prepared the attached matrix, which has been validated by the proponents.
Regarding its status, as I emphasized at the meeting the matrix is not a Chair text. It is simply a compilation, topic by topic, of the seven textual proposals now on the table. Nothing has been added to or subtracted from any of the proposals and no judgements are expressed or implied. It is meant to be a purely technical document and is without prejudice to and does not replace any of the proposals, all of which remain before the Group.
The matrix is intended as a tool, to serve a basis for topical discussions of the proposals when we reconvene in the fall. Between now and then, it is my hope that it will help Members to identify areas of greatest and least convergence among the proposals and thus assist us in sharpening our focus as we intensify our work in the lead-up to MC11.
Concerning its content, the matrix is organized into rows representing the topics and sub-topics, and columns representing the proposals. Thus for each topic or subtopic, the matrix presents a side-by-side comparison of the corresponding texts from the proposals.
Regarding the topics and subtopics, these have been derived from the proposals themselves and the aim is that each row in the matrix addresses one main idea. Thus, the breakouts are as granular as required to do this, such that similar ideas across different proposals are grouped together.
The way that the topics are broken out has meant that in some cases the text from a given proposal on a particular topic is a partial excerpt from the relevant provision in that proposal, rather than the entire provision. In addition, for the same reason, in some cases, where a particular provision in a proposal is relevant to more than one topic, it is repeated in each place where it is relevant. Because of the variation in the structures of the different proposals, some compromises were necessary in categorizing elements of certain proposals. Again, this is entirely without prejudice to the substance.
In terms of formatting, for ease of reading the formatting in the matrix is uniform. Thus, the original formatting in each proposal has been conformed to a standardized formatting that is used throughout the matrix. The only new formatting that has been introduced in the matrix is underlining of certain terms (mainly in the proposals' definitions), simply for ease of reading.
Finally, the matrix includes the following proposals:
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Proposed MC11 Fisheries Subsidies Disciplines: Implementing SDG Target 14.6 – New Zealand, Iceland, Pakistan
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Advancing toward a multilateral outcome on fisheries subsidies in the WTO (Revision) – European Union
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Proposed disciplines on prohibitions and special and differential treatment for fisheries subsidies (Revision) – Indonesia
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ACP Group text proposal: Fisheries subsidies disciplines – Guyana on behalf of the ACP Group
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Proposal for disciplines on fisheries subsidies – Argentina, Colombia, Costa Rica, Panama, Peru, Uruguay
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LDC Group fisheries subsidies text proposal – Cambodia on behalf of the LDC Group
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Discipline and prohibition on subsidies to IUU fishing – Norway
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Global imbalances: Avoiding a tragedy of the commons
The International Monetary Fund (IMF) has just released its latest assessments of external positions for the 29 largest economies.
As discussed in this year’s External Sector Report, excess current account imbalances – that is, those beyond the levels warranted by country fundamentals – were broadly unchanged in 2016. They represented about one-third of total actual surpluses and deficits, with only small shifts in 2016.
Since 2013, however, there has been a rotation of these excess imbalances toward advanced economies, posing new risks and policy challenges.
On the bright side, excess imbalances narrowed in key emerging market economies, led by a smaller excess surplus in China and smaller excess deficits in others key economies (such as Brazil, Indonesia, South Africa, and Turkey), where policies supported external adjustment as prospects of U.S. monetary policy normalization became more evident and external financing conditions tightened.
But this has been accompanied by a widening of excess imbalances in several advanced economies and the continuation of large and persistent excess surpluses in others (e.g., Germany, Korea, the Netherlands, Singapore, and Sweden), an issue that we explore in detail in the report. Our historical analysis suggests that these large and persistent surpluses, outside oil-exporting countries and financial centers, are a fairly recent phenomenon and in the few cases where they reversed, policy actions on multiple fronts played a role.
What do these developments mean for economic policy?
The current constellation of excess imbalances – especially the persistent surpluses in the same group of countries and the resurgence of deficits in key debtor economies – indicate that automatic adjustment mechanisms are weak. That is, prices and saving and investment decisions are not adjusting fast enough to correct these excess imbalances. This partly reflects rigid currency arrangements but also structural features (like inadequate social safety nets and barriers to investment) which lead to undesirable levels of saving and investment in some economies. This calls for more forceful policy action.
While the increased concentration of excess deficits in advanced economies – mainly the United States and United Kingdom – could reduce deficit-financing risks in the near term, it could pose other downside risks if unaddressed, especially over the medium term. The concentration of deficits in a few countries raises the likelihood of protectionist measures. And the continued reliance on demand from debtor countries risks derailing the global recovery, while raising the chances of a disruptive adjustment down the road.
Given these risks, addressing external imbalances in a way that is supportive of global growth is a shared responsibility. It requires a recalibration of the policy mix in deficit and surplus economies alike.
What can be done
As a general rule, excess deficit countries should move forward with fiscal consolidation, while gradually normalizing monetary policy in tandem with inflation developments. Excess surplus economies who have room in their budgets should reduce their reliance on easy monetary policy and allow for greater fiscal stimulus. Where monetary policy is constrained from playing a role, as is the case with individual euro area members, countries should look to fiscal and structural policies to facilitate relative price adjustments. Exchange rates should continue to be allowed to move in line with fundamental levels and interventions should be limited to addressing disorderly market conditions, as has been generally the case in recent years for most countries.
Moreover, countries should increasingly emphasize structural policies. Excess surplus countries should focus on lifting distortions that constrain domestic demand or limit trade competition. In excess deficit economies, policies should be directed to improving external competitiveness and overall saving, with particular emphasis given to reforms that boost education outcomes and strengthen the business climate.
Finally, our view is that protectionist policies should be avoided, as they are unlikely to meaningfully address external imbalances but they would be detrimental to both domestic and global growth.
Why we do this
Assessing countries’ external positions is a core mandate of the IMF. These assessments are an analytical tool to determine on a multilaterally-consistent basis the difficult – and often contentious – issue of when external imbalances are appropriate or when they signal risks. In fact, imbalances are often healthy and desirable – developing economies, who need to invest to catch up with living standards elsewhere, should generally run deficits, while others that are aging quickly, like Japan and Germany, need to run surpluses to meet related obligations in the future. Our focus, therefore, is on identifying the undesirable portion and on discussing policies to address them.
The exercise is meant to avoid a tragedy of commons, where countries acting independently and in their own self-interest undermine the common good of supporting global growth and stability.
2017 External Sector Report Individual Economy Assessments: South Africa
Foreign asset and liability position and trajectory
Background. South Africa’s economy is highly integrated in international financial markets, with large external assets and liabilities. Although valuation effects led to a marked improvement of the net international investment position (NIIP) in 2015 (from -8 percent of GDP at end-2014 to 16 percent of GDP one year later), this has since moderated, with the NIIP at 3.6 percent of GDP as of end-2016. The IIP is expected to weaken further over the medium term on account of current account deficits.1 External assets and liabilities were equivalent to 131 and 128 percent of GDP, respectively. For FDI (usually considered harder to liquidate), liabilities were lower than assets (43 and 55 percent of GDP, respectively), owing to valuation gains on FDI assets in China. Gross external debt rose to 48.5 percent of GDP at end- 2016 from 26 percent of GDP at end-2008 on the back of an increase in long-term debt. Short-term external debt (residual maturity) amounted to 15½ percent of GDP.
Assessment. Large gross external liabilities pose risks. Mitigating factors include the large external asset position and the sizable rand-denominated share of external debt (about half of total external debt).
Current account
Background. The current account (CA) deficit narrowed to 3.3 percent of GDP in 2016 from 4.4 percent in 2015, owing to an improvement in the trade balance as domestic demand growth weakened. The CA deficit is projected to further narrow to 3 percent of GDP in 2017 as the trade balance strengthens.
Assessment. The CA regression model estimates a CA norm of -0.7 percent of GDP, implying a CA gap of -2.4 percent of GDP for 2016. The CA gap is largely explained by structural factors not captured by the model. The ES approach estimates an NFA-stabilizing CA of -1.3 percent of GDP and a CA gap of -2.2 percent of GDP. Staff assesses the overall CA gap to be somewhat narrower, because (i) policy uncertainty is expected to unwind after key elections and (ii) net transfers to other members of the Southern African Customs Union (SACU) (not accounted for in the regression analysis) reduce the CA balance. Combined with estimation uncertainty, staff assesses the cyclically adjusted CA to be ½-2½ percentage points of GDP weaker than implied by fundamentals and medium-term desirable policy settings – broadly as assessed in 2015.
Real exchange rate
Background. The CPI-REER depreciated by 7 percent on average in 2016 relative to 2015. However, as of May 2017, the REER had appreciated 15 percent relative to the 2016 average.
Assessment. The REER is assessed through two REER-based regressions and by computing the implied REER gap from the CA gaps. Based on the 2016 REER-average, the REER approaches point to undervaluation of between 12.6 percent (level approach) and 28.8 percent (index approach). However, as gauging the appropriate REER for South Africa is challenging, owing to its structural changes since 1994, staff’s assessment puts much greater weight on the CA approaches, while acknowledging the results of the REER approaches. For the CA approaches, the estimated CA/REER elasticity applied to the CA gap range above points to overvaluation of between 2 and 9 percent.3 Combining all these methods, staff assesses a REER overvaluation of 0-10 percent for 2016, broadly consistent with the CA gap.4
Capital and financial accounts: flows and policy measures
Background. Net FDI flows were less negative at -0.4 percent of GDP in 2016, down from -1.3 percent of GDP in 2015. Portfolio investment picked up markedly to 5.9 percent of GDP, financing the CA deficit. Gross external financing needs stood at 18 percent of GDP in 2016.
Assessment. High reliance on non-FDI flows and high nonresident holdings of local financial assets pose risks. These are mitigated by a floating exchange rate, the fact that nonresident portfolio holdings are mainly denominated in local currency, and a large domestic institutional investor base
Overall assessment
The external position in 2016 was moderately weaker than implied by fundamentals and desirable policy settings.
In 2016, the current account gap remained broadly unchanged and South Africa remains highly reliant on non-FDI flows to finance its relatively high CA deficit. Despite the REER depreciation of recent years, structural rigidities result in a relatively slow pace of CA adjustment as well as a somewhat narrower estimated CA deficit norm than would be expected for an emerging economy.
Potential Policy Responses
Several measures would help to reduce the gap related to the external position by speeding up the pace of external adjustment, improving competitiveness, and increasing employment and savings. These measures include fostering entry into key product markets (such as power generation, transportation, and telecommunications); upgrades in infrastructure and education/skills; and greater financial inclusion. Reducing policy uncertainty, preserving government debt sustainability, and accelerating labor and product market reforms are also essential to continue to attract foreign inflows, especially durable inflows such as FDI. Seizing opportunities – such as large FDI inflow transactions – to build up reserves would strengthen the country’s ability to deal with FX liquidity shocks.
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Lesotho Budget Speech 2017-18
“Pursuing fiscal sustainability within the context of political instability and insecurity”
Delivered to Parliament by Honourable Dr. Moeketsi Majoro, Minister of Finance, in Maseru, Lesotho on 19 July 2017
Today, as I present the policy and financial proposals for the 2017/18 Fiscal Year, I wish to register from the outset that these are formulated under very challenging global, regional and local environments. Countries are facing contracting economic conditions with painful impacts on jobs, especially for the youth. Closer home, mounting insecurity, political instability and the deterioration in the rule of law have dampened the prospects for our economy and unless these are reversed quickly, economic recovery is likely to be protracted.
This is a transition budget in which Government has not, for legal reasons, not had adequate time to ensure that all the feasible campaign policies are incorporated. That task will be for next fiscal year.
Global economic performance and prospects
Let me provide highlights of economic developments and prospects on the global and regional front, and their impact on our domestic economy. The slow and uneven global and regional recovery continues to have negative effects on Lesotho’s export potential. Persistent economic slowdown in South Africa is impacting negatively on the employment of Basotho mineworkers, our exports and the stability of SACU revenues. We look forward to the expected recovery in South Africa of 0.8 percent in 2017 and 1.6 percent in 2018, owing to the improvements in the mining and agricultural sectors.
Further afield, economic activity gained momentum in the second half of 2016 due to recovery in global manufacturing which had weakened severely in 2015. The cyclical recovery in manufacturing and trade together with buoyancy in global financial markets, is expected to lead to global growth of 3.5 percent in 2017 and 3.6 percent in 2018, respectively. This will augur well for Lesotho’s garment exports, although we will have to confront the erosion of Lesotho’s competitiveness in the US from Asia and elsewhere in Africa.
Domestic economic performance and outlook
Let me share a few facts on our own economy. Following tiny growth of only 1.7 percent in 2015/16 and 2.1 percent in 2016/17, we project a recovery of economic activity averaging 3.4 percent over the medium term, building on agricultural production which declined significantly in 2016 due the El Niño, but is expected to recover significantly during the 2017/18 crop year. Area planted rose sharply by 139 percent over the 2016/17 crop year.
Mining growth is also projected at 17.3 percent in 2017/18 from 8.1 percent in 2016/17, as a result of the recapitalisation of Liqhobong Diamond Mine which has recently resumed full production. The recovery in global demand for diamonds is, as in South Africa, supporting growth in the diamond mining industry during this period.
As we all know, Lesotho's manufacturing activity is dominated by textiles and apparel and the sector’s exports are predominantly destined to the United States and South Africa. In 2015/16, 70 percent of Lesotho-made garments were exported to the United States under AGOA, while 30 percent terminated in South Africa. This represents a significant shift from reliance on the US market towards our neighbour, as only ten years ago, no more than 5 percent of Lesotho’s apparel entered the South African market. While textiles and clothing exports to non-AGOA destinations are expected to grow, exports to the US market are set to remain under pressure due to stiff competition from Asian producers.
In the external sector, the overall Balance of Payments continues to portray vulnerability to external shocks. In 2016/17, the current account balance is expected to worsen further from a deficit of 8.6 percent in 2015/16 to 15.6 percent due to a significant drop in SACU receipts and flat remittance income. In the short term, Lesotho can avail balance of payments support, but the country must transform quickly and produce more and export more. This is the challenge both business and government must address in earnest in the coming months.
Official international reserves in months of imports were recorded at 4.5 in 2016/17 from a high of 6.1 months observed in 2015/16. The deterioration came from lower SACU revenues and a draw-down on reserves to finance the large budget deficit in 2016/17. Reserves will deteriorate further to 4 months of imports in 2017/18, but should stabilise and begin to recover during 2018/19 and 2019/20 to the Government’s desired policy benchmark of 5 months of imports with bold steps to control spending. Overall in 2016/17, Inflation in Lesotho is expected to average 6.6 percent mainly due to increase in cost of food and non-alcoholic beverages. Inflation is projected to decline marginally in 2017/18 to 6.3 percent.
Interest rates in Lesotho follow the same trend as those in South Africa. The prime lending rate has remained stable and is currently set at 7 percent, in line with that of South Africa. Commercial bank prime lending rate also averaged 11.7 percent from June to December 2016. The 1-year Deposit rate remained unchanged at 3.5 percent over the review period. The large margin between the lending and the deposit rates imply low lending by commercial banks, despite high demand for start-up and working capital. In the coming months, Government plans to set up a committee to develop proposals on lending to start-ups and small businesses. This Committee will also review the two-government partial risk guarantee schemes which have to date been a dismal failure The Government of Lesotho debt peaked at M12.6 billion in December, 2016 due in part to sharp depreciation of the Loti against the US Dollar and domestic debt amounted to M1.1 billion. Analysis of the sustainability of our debt suggests that Lesotho could quickly face the risk of debt distress. There is therefore need to slow down spending to levels that can be matched by revenues.
2017/18 fiscal policy stance and financing
The strategic objective of Government’s fiscal policy remains that of maintaining fiscal prudence to ensure long-term macro-economic stability and sustainability. Achieving this objective will require broadening and diversifying domestic revenue sources to sufficiently cover recurrent expenditures so that SACU revenue and donor funds are used to finance infrastructure and other capital expenditures and maintain sufficient reserves for financing forward capital spending commitments. In addition, the Government will endeavour to create fiscal space through continuous reduction in recurrent expenditures.
Let me now focus on the 2017/18 budget allocations. The proposed total expenditure is M18,709.3 million of which recurrent budget is M13,506.7 million and capital budget is M5,202.6 million. The overall 2017/18 budget proposals have increased by 7 percent over the 2016/17 budget. Much of the 7 percent increase however is attributed to contractual obligations, such as rent, transfers and foreign exchange fluctuations.
The overall revenue target is estimated at M16,035 million, of which, SACU revenue is M6,154.2 million, tax revenue; M7,604.3 million and non-tax revenue; M1,236.3 million. At this level, total revenue is 15.8 percent over the 2016/17 revenue outturn.
The proposed revenue and expenditure allocations for 2017/18 are projected to result in a fiscal deficit of M1,597.7 million or 4.8 percent of GDP. Taking into account that SACU revenues improved by 3.3 percent of GDP, this still very high deficit suggests once more that Government should move quickly with fiscal consolation.
It is proposed that the 2017/18 Budget deficit be financed from budget support for up to M400 million, issuance of domestic bonds for up to M450 million and drawdown of reserves for the balance. This financing strategy is cautiously calibrated to avoid full crowding out of the still fragile private sector and to restrain the depletion of international reserves. With this financing strategy, Government is targeting a reserve level of 4 months of imports in 2017/18 and a recovery to a target of 5 months in the next couple of years. Additional austerity measures will be studied and introduced next fiscal year to avert a fiscal crisis and to preserve lending room for the private sector.
Economic growth, jobs creation and the private sector
Lesotho’s growth diagnostic work identifies poor education, poor health, poor investment climate and failing state as critical impediments to growth and job creation. Political instability, politicisation of the public service, and weak institutions are the hallmarks of a state of failure. At the same time, there is emerging dynamism in Lesotho's private sector, which combined with a rehabilitated government could place Lesotho on upward growth trajectory. The next NSDP, whose implementation will start in 2018/19, will consolidate the efforts of the private and public sectors to focus on jobs.
During 2017/18, Government will re-launch a dialogue with the private sector in a collaborative effort to accelerate investment, economic growth and job creation. This social compact will define the specific roles to be played by the private sector, civil society, local government councils, and the central government and will determine modalities for mutual accountability. This type of dialogue, which was launched in 2014 as the job summit process, will result in job creation actions for each of the participating partners and will form part of the implementing plan for the NSDP.
The private sector faces many constraints, but financing is one of the most limiting. Government will implement the Financial Inclusion Strategy which seeks to: i) increase access to financial products and services in the rural areas by bringing access points closer; ii) deepening usage of financial products across a wide spectrum of instruments; and iii) increase the take-up and effective use of mobile money and digital finance products and services, especially where such products and services are more affordable.
Again, in support of the development of the Lesotho private sector, the Ministry of Trade and Industry will undertake trade and market access facilitation, development of industrial infrastructure at Tikoe and Ha Belo, and establishment of effective national standards and quality infrastructure. The Ministry will also present to Parliament the Business Licensing and Registration Bill, the Competition Bill and Trade and Tariff Administration Bill. When passed, these bills will simplify trade licensing, reduce uncompetitive firm behaviour, and consolidate the administration of tariffs under the SACU Agreement. M194.8 million is proposed for this Ministry.
The Private Sector Competitiveness and Economic Diversification programme is spearheading the economic diversification, enterprise assistance and investment climate reform. However, the good work generated in the last decade needs to be scaled up significantly. Building on this, and during the course of the year, Government will establish a cabinet-level investment climate reform process similar to that under the Job Summit process.
Micro, Small and Medium Enterprises are the pillar of our economy. To increase job intake of these enterprises and to expand business opportunities for the youth, Government will promote and support the establishment of cooperative enterprises, construct market centres and slaughter houses, and refurbish BEDCO Estates and the Lesotho Cooperatives College. To this extent, M211.9 million is proposed to be allocated to the Ministry of Small Business Development, Cooperatives and Marketing. Lack of security of tenure as well as safety prevent these enterprises from investing and expanding their operations even when opportunities present themselves. The Ministry of Local Government will explore policy options for extending security of tenure to these enterprises wherever they are located.
The Government of Lesotho continues to identify tourism as a key pillar of development in its quest to diversify the economy. To further promote tourism, Government will during 2017/18 introduce a regulatory regime to promulgate sound tourism legislation to regulate the tourism sector for the benefit of domestic investors. In addition, government will review the cost of obtaining a visa and divest its interest in Molimo Nthuse Lodge, Bokong and Liphofung chalets, Thaba-Chitja Island and Sehlabathebe chalets to aid job creation and good upkeep of these facilities. These will be transferred transparently and without any form of conflict of interest to Lesotho tourism investors. Grading of tourism facilities is also ongoing to uphold international service standards. Government will also complete the revised tourism master plan, tourism investment policy and promotion strategy, and the community-based tourism blue print. An amount of M220.8 million is proposed for the Ministry of Tourism, Environment and Culture.
Conclusion
As I conclude, I wish to reiterate that the Budget I have just presented assumes a number of actions that the Government would necessarily have to take to control expenditure and intensify revenue collection in the medium-term. Most importantly and given the difficulty in stimulating the economy in the short-term and therefore mobilise revenue rapidly, it will be left to Government to implement policies that seek to contain expenditure both in the short and the medium term. We have in the past enjoyed growing revenue, especially SACU shares, and in the process entertained spending that would not assist us in growing the economy. It is now opportune for the Government to consider options for curbing expenditure and ensuring reserves build-up in anticipation of difficult times ahead. During the coming year, Government will explore revenue and expenditure measures that will guide our budget process for 2018/19 and the return to fiscal sustainability.
All of what is planned for 2017/18 can only be successful if we, as a collective, put our hands together in ensuring success. Macro-economic stability and sustainability can only be guaranteed in an atmosphere of political stability and security. More importantly, fiscal discipline and the rule of law will ensure that where transgressions have been committed, the perpetrators are brought to book and public funds recovered. It is our duty as public servants to deliver on the promises made to the people of this country and to lift the poor and destitute out of their predicament. I therefore call on all my colleagues in Cabinet and public servants as a whole to join hands and turn these commitments into reality.
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USTR publishes 2017 National Trade Estimate Report on Foreign Trade Barriers
The 2017 National Trade Estimate Report on Foreign Trade Barriers (NTE) is the 32nd in an annual series that highlights significant foreign barriers to U.S. exports. This document is a companion piece to the President’s Trade Policy Agenda published by USTR in March.
Trade barriers elude fixed definitions, but may be broadly defined as government laws, regulations, policies, or practices that either protect domestic goods and services from foreign competition, artificially stimulate exports of particular domestic goods and services, or fail to provide adequate and effective protection of intellectual property rights.
This report classifies foreign trade barriers into ten different categories. These categories cover government-imposed measures and policies that restrict, prevent, or impede the international exchange of goods and services. The categories covered include:
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Import policies (e.g., tariffs and other import charges, quantitative restrictions, import licensing, customs barriers, and other market access barriers);
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Sanitary and phytosanitary measures and technical barriers to trade;
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Government procurement (e.g., “buy national” policies and closed bidding);
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Export subsidies (e.g., export financing on preferential terms and agricultural export subsidies that displace U.S. exports in third country markets);
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Lack of intellectual property protection (e.g., inadequate patent, copyright, and trademark regimes and enforcement of intellectual property rights);
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Services barriers (e.g., limits on the range of financial services offered by foreign financial institutions, restrictions on the use of foreign data processing, and barriers to the provision of services by foreign professionals);
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Investment barriers (e.g., limitations on foreign equity participation and on access to foreign government-funded research and development programs, local content requirements, technology transfer requirements and export performance requirements, and restrictions on repatriation of earnings, capital, fees and royalties);
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Government-tolerated anti-competitive conduct of state-owned or private firms that restricts the sale or purchase of U.S. goods or services in the foreign country’s markets;
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Digital trade barriers (e.g., restrictions and other discriminatory practices affecting cross-border data flows, digital products, Internet-enabled services, and other restrictive technology requirements); and
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Other barriers (barriers that encompass more than one category, e.g., bribery and corruption,i or that affect a single sector).
To highlight the growing and evolving trade using or enabled by electronic networks and information and communications technology, and reflecting input from numerous stakeholders, relevant country chapters include a dedicated section on barriers to digital trade. This section addresses all issues that are integral to the digital economy including those barriers formerly categorized under “electronic commerce.” The section will highlight ongoing and emerging barriers such as restrictions and other discriminatory practices affecting cross-border data flows, digital products, Internet-enabled services, and other restrictive technology requirements. This adjustment will ensure that the information presented in the NTE reflects market developments for U.S. exports.
The NTE continues to highlight the increasingly critical nature of standards-related measures (including testing, labeling and certification requirements) and sanitary and phytosanitary (SPS) measures to U.S. trade policy, to identify and call attention to problems and efforts to resolve them during the past year and to signal new or existing areas in which more progress needs to be made. Standards-related and SPS measures serve an important function in facilitating international trade, including by enabling small and medium sized enterprises (SMEs) to obtain greater access to foreign markets. Standards-related and SPS measures also enable governments to pursue legitimate objectives such as protecting human, plant, and animal health, the environment, and preventing deceptive practices. But standards-related and SPS measures that are nontransparent and discriminatory can act as significant barriers to U.S. trade. Such measures can pose a particular problem for SMEs, which often do not have the resources to address these problems on their own.
USTR will continue to identify, review, analyze, and address foreign government standards-related and SPS measures that affect U.S. trade. USTR coordinates rigorous interagency processes and mechanisms, through the Trade Policy Staff Committee and, more specifically, through specialized TBT and SPS subcommittees. These TPSC subcommittees, which include representatives from agencies with an interest in foreign standards-related and SPS measures, maintain an ongoing process of informal consultation and coordination on standards-related and SPS issues as they arise.
In recent years, the United States has observed a growing trend among our trading partners to impose localization barriers to trade – measures designed to protect, favor, or stimulate domestic industries, service providers, or intellectual property at the expense of imported goods, services or foreign-owned or developed intellectual property. These measures may operate as disguised barriers to trade and unreasonably differentiate between domestic and foreign products, services, intellectual property, or suppliers. They can distort trade, discourage foreign direct investment and lead other trading partners to impose similarly detrimental measures. For these reasons, it has been longstanding U.S. trade policy to advocate strongly against localization barriers and encourage trading partners to pursue policy approaches that help their economic growth and competitiveness without discriminating against imported goods and services. USTR is chairing an interagency effort to address localization barriers. This year’s NTE continues the practice of identifying localization barriers to trade in the relevant barrier category in the report’s individual sections to assist these efforts and to inform the public on the scope and diversity of these practices.
USTR continues to vigorously scrutinize foreign labor practices and to address substandard practices that impinge on labor obligations in U.S. free trade agreements (FTAs) and deny foreign workers their internationally recognized labor rights. USTR has also introduced new mechanisms to enhance its monitoring of the steps that U.S. FTA partners have taken to implement and comply with their obligations under the environment chapters of those agreements. To further these initiatives, USTR has implemented interagency processes for systematic information gathering and review of labor rights practices and environmental enforcement measures in FTA countries, and USTR staff regularly works with FTA countries to monitor practices and directly engages governments and other actors. The Administration has reported on these activities in the 2016 Trade Policy Agenda and 2015 Annual Report of the President on the Trade Agreements Program.
The NTE covers significant barriers, whether they are consistent or inconsistent with international trading rules. Many barriers to U.S. exports are consistent with existing international trade agreements. Tariffs, for example, are an accepted method of protection under the General Agreement on Tariffs and Trade 1994 (GATT 1994). Even a very high tariff does not violate international rules unless a country has made a commitment not to exceed a specified rate, i.e., a tariff binding. On the other hand, where measures are not consistent with U.S. rights international trade agreements, they are actionable under U.S. trade law, including through the World Trade Organization (WTO).
This report discusses the largest export markets for the United States, including 58 countries, the European Union, Taiwan, Hong Kong, and one regional body. As always, the omission of particular countries and barriers does not imply that they are not of concern to the United States.
South Africa
Trade summary
The U.S. goods trade deficit with South Africa was $2.1 billion in 2016, a 11.7 percent increase ($218 million) over 2015. U.S. goods exports to South Africa were $4.7 billion, down 14.2 percent ($773 million) from the previous year. Corresponding U.S. imports from South Africa were $6.8 billion, down 7.6 percent. South Africa was the United States' 42nd largest goods export market in 2016.
U.S. exports of services to South Africa were an estimated $3.2 billion in 2015 (latest data available) and U.S. imports were $1.6 billion. Sales of services in South Africa by majority U.S.-owned affiliates were $7.5 billion in 2014 (latest data available), while sales of services in the United States by majority South Africa-owned firms were $270 million.
U.S. foreign direct investment in South Africa (stock) was $5.6 billion in 2015 (latest data available), a 8.8 percent decrease from 2014. U.S. direct investment in South Africa is led by manufacturing, wholesale trade, and professional, scientific, and technical services.
Technical Barriers to Trade
In 2012, the Department of Health implemented a labeling regulation for foodstuffs (Regulations Relating to the Labeling and Advertising of Foodstuffs (R146)) that restricts the use of testimonials, endorsements, or statements claiming food as “healthy” or “nutritious” as well as the use of the term “diet”. In 2014, the Department of Health published draft regulations that would further prohibit the use of these terms unless the food contains no added sodium, sugar, or saturated fat, or only contains “low” levels of them. In addition, the draft regulations would prohibit the use of these terms for foods that contain any addition of fructose, non-nutritive sweeteners, fluoride, aluminum or caffeine, in any quantity. The Department of Health has indicated in the draft regulations that, in the case where health claims or nutrient content claims form part of a brand name or trademark, the use of that brand name or trademark on the packaging of the foodstuff would be required to be phased out. U.S. stakeholders are concerned that these new regulations could require some brand owners to make changes to existing trademarks, and branding and labels in order to continue to sell their products in South Africa.
In September 2014, the Department of Health issued proposed amendments to its regulations relating to health measures on alcoholic beverages (Amendment to Regulations Relating to Health Messages on Container Labels of Alcoholic Beverages (R697)). The proposal would require that the health warnings printed on the labels of alcoholic beverages be increased in size to 1/8 of the total container size, as opposed to 1/8 of the label. Some stakeholders have expressed concerns about the proposal, including the lack of a definition of the word “container”, which could be interpreted to include not just the consumer-facing packaging, but also any other packaging materials used to contain or transport the beverages. In addition, stakeholders are seeking clarity about enforcement of the proposed rotation requirement, which would require that the seven health warnings be exhibited on the labels with equal regularity to one another within a 12-month period.
U.S. technology firms report that South African delays in issuing letters of authority (LOAs) are effectively blocking imports of certain U.S. high-technology/ICT equipment into South Africa. (LOAs are conformity assessments that show that products imported into South Africa meet the relevant South African standards.) Previously, the National Regulator for Compulsory Specifications (an agency within the South African Bureau of Standards that falls under the purview of the Department of the Trade Industry (DTI)), issued LOAs within four to six weeks; however, now LOAs are reportedly taking up to approximately one year to be approved and issued. Given the pace of technology advancing and short product life cycles for technology products, the approval delays can mean that an updated version of the equipment is being produced before the old version is approved for import to South Africa. As of February 2017, some U.S. technology firms impacted by the delays report that DTI and SABS are working to reduce the time to approve and issue LOAs and reduce the backlog of existing LOAs under review.
In September 2016, the DTI published for public comment the Final National Liquor Policy (no. 1208), which provides policy recommendations intended to amend the Liquor Act, 59 of 2003. Some stakeholders have expressed concerns related to the proposed prohibition on the sale of “very high alcohol content” products and the “strict” labeling of liquor beverage products, as these terms are undefined in the policy document.
The United States regularly engages with South Africa on these and other issues related to technical barriers to trade at the WTO, through bilateral discussions, and under the United States-South Africa Trade and Investment Framework Agreement.
Sanitary and Phytosanitary Barriers
Poultry
In December 2014, South Africa banned all poultry imports from the entire United States due to the detection of highly pathogenic avian influenza (HPAI) in backyard flocks in Washington and Oregon. In November 2015, the United States and South Africa agreed to an animal health protocol to allow trade in U.S. poultry from states not affected by HPAI.
In January 2016, USDA and DAFF reached agreement on a health certificate for the importation of U.S. poultry into South Africa. At the same time, USDA and DAFF agreed to specific procedures with respect to Salmonella testing to be applied to imports of U.S. poultry. Under the agreement, U.S. poultry was successfully imported into South Africa in February 2016.
While trade in poultry has resumed, South Africa has required that exports of U.S. poultry meat to South Africa be produced from U.S. birds hatched and raised within the United States. This requirement has restricted exports of U.S. turkey from meat produced from Canadian poults. Although less than 5 percent of U.S. turkey meat is produced from Canadian poults, all U.S. turkey exporters are required to certify that meat is not produced from Canadian poults. As a result of requirement, USDA has implemented an Export Verification (EV) program administered by USDA’s Agricultural Marketing Service (AMS). The AMS/EV program enables turkey producers and processors to ensure compliance with this origin requirement by paying a fee for AMS to verify that the meat is not produced from Canadian poults. Three U.S. facilities are approved to export under the AMS/EV program, and eight additional facilities are in the process of being approved. USDA is in discussions with DAFF to remove the EV program regarding poults originating from Canada and raised in the United States since South Africa also imports Canadian turkey.
Import policies
Tariffs
South Africa is a member of the WTO, the Southern African Development Community (SADC), and the Southern African Customs Union (SACU). As a member of SACU, South Africa applies the SACU common external tariff. In practice, South Africa sets the level of WTO Most Favored Nation (MFN) tariffs applied by all SACU countries, and manages all matters related to trade remedies and disputes for the SACU countries. South Africa’s average applied MFN duty rate in 2016 was 7.6 percent. South Africa has preferential trade agreements with the European Union (EU), the Southern Common Market (MERCOSUR), the European Free Trade Area, and SADC. In 2014, South Africa concluded negotiations for a SADC Economic Partnership Agreement (EPA) with the EU, which entered into provisional application in October 2016. SADC EPA partner countries include Botswana, Lesotho, Mozambique, Namibia, South Africa, and Swaziland. Angola is an observer to the agreement.
U.S. exports face a disadvantage compared to EU goods in South Africa. The European Union-South African Trade and Development Cooperation Agreement (TDCA) of 1999 covers a significant amount of South Africa-EU trade. South Africa’s tariffs applied to imports from the EU on TDCA-covered tariff lines average 4.5 percent based on an unweighted average, while the MFN duty rate, which imports from the United States face, averages 18.4 percent for the same TDCA-covered lines. Final phase-in of the EU tariff preferences under the TDCA became effective in 2012. Key categories in which U.S. firms face a tariff disadvantage include cosmetics, plastics, textiles, trucks, and agricultural products and machinery.
The EU-SADC EPA will further erode U.S. export competitiveness in South Africa and the region due to the greater disparities in tariff levels that U.S. exports will face under the EPA compared to the TDCA. The United States has raised concerns about the tariff disparity in bilateral discussions with South Africa, noting the unilateral benefits the United States offers South African imports under the African Growth and Opportunity Act. South African authorities have emphasized that the only way to address this imbalance is through a free trade agreement.
In September 2013, the South African International Trade Administration Commission (ITAC) increased import duties for whole chickens to the maximum bound rate of 82 percent, and announced import duty increases for other poultry products, including an increase in duties to 37 percent for imports of frozen bone-in chicken (imports of U.S. frozen bone-in chicken are also subject to antidumping duties. South Africa raised the tariffs in response to requests from its domestic industry. In recent years, the South African government has encouraged domestic industry to appeal for increases up to the bound tariff rates where a lack of global competitiveness was a concern.
U.S. stakeholders have expressed serious concerns about South Africa’s imposition of antidumping duties on imports of frozen bone-in chicken from the United States, including concerns about methodology, transparency, and due process spanning the original investigation and final determination in 2000 to the improper initiation of subsequent sunset reviews. As a result of industry negotiations to address and resolve these issues, in June 2015, U.S. and South Africa poultry industry groups reached agreement on an understanding to establish a tariff rate quota (TRQ) on a certain volume of U.S. bone-in chicken that could be exported to South Africa without being subject to antidumping duties. In December 2015, ITAC published final guidelines for administering the TRQ. Upon publication of the final guidelines, the TRQ entered into force, allowing U.S. trade in bone-in chicken subject to the agreement to begin. In February 2016, shipments of U.S. bone-in chicken subject to the TRQ began to be imported into South Africa.
Non-tariff Measures
The DTI prohibits imports of goods of a specified class or kind into South Africa by notice in the Government Gazette, unless the products are imported in accordance with a permit issued by ITAC. Prohibited imports include narcotic and habit-forming drugs in any form; fully automatic, military and unnumbered weapons, explosives and fireworks; poison and other toxic substances; cigarettes with a mass of more than 2 kilograms per 1,000; goods to which a trade description or trademark is applied in contravention of South African law (for example, counterfeit goods); unlawful reproductions of any works subject to copyright; and prison-made or penitentiary-made goods. ITAC requires import permits on used goods if such goods are also manufactured domestically, thus significantly limiting importation of used goods. Other categories of controlled imports include waste, scrap, ashes, residues, and goods subject to quality specifications.
Investment barriers
While South Africa is generally open to greenfield FDI, merger and acquisition-related FDI is scrutinized closely for its impact on jobs and local industry. Private sector and other stakeholders are concerned about politicization of South Africa’s posture towards this type of investment. South Africa also imposes local content requirements on investments in areas such as renewable energy projects.
Other Legal Concerns for Investment
President Zuma signed the Protection of Investment Act into law in December 2015. Some analysts have commented that the Act is overly vague with respect to measures the government of South Africa may take against an investor or its investment, including “redressing historical, social and economic inequalities and injustices”; “promoting and preserving cultural heritage and practices, indigenous knowledge and biological resources related thereto, or national heritage”; and “achieving the progressive realization of socio-economic rights.” The Act also allows for international arbitration of disputes only after domestic remedies have been exhausted, which could deter foreign investment.
In May 2016, South Africa’s Parliament passed an Expropriation Act that redefined the country’s legal framework relating to expropriation. The Act provides that the government can expropriate property for a “public purpose” or in the “public interest” in return for compensation deemed to be “just and equitable.” Some analysts have suggested that how these terms will be interpreted and applied is uncertain, and that the Act could deter investment. Others have argued that provisions of the Act are inconsistent with South Africa’s constitution. The legislation is currently awaiting President Zuma’s signature.
Another concern for investors is the Private Security Industry Regulation Act Amendment Bill, which, if signed, would require 51 percent local ownership in private security firms. The United States has raised concerns about the local ownership provision of the bill in bilateral discussions with South Africa, including in relation to South Africa’s international trade commitments.
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tralac’s Daily News Selection
Uganda Bureau of Statistics: Imports exports by region and country of origin, 2011 – 2016
South Africa: June 2017 trade surplus (SARS)
The R10.67bn trade balance surplus for June 2017 is attributable to exports of R102.14bn and imports of R91.47bn. Exports decreased from May 2017 to June 2017 by R0.59bn (0.6%) while imports decreased by R4.04bn (4.2%). Exports for the year-to-date (1 January to 30 June) grew by 4.7% from R539.03bn in 2016 to R564.39bn in 2017. Imports for the year-to-date of R536.72bn are 1.4% less than the imports recorded in January to June 2016 of R544.07bn. Profiled trade zone: Africa (pdf). Exports of R30 119 million – an increase of R3 581 million from May 2017; Imports of R7 684 million – a decrease of R2 222 million from May 2017. The trade balance surplus is R22 435 million – a 34.9% increase in comparison to the R16 632 million surplus recorded in May 2017.
Ethiopia’s minerals exports drop by 25% in last fiscal year (Xinhua)
Ethiopia’s minerals exports during the just ended 2016/17 Ethiopian Fiscal Year stood at $231.25m, down by 25% from the same period last year. Ethiopia had earned %309m in the 2015/16 Ethiopian Fiscal Year from minerals exports. Kiros Alemayehu, Public Relations Senior Expert at the Ethiopian Ministry of Mines, Petroleum and Natural Gas, said international minerals market volatility was the main factor for the decline in revenue. He also blamed black market trading, in particular of Ethiopia’s main minerals export of gold, smuggling of minerals to neighbouring countries and lax control at local level over production and sale of minerals for the decline in revenue.
He Wenping: Africa’s SEZ drive requires more than just words (Global Times)
In Eldoret, an inland city in Kenya, hundreds of kilometers northwest of the famed seaport of Mombasa, Kenya DL Group is cooperating with China-based Guangdong New South Group to build a special economic zone named after China’s Pearl River Delta. In recent years, many African countries have shown a keen interest in copying the experience of China’s SEZs, but the efforts needed in those countries involve more than just giving a Chinese name to a new zone. It is uncertain whether Africa’s enthusiasm for SEZs will help the continent repeat the success of China, but it is worth a try. What we worry about is that the ideas that many officials in African countries have may be too simplistic. Some local authorities think that SEZs can be established just by signing an agreement, providing some land and announcing preferential measures. The following points are often overlooked by African countries as they try to copy the experience of China’s SEZs: [The author is attached to the Chinese Academy of Social Sciences]
China is Ivory Coast’s first supplier and third trade partner (Ecofin)
Trade between Ivory Coast and China have almost increased sixfold over the past two years. This was disclosed by the Ivoirian minister of Trade, Craftsmanship and SME support, Souleymane Diarrassouba, who highlighted that the trade soared to $8.85bn in 2016, from $1.44bn in 2014. Speaking at the launch of the Chamber of Commerce of Chinese Companies in Ivory Coast, the minister said the new entity will help “boost bilateral trade between the countries and promote sharing of knowledge and technologies that will benefit them both, as well as improve partnership with the Ivorian private sector”, Xinhua reports. CCEC regroups 40 Chinese companies that operate in various sectors, ranging from ICT to Energy.
Mozambique Economic Update: a two speed economy (World Bank)
Mozambique registered a positive goods balance in the last quarter of 2016 for the first time in over two decades, which helped to lower the current account deficit by 30%. The current account deficit narrowed to 38% of GDP, down from 40% of GDP in 2015. A 36% drop in goods imports was the most important factor behind this shift. This adjustment in imports was sufficiently strong to counter a drop in current income from donor financing and an increase in service imports. A 17% increase in exports, driven by megaprojects, also helped to narrow the current account. As in previous years, the current account deficit was largely financed by foreign direct investment. Net FDI financed approximately three quarters of the current account deficit in 2016. Mega-project FDI increased by 4% in 2016 (Figure 10). This contrasts with the rest of the economy, which saw a 32% drop in investment driven by a slowdown in real estate, financial services and construction (Figure 11). Trends in early 2017 suggest a further narrowing of the current account deficit as imports remain subdued despite the stronger metical. Part Two: Mozambique’s private sector – a tale of two speeds (pdf). There have been some signs of a growing “middle” in Mozambique’s firm landscape, a development that bodes well for productivity growth. While Mozambique’s firm landscape continued to be dominated by very small (so called micro) firms,38 there were some signs of a slowly growing “middle “, i.e. the share of small and medium sized firms was increasing. Since 2002, the share of small and medium sized firms, defined as firms with 5 to 19 (small) and 20 to 100 (medium) employees, grew from 19 to 25%. Moreover, the share of these “middle” firms among the group of high performing firms increased from 21 to 36 percent (Figure 26).
BRICS countries: Emerging players in global services trade (ITC)
Owing to data deficiencies, it has been challenging to analyse the BRICS countries’ participation in services trade and, in particular, the trade with each other. This report draws on a range of data sources to provide a fresh picture of the sectoral composition of BRICS countries’ services trade, as well as the importance of intra-BRICS trade. Extract (pdf): One aspect of services trade which stands out for the BRICS countries is so-called ‘embodied’ services trade – services used as inputs in the production of other tradable goods and services. Services account for just some 20% of global exports in gross terms, but nearly 50% in value-added terms, reflecting the fact that most of the world’s cross-border services trade is in intermediate and not final services. BRICS’ gross exports of manufactured goods incorporate between 30% and 40% of embodied services in value-added terms, primarily from domestic sources, but also from foreign suppliers, according to new TiVA data. This emphasizes the importance of developing services not only as a source of export earnings in a direct sense but also to facilitate the ability of manufacturers to be competitive in world markets. The key finding from our data-driven analysis of services trade in the BRICS is that much work remains to be done to fully integrate BRICS countries into the global services economy. Economic forces will continue to pull in that direction; rising incomes will shift consumption towards services and increasing use of GVCs as production platforms will increase demand for intermediate services. The major challenge for BRICS is to improve productivity in services trade, which would benefit trade integration, consumer welfare and downstream productivity and competitiveness. Globally, costs are high in services trade, perhaps twice what is observed in goods. Policy plays a major role here. Although there are no explicit border restrictions, such as tariffs, other policies – both horizontal and sector-specific – affect the ability of foreign service providers to contest local markets. Five recommendations:
Related: The Hangzhou Declaration from the weekend’s 2nd BRICS Industry Ministers meeting: 7 key points (pdf)
Communiqué of BRICS Heads of Tax Authorities Meeting issued in Hangzhou on 27 July 2017 (pdf)
A reminder: the BRICS Trade Ministerial starts tomorrow in Shanghai
Uganda: National policy on services trade will ensure competitiveness in the sector (Daily Monitor)
In Uganda, over the last five years, services have been the leading contributor to the National Gross Domestic Product and the fastest growing sector. Currently, the services sector contributes 48.7% of GDP with an annual growth rate of 6.5%, and is predicted to be at 58% by 2040 (Vision 2040). Such policy gaps require the government through the Ministry of Trade, Industry and Cooperatives, to develop a coherent National Policy on Services Trade, which was recently approved by Cabinet for implementation to ensure competitiveness in the services sector. In conclusion, in order for the country to benefit from this policy, there is need to review and reform the institutional and regulatory framework, promote domestic capacities, deepen regional integration and mainstream services trade in national planning. [The author, Ms Amelia Kyambadde is Uganda’s minister for Trade, Industry and Cooperatives]
Regional action crucial for financial inclusion of small enterprises in Africa (UNCTAD)
Accounting and insurance regulators and practitioners have outlined potential interventions for the increased access to financial services for Micro, small and medium-sized enterprises during UNCTAD’s Regional African Workshop in Nairobi, 19 - 20 July 2017. Senior representatives in accounting and insurance from 11 countries participated in this event to exchange practices and formulate actions with the aim of expanding financial literacy and access to affordable financial solutions by Micro, small and medium-sized enterprises. Mr David Gichana, Deputy Auditor General of Kenya, emphasized the role of regulators. saying: “Policy-makers are fundamental in creating a more enabling environment. It is thus imperative to join hands with all stakeholders.”
How bad roads at Seme Border frustrate Nigeria’s intra-Africa trade (BusinessDay)
Nigeria’s efforts to boost export and earn more foreign exchange are under threat due to the absence of critical infrastructure such as motorable roads at the Seme border, which serves as the major trade gateway to the ECOWAS sub-region. Seme Border is a settlement in Nigeria on the border with Benin, which is less than 20 minutes’ drive from Badagry. BusinessDay visited the border recently and found trucks fully loaded with goods coming from Nigeria spending weeks before passing through the Seme border to other West Africa countries, owing to the poor state of road infrastructure particularly at Seme Krake. “The roads at the Seme border are very bad because the land is a swampy place. We have been here for two weeks because our truck sank and we had to get a crane to pull it out,” Musa Mohammed, a truck driver, told BusinessDay at the border. To facilitate trade in the region, ECOWAS commenced the construction of a Joint Border Post at Seme Krake between Nigeria and Benin. The JBP, which is funded by the EU, was supposed to be have been completed by March 2016 but is still under construction as several court injunctions halted the project at intervals. [SANRAL: Roads to boost intra-regional trade]
Ghana: Strategy document on AGOA in the offing (Graphic)
The strategy, which builds on Ghana’s National Export Strategy, aims to enable Ghana to make maximum use of opportunities under the AGOA, with emphasis on intensifying export development and diversification. A workshop to validate the strategy as well as discuss the implementation plan was organised at the weekend, bringing together producers, processors and exporters together with government officials. At the validation workshop in Accra, the Deputy Minister of Trade and Industry, Mr Robert Ahomka-Lindsay, said since the introduction of the AGOA trade preference in 2000, Ghana had underutilised it and thus could not record any significant gains. The US Ambassador to Ghana, Mr Robert Jackson, bemoaned the low participation of Ghana in the trade preference. Although Ghana’s export to the US increased from $9m worth of goods in 2015 to $29m worth of goods in 2016, Mr Jackson said Ghana needed to increase its export substantially to enable it to fully integrate into the global economy.
How Brexit could harm African economies that trade with the UK and disrupt regional integration (LSE)
The southern African region encapsulates a number of the complexities and dilemmas that the UK faces in designing a trade policy that will support the development needs of its African partners, as well as developing countries elsewhere. So what is at stake in trade talks with the region? [The author: Peg Murray-Evans]
Gauteng Infrastructure Investment Conference: attracting investors and tourists to South Africa (GCIS)
To build on this growth, we have revised our 2020 strategy. The new strategy that will go to cabinet for approval at the end of August aims to achieve over 200% growth in our direct contribution to the 2015 GDP figure of R118bn to R302bn in 2026. The indirect contribution to GDP will be just under a trillion rands at R941bn from the 2015 figure of R375bn. We will also add 300,000 more jobs to bring direct employment to 1 million from the 2015 figure of 700,000. This will bring the indirect employment to tourism figures to about 2,26 million.
Zimbabwe Vulnerability Assessment: 2016 Market Assessment Report (ReliefWeb)
This report intends to guide decision making on the best modality of assistance for each district as it summarizes on the markets’ infrastructure, actors, limitations and constraints facing the traders as well as covering the dynamic nature of the markets throughout different seasons in the year. The main purpose of the market assessment was to update the findings of the 2015 assessment given the deteriorating economic situation, the liquidity challenges and the impacts of the El Nino.
Today’s Quick Links: Accra: Training of trainers on tariff reform impact simulation tool (27-29 July) Dual membership hamstring regional integration Trans Kalahari Corridor: update Sichuan Province twinning, the best route to accelerate Zambia’s industrialization agenda How much have development strategies changed in Africa since independence? It depends. Trade policy forum meeting between India, US unlikely to be held this year Australia must leapfrog the partisan divide for the future of freer trade and prosperity |
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South Africa Merchandise Trade Statistics for June 2017
South Africa trade surplus higher than expected
South Africa’s trade surplus increased to ZAR 10.67 billion in June of 2017 from a downwardly revised ZAR 7.22 billion surplus in May, beating market expectations of a ZAR 8.4 billion surplus. Imports slumped 4.2 percent while exports declined at a slower 0.6 percent. Considering the first six months of the year, exports jumped 4.7 percent while imports went down 1.4 percent, shifting the country's trade balance into a ZAR 27.67 billion surplus from a ZAR 5.042 billion gap in the same period of 2016.
Compared with the previous month, imports declined to ZAR 91.46 billion from ZAR 95.51 billion, mainly due to lower purchases of mineral products (-31 percent); machinery and electronics (-2 percent) and textiles (-11 percent). On the other hand, imports rose for vegetables (27 percent) and vehicles and transport equipment (21 percent).
Exports fell to ZAR 102.14 billion from ZAR 102.73 billion, due to lower shipments of mineral products (-16 percent); base metals (-6 percent); chemical products (-8 percent); wood pulp and paper (-16 percent); live animals (-14 percent); machinery and electronics (-2 percent) and plastic and rubber (-6 percent). In contrast, sales went up for precious metals and stones (11 percent), vegetables (33 percent) and vehicles and transport equipment (18 percent).
Excluding trade with neighboring Botswana, Lesotho, Namibia and Swaziland, the country’s trade gap widened to ZAR 0.549 billion from a ZAR 0.378 billion gap in May. However, the trade deficit fell to ZAR 18.19 billion in the forst six months of 2017 from a ZAR 56.41 billion shortfall in the same period of 2016.
The South African Revenue Service (SARS) today released trade statistics for June 2017 recording a trade balance surplus of R10.67 billion. These statistics include trade data with Botswana, Lesotho, Namibia and Swaziland (BLNS). The year-to-date trade balance surplus (01 January to 30 June 2017) of R27.68 billion is an improvement on the deficit for the comparable period in 2016 of R5.04 billion.
Including trade data with Botswana, Lesotho, Namibia and Swaziland (BLNS)
The R10.67 billion trade balance surplus for June 2017 is attributable to exports of R102.14 billion and imports of R91.47 billion. Exports decreased from May 2017 to June 2017 by R0.59 billion (0.6%) and imports decreased from May 2017 to June 2017 by R4.04 billion (4.2%).
Exports for the year-to-date (01 January to 30 June 2017) grew by 4.7% from R539.03 billion in 2016 to R564.39 billion in 2017. Imports for the year-to-date of R536.72 billion are 1.4% less than the imports recorded in January to June 2016 of R544.07 billion.
On a year-on-year basis, the R10.67 billion trade balance surplus for June 2017 is an improvement from the surplus recorded in June 2016 of R8.38 billion. Exports of R102.14 billion are 1.1% more than the exports recorded in June 2016 of R101.07 billion. Imports of R91.47 billion are 1.3% less than the imports recorded in June 2016 of R92.69 billion.
May 2017’s trade balance surplus was revised downwards by R2.28 billion from the previous month’s preliminary surplus of R9.50 billion to a revised surplus of R7.22 billion as a result of ongoing Vouchers of Correction (VOC’s).
The main month-on-month export movements (R’ million) |
||
Section: |
Including BLNS: |
|
Mineral Products |
- R3 877 |
- 16% |
Base Metals |
- R 819 |
- 6% |
Chemical Products |
- R 556 |
- 8% |
Other Unclassified |
- R 362 |
- 38% |
Wood Pulp & Paper |
- R 334 |
- 16% |
Live Animals |
- R 195 |
- 14% |
Machinery & Electronics |
- R 185 |
- 2% |
Plastic & Rubber |
- R 143 |
- 6% |
Precious Metals & Stones |
+ R1 804 |
+ 11% |
Vegetable Products |
+ R1 888 |
+ 33% |
Vehicles & Transport Equipment |
+ R2 158 |
+ 18% |
The main month-on-month import movements: R’ million |
||
Section: |
Including BLNS: |
|
Mineral Products |
- R5 297 |
- 31% |
Machinery & Electronics |
- R 412 |
- 2% |
Textiles |
- R 392 |
-11 |
Vegetable Products |
+ R 407 |
+ 27% |
Vehicles & Transport Equipment |
+ R2 027 |
+ 21% |
Trade highlights by world zone
The world zone results from May 2017 (revised) to June 2017 are given below.
Africa:
Trade Balance surplus: R22 435 million – this is a 34.9% increase in comparison to the R16 632 million surplus recorded in May 2017.
America:
Trade Balance deficit: R2 247 million – this is a deterioration in comparison to the R 153 million surplus recorded in May 2017.
Asia:
Trade Balance deficit: R11 702 million – this is a 2.4% decrease in comparison to the R11 994 million deficit recorded in May 2017.
Europe:
Trade Balance deficit: R5 100 million – this is an 8.7% decrease in comparison to the R5 588 million deficit recorded in May 2017.
Oceania:
Trade Balance surplus: R 223 million – this is an improvement in comparison to the R 32 million deficit recorded in May 2017.
Excluding trade data with Botswana, Lesotho, Namibia and Swaziland (BLNS)
The trade data excluding BLNS for June 2017 recorded a trade balance deficit of R 0.55 billion. This was a result of exports of R87.91 billion and imports of R88.46 billion.
Exports decreased from May 2017 to June 2017 by R4.12 billion (4.5%) and imports decreased from May 2017 to June 2017 by R3.95 billion (4.3%).
The cumulative deficit for 2017 is R18.19 billion compared to R56.41 billion deficit in 2016.
The main month-on-month export movements (R’ million) |
||
Section: |
Excluding BLNS: |
|
Mineral Products |
- R3 752 |
- 16% |
Base Metals |
- R2 616 |
- 21% |
Chemical Products |
- R 597 |
- 11% |
Precious Metals & Stones |
- R 475 |
- 3% |
Other Unclassified |
- R 363 |
- 38% |
Vegetable Products |
+ R2 005 |
+ 39% |
Vehicles & Transport Equipment |
+ R2 224 |
+ 21% |
The main month-on-month import movements (R’ million) |
||
Section: |
Excluding BLNS: |
|
Mineral Products |
- R5 284 |
- 31% |
Machinery & Electronics |
- R 536 |
- 3% |
Textiles |
- R 413 |
- 13% |
Vegetable Products |
+ R 416 |
+ 29% |
Vehicles & Transport Equipment |
+ R 1 969 |
+ 20% |
Trade highlights by world zone
The world zone results for Africa excluding BLNS from May 2017 (Revised) to June 2017 are given below.
Africa:
Trade Balance surplus: R11 213 million – this is a 24.2% increase in comparison to the R9 031 million surplus recorded in May 2017.
Botswana, Lesotho, Namibia and Swaziland (Only)
Trade statistics with the BLNS for June 2017 recorded a trade balance surplus of R11.22 billion. This was a result of exports of R14.23 billion and imports of R3.01 billion.
Exports increased from May 2017 to June 2017 by R3.53 billion (33.0%) and imports decreased from May 2017 to June 2017 by R0.09 billion (2.9%).
The cumulative surplus for 2017 is R45.87 billion compared to R51.37 billion in 2016.
The main month-on-month export movements (R’ million) |
||
Section: |
BLNS: |
|
Precious Metals & Stones |
+ R2 279 |
+ 11561% |
Base Metals |
+ R1 797 |
+ 244% |
Textiles |
- R 98 |
- 16% |
Machinery & Electronics |
- R 100 |
- 6% |
Vegetable Products |
- R 117 |
- 19% |
Mineral Products |
- R 126 |
-8% |
The main month-on-month import movements (R’ million) |
||
Section: |
BLNS: |
|
Chemical Products |
- R 247 |
- 46% |
Prepared Foodstuff |
- R 42 |
- 10% |
Precious Metals & Stones |
- R 32 |
- 6% |
Textiles |
+ R 21 |
+ 5% |
Live Animals |
+ R 31 |
+ 8% |
Vehicles & Transport Equipment |
+ R 57 |
+ 143% |
Machinery & Electronics |
+ R 124 |
+ 43% |
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‘A two-speed economy’: Mozambique Economic Update
Mozambique is increasingly “A two-speed economy” as extractives and mega projects drive recent growth whilst other sectors lag behind, according to the third edition of the World Bank Mozambique Economic Update, released today.
Trends in early 2017 show signs of improvement in the Mozambican economy as first quarter growth picked up and the currency stabilized. Much of this improvement is attributed to the country’s recovering coal industry and a great deal of the growth outlook depends on developments in the extractives sector. According to the report, strengthening prices for extractives, along with a post el Niño recovery in agriculture and progress in the peace talks, could steer growth to 4.6 percent in 2017, and towards 7 percent by the end of the decade.
But economic conditions remain challenging. Growth is well below the levels seen in recent years and inflation remains very high at 18 percent. Monetary policy has supported a significant adjustment in the economy. However, Mozambique’s reference lending rate is now amongst the highest in sub-Saharan Africa, and average commercial bank lending rates in the region of 30 percent are prohibitively high for much of the private sector. Hence, more needs to be done to help Mozambique’s economy recover, especially the small and medium enterprises.
In a special focus section, this edition of the Mozambique Economic Update explores the profile of the formal private sector and the impact of the ongoing economic downturn on its performance. It notes growth and increased dynamism as the number of firms in the formal sector doubled since 2002 and as the share of small and medium enterprises has grown, a phenomenon that bodes well for productivity growth. These are positive signs. However, the ongoing economic downturn is likely to have a disproportionately negative impact on the emerging micro, small and medium enterprises.
“While extractives and large industries are showing some resilience, the rest of the private sector, the green shoots of the economy, is facing reduced growth in demand, higher costs, and difficulties in access to credit,” said Carolin Geginat, World Bank Program Leader for Equitable Growth, Finance and Institutions.
Reestablishing macroeconomic stability through a more balanced mix of fiscal and monetary policy is a priority. Slowly easing inflation and lower credit levels suggest that the monetary policy cycle could begin to loosen as the economy continues to adjust. However, making this transition smoothly will require a sharper fiscal policy response to restore the health of Mozambique’s public finances. Consolidation reforms to control the wage bill would help to ease pressures on the budget, and much rests on the outcome of the debt negotiations initiated by the Government of Mozambique. Equally as important for restoring sustainability would be a commitment from the authorities to pursue policies that help Mozambique build fiscal buffers and to increase the resilience of the private sector in the long-term.
While extractives like coal are driving recovery in Mozambique, smaller businesses vital to productivity are struggling
After a difficult 2016, the Mozambican economy is showing signs of recovery. Its first quarter 2017 GDP growth picked up to 2.9 percent, more than double the growth rate of the preceding quarter. Mozambique’s currency, the metical, is now more stable, inflation is slowly beginning to ease, and international reserves are recovering.
But economic conditions remain challenging, and the recent improvements rely heavily on the country’s recovering coal industry. And, with much of the country’s outlook for growth hinging on the extractives sector, fluctuations in global commodity prices will continue to pose large economic risks.
Also, although monetary policy has remained tight and supported significant adjustment in the external sector, Mozambique’s reference lending rate is now among the highest in sub-Saharan Africa.
Average commercial bank lending rates in the region of 30 percent are prohibitively high for much of the country’s private sector.
A stronger exchange rate, easing inflation, and lower credit levels suggest that the monetary policy cycle could begin to loosen as the economy continues to adjust. Making this transition smoothly will require a coordinated and robust fiscal policy response.
Although progress had been made, Mozambique’s fiscal position continues to be unsustainable, and overall fiscal adjustment has been limited. Subsidy reforms, a difficult area to tackle, have advanced, and will contribute to easing fiscal pressures, accumulating arrears and domestic financing are impeding the fiscal adjustment, and a sharper fiscal policy response is needed.
The country’s wage bill continues to be a significant source of pressure, while recent cuts to the investment budget are affecting the economic and social sectors, potentially worsening the composition of the budget.
Moreover, fiscal risks are materializing, especially from some of Mozambique’s large state-owned enterprises. If not managed proactively, they may compromise fiscal recovery efforts.
Small business affected most
Part Two of this Mozambique Economic Update explores the profile of the formal private sector and the impact of economic downturn on its performance.
It notes that smaller firms experienced growth and dynamism when Mozambique saw resource-driven growth acceleration. The number of firms in the country’s formal sector has doubled since 2002, for example, and these businesses now employ twice as many workers as in 2002. And the share of the economy that small and medium enterprises have is still growing, a phenomenon that bodes well for productivity growth overall.
These are positive signs. But despite its signs of recovery, Mozambique’s overall ongoing economic downturn is likely to have a disproportionately negative impact on these emerging micro-, small and medium enterprises.
The report notes that, while extractives and other large industries are showing some resilience, the rest of the private sector – the green shoots of the economy – faces reduced growth in demand, higher costs, and more difficulties finding access to credit.
Hence, re-establishing macroeconomic stability through a balanced mix of fiscal and monetary policy is a priority for private sector growth. Reforms to strengthen competition, the business environment, and skills are also essential for the resilience of firms, given Mozambique’s openness and its exposure to the commodity cycle.
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BRICS countries: Emerging players in global services trade
BRICS countries – Brazil, the Russian Federation, India, China, and South Africa – have emerged as important players in global services trade in the past decade. BRICS services exports are growing faster than the developed countries; their share in global services markets is also expanding rapidly. Yet they still lag behind traditional major players and much work remains to tap into their potential.
According to the World Trade Organization (WTO), China was the world’s third largest exporter of services in 2015 and India the eighth, with India being particularly successful in areas such as IT and business process outsourcing.
But since the BRICS countries started from a relatively low base, they still account for only a modest proportion of world trade. Except for India, BRICS’ services trade tends to be concentrated in traditional sectors, such as transport and travel. The sectoral composition of services trade and production is important because sectors differ in terms of their productivity, their potential for future growth and their spill-over effects.
This report provides data on sector and modes of supply for each BRICS country, and analyses intra-BRICS trade. The analysis suggests that BRICS can better integrate into the global services economy by improving services regulations and reducing trade costs.
Executive Summary
Dynamic sectors
Dynamic services sectors, such as engineering and research and development, have seen rapid productivity growth globally in recent years. This has implications for policymakers, who need to have the right incentives to encourage high-productivity, growth-supporting services. It also means that the fact that manufacturing in developing countries and BRICS countries is peaking at lower levels as a percentage of GDP is not necessarily negative for employment and development, provided countries generate competitive offerings in dynamic services sectors.
One aspect of services trade which stands out for the BRICS countries is so-called ‘embodied’ services trade – services used as inputs in the production of other tradable goods and services. Services account for just some 20% of global exports in gross terms, but nearly 50% in value-added terms, reflecting the fact that most of the world’s cross-border services trade is in intermediate and not final services.
BRICS’ gross exports of manufactured goods incorporate between 30% and 40% of embodied services in value-added terms, primarily from domestic sources, but also from foreign suppliers, according to new TiVA data. This emphasizes the importance of developing services not only as a source of export earnings in a direct sense but also to facilitate the ability of manufacturers to be competitive in world markets.
Most data available for global markets cover only pure cross-border services trade, known as Mode 1 in the General Agreement on Trade and Services (GATS). However, a review of United States and European Union data on Mode 3 – sales by foreign affiliates – indicates that the BRICS, particularly China, are major sources of demand. Trade via Mode 3 is likely concentrated in flows with the main developed markets, as indicated by statistics on investment. The BRICS countries are taking initial steps in terms of Mode 3 exports; they are already well established as importers. Access to high-quality, reasonably priced services from the world market is important for consumer welfare and business productivity in BRICS countries.
For services trade involving the physical movement of people across borders – people-to-people connections – there are important factors that make the BRICS countries key players in this type of services trade, primarily GATS Mode 2 (as Mode 4 remains very restricted in most countries).
Natural advantages translate into vibrant tourism and travel economies in several the BRICS countries. At the same time, BRICS, particularly India and China, are themselves generating an increasing number of tourists as per-capita incomes rise.
The BRICS countries are also heavily involved in trade in educational services, primarily as sending economies. Their students study mostly in the developed markets of the United States and the European Union. Intra-BRICS exchanges are marginal.
Moving forward
The key finding from our data-driven analysis of services trade in the BRICS is that much work remains to be done to fully integrate BRICS countries into the global services economy. Economic forces will continue to pull in that direction; rising incomes will shift consumption towards services and increasing use of GVCs as production platforms will increase demand for intermediate services.
The major challenge for BRICS is to improve productivity in services trade, which would benefit trade integration, consumer welfare and downstream productivity and competitiveness.
Globally, costs are high in services trade, perhaps twice what is observed in goods. Policy plays a major role here. Although there are no explicit border restrictions, such as tariffs, other policies – both horizontal and sector-specific – affect the ability of foreign service providers to contest local markets.
Close gap
To leverage the global services economy and upgrade productivity, BRICS need to close a clear gap between aspiration and progress. Some BRICS, such as China, have taken major steps to open services markets, yet there remains scope to adjust policies to support more services trade integration.
It is important to look for other frameworks that could promote incremental change in services markets. Following the example of the Asia-Pacific Economic Cooperation’s (APEC) experience with goods, BRICS could seek a trade facilitation agenda in services, developing proposals to improve domestic regulation, facilitate investment and focus actions on dynamic segments of services trade, such as e-commerce and digital trade.
Through the G20, the BRICS could also push for a joint target to reduce trade costs by an agreed percentage over a set time, perhaps 5% in five years. As negotiating regulatory reform is very difficult, countries should be free to choose which regulations to reform to achieve their overall liberalization target. Experience suggests that such an approach can work when participants are committed to reform and act in good faith. Given that most experience with successful reforms of services’ markets has been unilateral, this kind of external anchor could provide needed support to domestic constituencies in favour of reform.
» Download: BRICS countries: Emerging players in global services trade (PDF)
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Regional action crucial for financial inclusion of small enterprises in Africa
Accounting and insurance regulators and practitioners have outlined potential interventions for the increased access to financial services for Micro, small and medium-sized enterprises during UNCTAD’s Regional African Workshop in Nairobi, Kenya, from 19 to 20 July 2017.
Senior representatives in accounting and insurance from 11 countries participated in this event to exchange practices and formulate actions with the aim of expanding financial literacy and access to affordable financial solutions by Micro, small and medium-sized enterprises (MSMEs).
Participants drew attention to the needs of financial literacy training for business owners and the role of mobile technologies in driving innovation and affordability for financial services. Meanwhile, they encouraged UNCTAD’s efforts in supporting the region to generate an enabling environment for MSMEs to thrive.
Mr. Daniel Owoko, Chief of Staff at UNCTAD, on behalf of the Secretary General, highlighted MSMEs’ key role in promoting economic development and tackling youth unemployment.
He stated that “access to financial services in affordable conditions could be a determining factor in accelerating their contribution to attaining the Sustainable Development Goals and the African Union’s Agenda 2063”. He also underlined the importance of strengthening regional collaboration to address these challenges and UNCTAD’s commitment to facilitate dialogue.
Mr. David Gichana, Deputy Auditor General of Kenya, emphasized the role of regulators. saying: “Policy-makers are fundamental in creating a more enabling environment. It is thus imperative to join hands with all stakeholders.”
Mr. Edwin Makori, Chief Executive Officer of Institute of Certified Public Accountants of Kenya (ICPAK) and Mr. Geoffrey Ochieng, Regional Manager of the Association of Chartered Certified Accountants (ACCA), expressed the commitment of the professional bodies to deliver on this call.
UNCTAD organized this event through a project funded by the United Nations Development Account, with sponsorship from ICPAK and ACCA.
The event benefited from the presence of a network of experts from Benin, Botswana, Cameroon, Ethiopia, The Gambia, Kenya, South Africa, United Republic of Tanzania, Uganda, Zambia, and Zimbabwe.
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National policy on services trade will ensure competitiveness in the sector
A service is an intangible transaction between the consumer and the provider. It is a vital source of income and employment to our economies and in some countries, over two thirds of the work force is engaged in the service sector.
In Uganda, over the last five years, services have been the leading contributor to the National Gross Domestic Product (GDP) and the fastest growing sector. Currently, the services sector contributes 48.7 per cent of GDP with an annual growth rate of 6.5 per cent (UBOS 2016), and is predicted to be at 58 per cent by 2040 (Vision 2040).
The services sector is composed of both formal and informal players, with more than 70 per cent operating informally. These include distribution of retail and wholesale goods, tourism services such as hotels, bars and restaurants, massage and gym, tourist guides, travel agencies and tour operators.
Others are financial services such as banking, mobile and telecom banking and insurance; recreation services such as museums and entertainment industry; transport services such as air transport, cargo and marine handling services; car rental services like UBER, Friendship taxis; health services like hospitals and social services; Computer-related services such as Internet cafes and business process outsourcing; environmental services such as garbage collection and sewage services; Professional services for consultants such as engineers, lawyers, accountants, auditors, doctors, teachers, chefs and others; agri-business services; communication services such as postal, courier and telecommunications; education services for higher learning, primary and secondary and vocational.
Services are becoming more tradable in their own right and the increase in digital technology is making it easier to export them. For instance, Uganda has positioned itself as a trade hub for higher learning, providing both face-to-face and online education services.
Uganda has continued to supply quality higher learning education to the African continent and beyond with Ugandan institutions enrolling foreign students from neighbouring countries and beyond.
Uganda’s exports of education-related services, according to available statistics, were $30.2 million in 2013 mainly exported to the region (Kenya, South Sudan, Rwanda, Tanzania and Burundi).
The influx of South Sudanese nationals to Uganda recently has seen increase of Sudanese nationals enrolling for pre-primary and primary education in Ugandan schools. Empirical analysis of the educational sector in Uganda reveals a growing trend of foreign students subscription at all the three levels of the educational ladder namely Kindergarten/primary, secondary and tertiary.
Another example is in the health sector where Ugandans are accessing specialised healthcare services for complex ailments via telemedicine. In this case, a Ugandan patient does not have to travel long distances within or abroad to access health services, but instead, would get treatment at home using telecommunication and information technologies.
For instance, on March 3, 2014, a team of doctors based in Kampala led by Dr John Bwanika, administered treatment to patients at Nadunget Health Centre in Karamoja using skype.
Despite the 6.5 per cent growth in the services sector, there are number of gaps in policy and regulatory frameworks that have rendered service provision suboptimal.
For example, the logistics and distribution services are currently unregulated to better support the sector players leaving a heavy burden on growth and development of quality and delivery of services in Uganda.
Such policy gaps require the government through the Ministry of Trade, Industry and Cooperatives, to develop a coherent National Policy on Services Trade, which was recently approved by Cabinet for implementation to ensure competitiveness in the services sector.
The policy will positively impact on different sector groups in the following areas:
Improved quality and quantity of services; enhanced competitiveness of the services industry; regulate market order; safeguard the legitimate rights and interests of entities in business activities; foster formalisation of businesses; increase the share of services exports; support mutual recognition agreements for professionals in the EAC and COMESA regions; stabilise negative changes in GDP by addressing export shocks with services exports; and increase household incomes by creating and diversifying employment by the services industry.
In conclusion, in order for the country to benefit from this policy, there is need to review and reform the institutional and regulatory framework, promote domestic capacities, deepen regional integration and mainstream services trade in national planning.
Ms Kyambadde is MP and Minister for Trade, Industry and Cooperatives.
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tralac’s Daily News Selection
Starting on Monday: 2nd SADC Industrialisation Week: Partnering with the private sector in developing industry and regional value chains. Southern Africa Trust briefing
37th Ordinary SADC Summit of Heads of State and Government (10-20 August): DIRCO briefing
Migration Policy Framework for Africa: meeting to validate evaluation report, revised migration policy framework (24-25 August, Victoria Falls). Key documents (pdfs): Report of the Evaluation of the Migration Policy Framework for Africa; Revised Migration Policy Framework for Africa and Ten-year Plan of Action of the Revised Migration Policy Framework for Africa (2018-2027)
Diarise: South Africa’s June 2017 merchandise trade statistics will be released on Monday afternoon.
The AGOA and MCA Modernization Act (US House Of Representatives)
House Foreign Affairs Committee Chairman Ed Royce (R-CA), joined by Ranking Member Eliot Engel (D-NY) and Reps. Chris Smith (R-NJ) and Karen Bass (D-CA), introduced today the AGOA and MCA Modernization Act (H.R. 3445). The bipartisan legislation strengthens both the African Growth and Opportunity Act and the Millennium Challenge Act. On the introduction of H.R. 3445, Chairman Royce, Ranking Member Engel, Rep. Smith and Rep. Bass said: “Moving developing countries away from aid and toward trade helps African companies, especially women. But it also benefits U.S. farmers, manufacturers and small businesses by providing new markets for their goods. So today we are introducing a bill to modernize AGOA and MCA – key laws in the effort to encourage African economic independence and promote US-Africa trade. With Africa’s consumer spending expected to reach one trillion dollars, now is the time to accelerate this important trade relationship.” [Section-by-section summary (pdf)]
President Trump’s nominee for AfDB Director: J. Steven Dowd of Florida to be US Director of the African Development Bank for a term of five years. Mr Dowd has decades of executive experience in trade, logistics, and finance, with a significant focus on Africa. Mr Dowd co-founded Ag Source, LLC, a global agriculture logistics, transportation, and finance company. His prior experience includes overseeing food aid operations and leading port infrastructure projects in Africa.
Future Fragmentation Processes: effectively engaging with the ascendancy of global value chains (The Commonwealth)
Leveraging the power of trade to expand formal employment opportunities, generate greater value addition, assist diversification processes and develop productive capabilities is an aspiration of all Commonwealth governments. These objectives were conveyed clearly at the Commonwealth Trade Ministers Meeting convened in March 2017. In this publication, as well as taking stock of past performance, we reflect on potential dynamics and future fragmentation processes. The chapters collated in this publication provide for a more careful examination of GVCs within which our members specialise at the sectoral level: manufacturing, services and commodity trade, including within the realm of the oceans economy. [The editors: Jodie Keane, Roland Baimbill-Johnson. Publication date: 7 August] [Free to read: Section 1: Global Developments, Section 2: Thematic Issues]
OECD Initiative for Policy Dialogue on GVCs, Production Transformation and Development: key outcomes of 8th Plenary Meeting (pdf)
E-commerce and digital trade: a policy guide for Least Developed Countries, small states and Sub-Saharan Africa (The Commonwealth)
This policy guide reviews the current regulatory frameworks, legal issues, empirical data, WTO member states proposals, and existing literature on e-commerce and digital trade. It is designed to help policy-makers in capacity-constrained Commonwealth small states, least developed countries, and sub-Saharan African countries to participate effectively in global work on the subject area, including in the context of the WTO work programme on e-commerce. [The author: Paul R. Baker]
Tanzania: Revive idle privatised firms within 19 days, investors told (The Citizen)
A 19-day ultimatum was issued yesterday to investors running non-performing privatised firms to kick-start production or risk losing the factories. Other measures announced by Industry, Trade and Investment minister Charles Mwijage include controlling sub-standard and counterfeit products and curbing under-valuation and under–declaration of goods. The two measures are expected to enhance fair competition in the market. Mr Mwijage said the government would repossess all idle privatised factories after next month’s deadline expires. “We will have to repossess former state-owned industries sold to private investors who have failed to run them after 15 August this year,” he told reporters. “The government sold these factories to private investors on the understanding that they develop them. We won’t tolerate those who would not have abided by what we agreed.”
Tanzania: All bets are off as Magufuli’s resource nationalism moves up a gear (The Conversation)
There are any number of reasons for the Tanzanian government’s decision to submit the tax demand – even if it doesn’t think that Acacia will ever pay. It could be a further bargaining ploy, a plea for attention, a failure of coordination or a strategic miscalculation. But the most likely explanation is that this is part of a mounting campaign to drive the miners out of Tanzania altogether. Last week, Magufuli announced that if the mining companies continued to delay negotiations: “I will close all mines and give them to Tanzanians”. With every new development, this threat seems less and less an idle boast.
Kenyan officials yet to make contact with Dar on trade row (Business Daily)
Nairobi officials have yet to make contact with Tanzania amid a trade spat that has seen the neighbouring country block the entry of some Kenyan-made goods to its market despite having inked a fresh pact on Sunday. Trade PS Chris Kiptoo on Thursday said he was unsuccessful in efforts to reach Dar es Salam authorities for explanations on Tanzania’s introduction of fresh hurdles for Kenyan goods to access its market. The traders who were locked in an all-day meeting with the KAM policy team over the issue confirmed the restrictions were still on. “The status quo remains,” a source from the meeting told the Business Daily. [Editorial comment: Kenya, Tanzania trade spat hurting integration]
ECOWAS: ERERA to conduct study on impact of reform of electricity sector in ECOWAS Member States
The findings of the study will enable ERERA to update, more appropriately, its evaluation report on the countries’ implementation of the Directive on the Organization of the Regional Electricity Market and determine the degree of the impact of the power sector market reforms. According to members of the joint ERERA Consultative Committees of Regulators and Operator who ended their two-day meeting yesterday in Accra, the findings of the study would encourage other Member States to accelerate the electricity reform processes in their countries for the benefits of their citizens, as envisaged by ECOWAS. The Directive provides for the gradual establishment of the ECOWAS regional power market through the harmonization of national electricity markets. It also provides for a regional market design at different market phases, open access to the regional transmission network and access by eligible customers.
Ghana’s Kwame Addo-Kufuor elected President of ECOWAS Chambers of Mines (Citi FM)
The President of the Ghana Chamber of Mines, Mr Kwame Addo-Kufuor, has been elected as the first President of the General Assembly of the ECOWAS Federation of Chambers of Mines. His election took place at the 2nd General Assembly meeting held in Abuja. He called for effective collaboration among the member chambers and their respective countries to harness the mineral potential in West Africa. Mr Addo-Kufuor will continue to hold his position as the President of the Ghana Chamber of Mines and the Chief Finance Officer of Newmont Africa. Nigeria’s Minister for Mines and Steel Development, Dr. Kayode Fayemi, speaking in an address read on his behalf by the Permanent Secretary to the Ministry, stressed the need for West African countries to collaborate on data sharing as a means to developing the regions mining and minerals sector.
Prof Dodoo appointed head of Ghana Standards Authority (Citi FM)
A clinical pharmacologist and pharmacist, with extensive experience in drug safety, vaccine safety, harmonisation initiatives, Professor Alexander Nii Oto Dodoo is the new head of the Ghana Standards Authority. He is a member of WHO’s Advisory Committee on the Safety of Medicinal Products as well as the immediate Chairperson of its Global Vaccine Safety Initiative. He is a member of the Expert Committee on Drug Dependency Disorders and has been supporting regional efforts in harmonisation. He works closely with the AU and the African Medicines Harmonisation Initiative and currently heads a NEPAD/AU designated Regional Centre for Regulatory Excellence.
UN urges legal interventions to transition Africa to green economy (Xinhua)
Africa urgently requires policies and regulatory frameworks to be able to resolve threats posed by environmental degradation to fasten a switch to green economy, a UN official said on Thursday. Dirk Wagener, the UN Environment Coordinator for Resource Efficiency Program said the governments have to collaborate with the private sector to help address the challenges to be able to be at par with other continents. “Policies and regulatory frameworks are necessary to create the incentives to develop green businesses and to mainstream Sustainable Consumption and Production (SCP) practices,” Wegener said at the launch of Kenya Switch Africa Green (SAG) Networking Forum in Nairobi.
AAMA Chairman meets African representatives, pledges better share of global maritime trade for Africa (WorldStage)
The Chairman of Association of African Maritime Administration, Dr Dakuku Peterside, has charged African stakeholders in the maritime sector to work together to ensure Africa takes its rightful place in the global maritime community. Dr Peterside, who is also the DG of the Nigerian Maritime Administration and Safety Agency, briefed AMAAG members of the modest progress recorded by Heads of African Maritime Administrations working together and plans going forward to implement most of the instruments signed by African Heads of State and Government in other to reposition the continent’s maritime community. The Alternative Permanent Representative of Ghana to IMO, Azara Prempeh who is the chairperson of AMAG, urged Heads of African Maritime Administrations to domesticate and enforce laws to deter illegal migration through the seas. Azara informed the AAMA delegation that Africa’s representation within the IMO Council and the Secretariat staffing does not reflect the numerical strength of African states membership in IMO, urging them to work as a block to influence a change of policy in favour of the African continent.
Western Cape Tourism mid-term report: key indicators (GCIS)
The briefing comes after South African Tourism released its official annual figures for the country’s 2016 tourism performance. “I am pleased to announce that we’ve added 26 000 jobs to the tourism sector, taking us closer to our goal of adding up to 100 000 jobs to the sector by 2019. In line with our objective to position the province as a business destination, we have increased the value of conference bids secured from R280m in 2014, to R425m in the 2016/17 financial year. This year alone, we’ve added over 400 000 new two way international airline seats to make it easier for visitors to reach us, bringing our new seat total to 2.6 m. Improved air access played a role in our increased tourism numbers. In 2016, international tourists spent R18bn here, up from R14bn in 2014.”
WTO deadline: India to tweak textile export sops (BusinessLine)
The Centre is preparing to wean off textile and clothing exporters from direct subsidy schemes and replace them with indirect benefits as it may not be possible for the country to push the WTO deadline for abolishing export sops beyond next year. ”The Commerce and Textile Ministries are already examining alternative schemes that are allowed by the WTO such as ones for quality upgradation and subsidising capital expenditure. However, the changes would happen gradually and there will be no immediate withdrawal of popular schemes like interest subvention or Merchandise Export from India Scheme,” a government official told BusinessLine. Delays in implementing WTO deadlines do not usually have an immediate negative repercussion on the erring country as disputes filed by other members take a couple of years to get resolved. The US has been continuously asking India to re-haul its textile export policy. According to US calculations, the country should have done away with all forms of export subsidies for the sector by 2015. [As current rounds of talks draw to a close: questions about RCEP loom large over India]
Today’s Quick Links: Africa’s integrated high speed rail network: an interview with Adama Deen Egypt: Agricultural exports up 12.1% in first half 2017 Nigeria Export Trade Hub: update UNSC briefings, statements: West Africa, Burundi, DRC, Libya The growing economic clout of the biggest emerging markets (EM7) in five charts |