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UN urges legal interventions to transition Africa to green economy
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.
Wegener observed that policies should be combined with support that enables producers and consumers to adopt more environment and climate friendly practices.
“This can be done by nurturing eco-innovation and green business development, helping firms to capture opportunities for reducing or changing their resource use, minimizing waste, developing and marketing new products and services, and increasing demand for such products and services,” he added.
He said that since the launch of SAG in Africa, the project has supported 34 grantees with financial and technical support amounting to 11.5 million U.S dollars in terms of grants disbursed across Burkina Faso, Ghana, Kenya, Mauritius, South Africa and Uganda.
The grants were given in agriculture, manufacturing, tourism and integrated waste management that cuts across energy efficiency, labelling and standards, water efficiency, eco-innovation and sustainable trade sectors.
“All these SAG efforts in the six countries have promoted green business development in the continent,” he noted.
In Kenya, the priority sectors that ranges from agriculture, tourism and manufacturing that received a grant of 1.75 million dollars are already key game changing sectors in the transition to green economy.
The grantees are Common Markets for Eastern and Southern Africa (COMESA) led Leather and Leather Products Institute, Kenya Private Sector Alliance (KEPSA), Collaborating Centre on Sustainable Production (CCSP) and International Centre of Insect Physiology and Ecology (ICIPE).
The grantees are working on transforming and making the leather sector profitable, enhancing capacity for green business development and eco-entrepreneurship in agricultural sector, enhancing sustainable tourism innovation for community empowerment and up-scaling sustainable commercial production of medicinal plants by community-based conservation groups at Kakamega forest in Western Kenya respectively.
Each national grantee received a grant of 250,000 dollars each that has so far benefited more than 500 entrepreneurs in Kenya to support green business development.
Kenya’s Cabinet Secretary for Environment and Natural Resources Professor Judi Wakhungu revealed that SAG has promoted the use of the once discarded as wastes.
“Leather off cuts from shoes are now being used in making sandals, bracelets and dog collar, while bananas and peels are being used for producing jams and wine,” she revealed.
Wakhungu cautioned African governments to stop deriving economies from by acres of land under irrigation but the amount of produce derived from unit of water.
SAG project that was created in 2013 is funded by the European Union (EU) to support African countries in their transition to an inclusive green economy.
Wegener said that Africa’s strong growth is projected to continue in the medium-term due to increasing domestic demand, driven mainly by the rising middle class, improving regional business environment and macroeconomic management.
Other factors included increasing public investment, a buoyant services sector and robust trade and investment ties with emerging economies.
“Sub-Saharan Africa will become the main source of new entrants into the global labor force in the next 20 years,” he added.
He observed that the region is in a position to benefit from its demographic dividend if policies are focused on a set of interlinked actions, including fostering private sector development to increase the number of non-agricultural jobs, bridging the infrastructure and human capital gaps.
“The continent requires a great leap in economic performance that is sustainable, inclusive, and transformative and the green economy investment is one way to achieve this,” he added.
Background
Green Economy investment is one of the ways through which Kenya can achieve economic growth that is sustainable, inclusive, and transformative.
GESIP is Kenya’s blueprint in advancing towards a low-carbon, resource efficient, equitable and inclusive socio-economic transformation. This builds upon Kenya’s commitment to a Low-Carbon Development Pathway and represents an advancement of this commitment to integrate resource use efficiency and minimizing environmental impacts into Kenya’s economic development. Of significance, Kenya has developed this strategy at a time when Kenya’s economic development and social well being of its citizens is under growing threats from climate change, environmental degradation and depletion of natural resources.
“The launch of the Green Economy Strategy is most significant because it marks a new dispensation in socio-economic planning for Kenya,” said Prof. Judi Wakhungu, Cabinet Secretary, Ministry of Environment and Natural Resources.
“Kenya’s journey toward a truly inclusive green economy continues and many challenges remain. The interest and commitment of the Government, private sector, and civil society to support a sustainable and inclusive future is crucial. It is our responsibility as individuals and stakeholders to continue to put sustainability and equity at the heart of our economic decision making,” said H.E. Mette Knudsen, Danish Ambassador to Kenya.
SWITCH Africa Green is one of the major initiatives implementing the actions envisioned in this strategy seeking to support Kenya in achieving sustainable development by engaging in the transition towards an inclusive green economy, which generates growth, creates jobs and reduces poverty. Supported by the European Union, SWITCH Africa Green works with four grantees in the private sector positively impacting about 500 MSMEs a majority of whom are youth and women. In Kenya, SWITCH Africa Green focuses on Agriculture, Manufacturing and Tourism as priority sectors.
The SAG Networking Forum provides a critical platform for distilling knowledge from the SAG project implementation for wider replication and facilitate policy uptake. Further, through its social platform it affords an avenue to facilitate sharing of best practices and project related knowledge on eco-entrepreneurship, SCP and GE policies and tools amongst key stakeholders. There shall be an exhibition from various MSMEs and entrepreneurs drawn from both the private and public sectors on various green technologies.
“SWITCH Africa Green has demonstrated that it is possible for micro, small, and medium enterprises to green their businesses through the application of sustainable consumption and production practices. We look forward to continue supporting the Government of Kenya in its transition to an inclusive green economy,” said Dirk Wagener, UN Environment.
WWF-Kenya’s CEO Mohamed Awer Iauded the Kenyan Government for taking an initial step in redefining the country’s development trajectory saying, GESIP will be instrumental in informing decisions in making choices towards a low carbon development ambition in Kenya.”
» Related: pdf Kenya Climate Smart Agriculture Strategy 2017-2026 (2.42 MB) (PDF, 2.41 MB)
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Secretary-General highlights challenges posed by trade fragmentation
Trade governance structures must be “fit for purpose” to address the changing global landscape and benefit Commonwealth member countries, Secretary-General Patricia Scotland has said. The comments were made at a conference in London, ahead of the publication of a new book by the Commonwealth Secretariat on trade fragmentation.
“Trade is increasingly fragmented across countries. This presents challenges for the architecture of regulation that governs and controls trade, taxation and investment relationships across borders,” the Secretary-General said.
The conference, ‘Harnessing the Commonwealth Advantage in International Trade’, organised jointly by the Commonwealth Secretariat, The Wealth Forums and Pinsent Masons, saw speakers analyse a number of pressing challenges and opportunities that countries around the world must tackle, such as the rise of protectionism, the implications of Brexit and the major shifts taking place within international trade.
The Secretary-General reflected on the rise of regional and bilateral trade agreements, otherwise known as trade fragmentation, as well as knowledge gaps that exist as a result of limited data in certain countries. Her speech to the conference, on 13 July, also emphasised taking advantage of the technological advancements that are transforming how trade takes place, such as the rise of new web-based platforms.
“We are facing a changing global landscape and the challenge ahead of us is to ensure that our trade, finance and investment governance structures are fit for purpose as we approach the third decade of the 21st Century,” she said.
The Commonwealth Secretariat’s forthcoming e-publication on trade fragmentation will address the profound shift in how many countries have become ever more reliant on international trade for their economic growth model.
The Secretary-General added, “A particularly acute need for Commonwealth member states transitioning from the classification of being a ‘least developed country’ to that of being more developed, and to achieving the Sustainable Development Goals, is access to adequate finance.
“As a family bringing together some of the most economically-advanced and least developed countries, the Commonwealth provides a richly diverse yet sympathetic context within which to explore these issues.”
Global trade expanded by just 1.9 per cent in 2016, down from 2.4 per cent in the previous year – compared to an annual average growth rate of 6 per cent between 1980-2007.
Commonwealth member countries however enjoy a measurable trade advantage, tending to trade on average around 20 percent more compared to other trade partners, as well as benefitting from lower trade costs.
The Commonwealth Secretariat supports its member governments to respond to global economic and trade challenges and opportunities. Find out more about their work.
Future Fragmentation Processes: Effectively Engaging with the Ascendancy of Global Value Chains
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.
There are areas of mutual interest and where enhanced co-ordination between member countries could enhance trade gains. Because the ability to transmit tacit knowledge through Commonwealth trade, finance and investment networks is inherent in the trade cost advantage shared by members – which exists without formal collaboration – it suggests the sharing of already known best practice could further enhance the gains from more concerted action.
In order to engage effectively with contemporary trade, which manifests as global value chains (GVCs), it is incumbent on governments to better understand corporate strategies. The achievement of structural economic transformation within the context of GVC trade entails system-wide approaches, more cognisant of innovation systems, as opposed to more siloed approaches towards sectoral development. Concerted action is required to facilitate interactions between private and public agents, so as to effectively enable societal upgrading processes.
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. Given that the overwhelming majority of the 52 Commonwealth member countries are small states, 45 are oceans states and around one-fifth are least developed countries, understanding how dynamics are unfolding at the sectoral level is critical to encouraging more gainful GVC participation.
Through a more inductive approach, one that involves learning from experiences across the Commonwealth of existing GVC participation, a clear set of policy measures becomes apparent. These include overcoming barriers to entry, informational asymmetries and unfair competition, and stimulating innovation. Finally, important knowledge and data constraints for small states in the Pacific and Caribbean are highlighted.
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The Continental Free Trade Area in Africa: a human rights perspective (pdf)
This human rights impact assessment, like others, advocates for the prioritization of concerns of all members of society and their human rights, in the negotiating, drafting and eventual implementation of the CFTA agreement through inclusive, consultative and participatory processes. It demonstrates the value of a rights-based approach and the opportunity it provides for meeting the sustainable development goals and strengthening accountability of economic actors. Initial screening and scoping exercises were carried out to narrow the focus of the assessment on the vulnerable groups that are at most likely to be adversely affected by the CFTA – women, youth, informal cross-border traders and rural producers. The assessment’s focus was also narrowed by focussing on the human rights impacts of elements to be covered in the first phase of negotiations – liberalisation of trade in goods and services – and attaching less attention to investment, competition policy and intellectual property issues which are scheduled for the second phase.
Several important messages emerge from the report. Ensuring broad consultation and participation in the CFTA negotiations and implementation is crucial. This will not be possible without increased efforts by policymakers and negotiators to reach out to all stakeholders and ensure that the voices of vulnerable and marginalised groups are heard and taken into account.
Given that governments have obligations to mobilise resources for human rights purposes, the full breadth of implications of tariff reductions must be considered with utmost care. Governments should embark on gradual liberalization that allows protection especially for vulnerable groups and in key areas such as food security. This should entail temporary exclusion lists and special safeguards which permit limiting imports in times of crisis or against sudden import surges. Economic development is a dynamic process. Member States should be very cautious not to limit their policy space for the future and resist CFTA provisions that could undermine their ability to implement future measures to ensure that all human rights, including the right to development, are protected, respected and fulfilled.
Adjustment mechanisms will need to be designed in a range of areas including re-skilling and training, social protection, and short-term financial assistance. The overall impact of the CFTA must be monitored over time, not only in terms of economic results, but also in terms of its impact on the enjoyment of all human rights for all Africans. Ongoing monitoring and evaluation will be key to ensuring that the CFTA policies continue to respond to economic, social and development needs as circumstances change, and adapt when they do not yield human rights- consistent impacts.
Table of contents: Chapter I: The Continental Free Trade Area in Context, Chapter II: The rationale for a human rights impact assessment, Chapter III: Methodology of this Human Rights Impact Assessment, Chapter IV: The human rights framework, Chapter V: Informal Cross-Border Traders, Chapter VI: Small-scale farmers and the right to food, Chapter VII: The right to work and the agro-manufacturing sector, Chapter VIII: Ensuring a human rights-consistent negotiating process, Chapter IX: Institutional and Structural Mechanisms, Chapter X: Monitoring and Evaluation, Chapter XI: Conclusions and Recommendations. [Published by: Friedrich-Ebert-Stiftung and the UNECA, in collaboration with the Office of the High Commissioner for Human Rights]
Nigeria: Director General appointed for Nigerian Office for Trade Negotiations (Premium Times)
The Federal Government has approved the appointment of Chiedu Osakwe as Director General with concurrent designation as Chief Negotiator, Nigerian Office for Trade Negotiations. Before his appointment, Mr Osakwe was a Trade Adviser at the Ministry and provided technical advice on trade policy and structural reforms to the Federal Government. He is also an Adjunct Professor on a leave of absence from the International University in Geneva on International Trade Policy, Diplomacy and Negotiations. Prior to his current position in Nigeria, he headed several divisions, including most recently the position of Director of the Accessions Division at the WTO.
Ghana’s trade surplus hits %1.4bn – BoG (Citi Business News)
New figures from the Bank of Ghana have shown that Ghana’s total balance of trade recorded a surplus of $1.429bn dollars as at June this year. This is equivalent to 3.1% of GDP. The surplus is an improvement over the $1.4bn deficit recorded in the same period last year. This has largely been accounted for by the declining imports for the period under review. The figures which summarize Ghana’s economic activities between June 2016 and the same period 2017, stated that Ghana’s total exports increased by $2bn to $7.159bn as at June 2017. This was an increase from the $5.139bn recorded in the same period last year. Ghana’s oil exports tripled within the one year period. The country exported $1.24bn worth of oil as at June 2017; up from the $408.3m worth of oil exports.
Kenyan products blocked as Tanzania ignores trade truce (Business Daily)
The long-running cross-border trade spat between Kenya and Tanzania has resumed barely four days after the two countries signed a pact removing restrictions that had cost traders billions of shillings by the time it was resolved last Sunday. The Kenya Association of Manufacturers yesterday said Tanzania had maintained a number of restrictions that existed before the Sunday truce, making it hard for Kenyan products to access its market. But KAM chief executive Phyllis Wakiaga said yesterday that Kenyan traders who had set out to test the effectiveness of the truce had found some of the restrictions intact, bringing into question its execution. “We were told to export and see whether the restrictions still exist. We have just done that and found that some products such as margarine, ice cream and tobacco can still not access the Tanzanian market,” Ms Wakiaga said.
Ethiopia and COMESA: Time for Ethiopia to enhance regional economic integration (Addis Fortune)
It is impossible to deny that some sectors could be negatively affected, but the consequences could be slackened by making good use of negotiating terms. The COMESA FTA contains provisions to help countries identify sensitive products and businesses. An agreement that ends up being signed should be carefully drafted to minimise possible shocks to the economy. Fewer tariffs and quotas could lead to porous borders and cultural transfers, which in turn could lead to better understanding. Regional trade empowers individual nations; the fruits of the EU should be a lesson to us all. Ethiopia is a country that once dreamed of a strong and united Africa, and to realise the desire, helped found the African Union. It seems bizarre that the FTA agreement has not yet been amended, that Ethiopia is missing an opportunity to help neighbouring nations become better integrated. Its leaders cannot afford to look like they are spoilers of a regional initiative.
Ethiopia: Why industrial parks are the order of the day (Ethiopan Herald)
In the past month alone, two newly built industrial parks have been inaugurated, while one went officially operational. The Hawassa, Kombolcha and Makalle industrial parks, constructed with more than $400m, specialize in the production of textile and apparel. The Hawassa Industrial Park is the first sustainable textile and apparel park in Africa with state-of-the-art infrastructure and facility, covering a total land area of 3 million meter square. The targeted investment recruitment has been carefully conducted - resulting in the attraction of over 18 global leading textile and apparel companies, eight domestic investors have also been selected and necessary preparation are finalized to facilitate their investment in the park. The majority of companies in HIP are currently operational and some have already begun exporting. At full capacity, the park is expected to generate export earnings of $1bn. The Makalle Industrial Park is strategically located at the heart of the capital city of Tigray State covering a total land area of ten million square meter. Phase-I of MIP covers a land area of 750,000 meter square of which 100,000 meter square is a factory shed built up area. The park is already gaining the interests of leading textile and apparel companies including Ananta Group, a Bangladesh-company engaged in the production of apparel. [More industrial parks, fewer investors]
EU to grant $15.8m fund for Nile Basin Initiative (Addis Fortune)
The European Development Fund Committee has given a qualified majority favourable opinion to commit $15.8m for the Nile Basin Initiative on 18 July 2017, although Egypt was lobbying against it. Out of the total fund, the European Union will cover $11.7m, and the German Federal Ministry for Economic Cooperation & Development will cover the balance. The fund, which is expected to be approved by the European Union Commission in two weeks’ time, according to the spokesperson of the German Embassy in Addis Abeba, will be used for generating data and information to manage and use the trans-boundary waters sustainably.
Tanzania to construct dry port to serve Great Lakes region (Xinhua)
The Tanzania Ports Authority said on Wednesday it plans to build a dry port in the east African nation’s western region of Kigoma to cater for East Africa and the Great Lakes region. Morris Nchindiuza, Kigoma region TPA Acting Manager, told a news conference in the port city of Tanga that the project will be among the biggest investments made by the authority in modern times. He did not reveal the cost of the project. Nchindiuza said TPA has finalized plans for the massive project which will largely serve landlocked countries of Uganda, Burundi and Rwanda, the DRC and Zambia.
Kenya: President Kenyatta commissions Sh42bn Isiolo-Moyale road (Capital FM)
President Uhuru Kenyatta Wednesday commissioned the Sh42 billion Isiolo-Moyale road which connects Kenya to Ethiopia, the second most populous country in Africa. The Isiolo-Moyale highway is a key plank of the Lamu Port-South Sudan-Ethiopia Corridor Project. The President, who was accompanied by Deputy President William Ruto, said the Jubilee Administration is also implementing the Lamu Port project which will be completed by next year. He said once complete, the government will launch the construction of Lamu-Garissa-Isiolo road which will open up the second transport corridor in Kenya. “With the opening up of this road, Moyale will become a market centre for Kenyan goods and services. Our brothers from Ethiopia will be coming here to purchase goods from us,” said President Kenyatta.
Nigeria: Moves to stop Asians from having direct dealings with farmers (Premium Times)
The Nigeria-Vietnam Chamber of Commerce and Industry, NVCCI, on Tuesday said that a mechanism that would stop Asian nationals from having direct access to Nigerian farmlands would soon be inaugurated. Oye Akinsemoyin, the NVCCI President, told the News Agency of Nigeria in Lagos that the direct dealings Indian and Chinese nationals now had with Nigerian farmers needed to be regulated. “It is increasingly becoming worrisome the way and manner we allow our Nigerian farmers to deal directly with Indians and Chinese nationals, in their farmlands. We do also know that these Asian nationals do not allow Nigerians to deal directly with or buy from their farmers or companies, without approval from their government-recognised organisations. The NVCCI has, therefore, come up with an idea to set up an online real-time trade and investment platform, to stop this trend,” he said.
Members issue joint call for safeguarding the WTO-based global trading system (WTO)
A group of 47 developing and developed WTO members issued a joint call (pdf) on 26 July for fellow members to work together to ensure the sound functioning of the WTO-based multilateral trading system as it faces a number of important challenges ahead. In their joint statement, the group said they are “strongly supportive of the Multilateral Trading System and are concerned that the WTO is facing challenges” as it prepares for its important 11th Ministerial Conference in Buenos Aires in December. “In recent months, Members have submitted ideas and proposals both on longstanding negotiating issues and other topics as part of the preparatory process” for MC11, they noted. “However, to date, the political will to find compromises and to forge consensus is lacking. Even the legitimacy of discussing topics of interest to Members has been put into question.” [India tells WTO to follow credible negotiating process; RCEP: India pressed to open up procurement]
WTO General Council: (i) Approves first ever amendment to Trade Policy Review Mechanism; (ii) Elects Vice Chairs for Buenos Aires Ministerial Conference
Impact of agricultural export restrictions on prices in importing countries (pdf, OECD)
During the last decade, several large exporters temporarily restricted exports of staple foods in an attempt to shield their domestic consumers from rising and volatile prices. These policies, however, not only affect markets in the restricting countries, but can also influence prices in global markets and in their trading partners. The study examines four specific export bans: the maize ban in Argentina, the rice bans in India and Viet Nam and the wheat ban in the Russian Federation. These bans were selected because they apply to major food crops and because they were implemented by large exporters. The focus is on export bans because they are the most extreme of all policies restricting exports.
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Kenyan products blocked as Tanzania ignores trade truce
The long-running cross-border trade spat between Kenya and Tanzania has resumed barely four days after the two countries signed a pact removing restrictions that had cost traders billions of shillings by the time it was resolved last Sunday.
The Kenya Association of Manufacturers (KAM) yesterday said Tanzania had maintained a number of restrictions that existed before the Sunday truce, making it hard for Kenyan products to access its market.
Kenya’s Foreign Affairs minister, Amina Mohamed, and her Tanzanian counterpart, Augustine Mahinga, announced last Sunday that the two neighbouring states had agreed to end the import restrictions after ironing out long-standing trade differences.
Kenya lifted the restrictions it had imposed on Tanzanian wheat flour and liquefied petroleum gas (LPG) while Tanzania removed its blockade of Kenyan milk and milk products, and cigarettes.
But KAM chief executive Phyllis Wakiaga said yesterday that Kenyan traders who had set out to test the effectiveness of the truce had found some of the restrictions intact, bringing into question its execution.
“We were told to export and see whether the restrictions still exist. We have just done that and found that some products such as margarine, ice cream and tobacco can still not access the Tanzanian market,” Ms Wakiaga said.
A stakeholder meeting comprising senior Trade ministry officials and various players in the cross-border trade was held on Monday to brief the exporters on the new developments and Kenyan traders told to ‘test’ whether Tanzania had kept its side of the bargain.
The meeting delved into the long-running trade spat with Tanzania that has often forced manufacturers to return products already cleared for export and duty paid, causing them huge losses.
The trade dispute came into the limelight after Tanzania on June 28 wrote to Kenya protesting the ban on LPG and denial of market access to its wheat flour.
The letter came a week after Tanzania postponed a planned meeting with Kenyan officials to resolve the dispute, insisting that the restrictions on LPG and wheat flour had to be lifted first.
Tanzania then reciprocated by blocking the entry of Kenyan milk (UHT and Cultured), tiles and margarine into its market.
Kenya on Monday announced the formation of a National Standing Committee to look into the various non-trade barriers that Tanzania continues to place on Kenyan products.
Kenyan traders remain opposed to the importation of wheat from Tanzania, arguing that it amounts to dumping as the East African state does not produce the commodity in quantities it would export.
Test the truce
Since Sunday, Kenyan manufacturers have loaded trucks with products destined for the Tanzanian market and driven them to the border to test the truce.
KAM said it was particularly concerned about the plight of manufacturers of perishable products such as milk and margarine that must be sold within 14 days to allow the remaining 75 per cent shelf life but are now stuck at the border.
“It is extremely expensive to keep refrigerated trucks at the border,” KAM said.
Hundreds of trucks were yesterday said to be awaiting clearance from the Tanzania Revenue Authority resident officer in Kenya at the Internal Container Deport in Embakasi, Nairobi.
Tanzania is also said to be loading extra conditions, including a requirement that the products be labelled in Kiswahili and clearance by multiple standardisation authorities on the Kenyan products already certified by the Kenya Bureau of Standards.
In addition to Tanzania Bureau of Standards (TBS), Dar also wants Kenyan importers to get clearance from the Tanzania Food and Drugs Authority (TFDA) – a demand that is costing traders more time and money.
“It is unfortunate that, the product cannot be sold in the Tanzanian market due to TFDA specific requirements on labelling the products to suit the Tanzanian market. If Tanzania applies the harmonised standards then the products can be free to be sold anywhere in the region and the world,” KAM said in a detailed document outlining the ongoing trade barriers between Nairobi and Dar-es-Salaam.
The numerous institutions involved in imposing levies and carrying out inspection of goods from Kenya are said to have recently increased levies by 100 per cent, rendering the products uncompetitive.
Kenyan manufacturers want the levies to be administered by a single agency and payments made available online.
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Members issue joint call for safeguarding the WTO-based global trading system
Azevêdo reports on status of negotiations; stresses continued importance of transparency
In a gathering of all WTO members on 25 July, Director-General Roberto Azevêdo called for them to show realism and urgency in preparations for the 11th Ministerial Conference (MC11), which will take place in Buenos Aires in December 2017. He also restated his commitment to ensuring transparency in discussions among members. The discussions took place over two back-to-back meetings convened by the Director-General – an informal meeting of the Trade Negotiations Committee (TNC) to discuss the specific issues which fall under the TNC, and an informal meeting of Heads of Delegations (HoDs), which is a transparency exercise, allowing the Director-General to report on his recent activities and trade-related developments, and allowing members to report on their own activities, as they see fit.
During the informal TNC meeting, the Director-General invited the Negotiating Group Chairs to provide updates on their work and he reported on his own consultations on TNC issues with members, both in capitals and in Geneva. This included discussions on Public Stockholding for Food Security and the Special Safeguard Mechanism which took place at a workshop recently organized by the G33. He stressed that greater urgency is needed to advance these issues, especially in view of the mandated timeline for public stockholding. He continued:
“I think greater urgency is required across the board, if we are to see progress. Nevertheless, we have seen a welcome increase in activity on the Doha issues in recent months. Agriculture, services and rules have continued to be major areas where members’ attention has been focused – although I have been pleased to see increased activity in development conversations as well in recent days. It is very positive that members have started to move to more detailed, text-based submissions and discussions. My hope is that this enhanced level of activity paves the way for a more focused process in the autumn. Wherever issues have reached the right level of maturity and specificity, members should be moving into negotiating mode. But let me underline again that while this growing engagement is very welcome, the approaches and level of ambition amongst delegations vary widely. A great deal remains to be done before Buenos Aires.
“We need to increase the intensity of our work markedly if we are to make the progress that I think most members want to see – including, crucially, steps on development and in support of LDCs. The Chairs and I will continue in our roles of facilitating convergence, but proponents bear the responsibility of building momentum behind their ideas. So I encourage you to reflect about how you can achieve this. And I encourage all delegations to use August to work with your capitals to increase their engagement, and to see what may be possible.
“We also need to be realistic in assessing what can be done by Buenos Aires and what could be further developed in the longer term. We must ensure that MC11 is a step forward for the multilateral trading system, in the interests of growth, development, job creation and living standards around the world. As with Bali and Nairobi, it is essential that we do all we can to make Buenos Aires a success – and to ensure that it represents a strong platform for future work.”
During the informal HoDs meeting, the DG gave an overview of his consultations in recent months, including over 25 bilateral meetings, bilateral visits to Japan, the US, the EU Commission and Romania, and his participation in various meetings including the ’One Belt One Road’ Forum in Beijing, the APEC Trade Ministers’ meeting in Hanoi, the OECD ministerial meeting and the informal gathering of Trade Ministers in Paris which was organized by Australia, the G20 Leaders’ summit in Hamburg, and the Global Review of Aid for Trade which was held at the WTO in Geneva.
Reporting on these consultations in the HoDs meeting, DG Azevêdo said:
“Members recognize the important role that the WTO plays in ensuring stability, transparency and predictability of the global trading system and therefore the need to further improve and strengthen it. This is especially positive given the continued uncertainty in the global economy. In addition, throughout these exchanges, I have heard consistent calls for a successful MC11. The Ministerial Conference is clearly an important moment to demonstrate that the system works to support all countries’ economic growth and development. To deliver on this we need to ensure that our work is relevant to the challenges faced by the users of the trading system, and therefore I am pleased that interest from the private sector in the work of the WTO continues to be very high.”
The Director-General went on to detail various events organized by groups of members in which he had been invited to participate.
Members issue joint call for safeguarding the WTO-based global trading system
A group of 47 developing and developed WTO members issued a joint call on 26 July for fellow members to work together to ensure the sound functioning of the WTO-based multilateral trading system as it faces a number of important challenges ahead.
In their joint statement, the group said they are “strongly supportive of the Multilateral Trading System and are concerned that the WTO is facing challenges” as it prepares for its important 11th Ministerial Conference (MC11) in Buenos Aires next December.
“In recent months, Members have submitted ideas and proposals both on longstanding negotiating issues and other topics as part of the preparatory process” for MC11, they noted. “However, to date, the political will to find compromises and to forge consensus is lacking. Even the legitimacy of discussing topics of interest to Members has been put into question.”
Other important functions of the WTO are also facing challenges, such as compliance with notification obligations and the functioning of the WTO’s dispute settlement system, the statement notes.
Members endorsing the joint statement were Albania; Argentina; Australia; Bangladesh; Benin; Canada; Chile; Colombia; Costa Rica; the Dominican Republic; Ecuador; El Salvador; Ghana; Guatemala; Hong Kong, China; Iceland; Israel; Kazakhstan; Korea; Lao People’s Democratic Republic; Liechtenstein; Malaysia; Mexico; Montenegro; Moldova; Myanmar; New Zealand; Nigeria; Norway; Pakistan; Panama; Papua New Guinea; Paraguay; Qatar; the Russian Federation; Singapore; Sri Lanka; Switzerland; Chinese Taipei; Thailand; The former Yugoslav Republic of Macedonia; Tonga; Turkey; Ukraine; Uruguay; Vanuatu; and Viet Nam.
Joint Communication
WTO Heads of Delegations Meeting, 25 July 2017 / General Council, 26 July 2017
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We, a group of 47 developing and developed Members, are strongly supportive of the Multilateral Trading System and are concerned that the WTO is facing challenges.
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In recent months, Members have submitted ideas and proposals both on longstanding negotiating issues and other topics as part of the preparatory process for the 11th Ministerial Conference (MC11) in Buenos Aires. However, to date, the political will to find compromises and to forge consensus is lacking. Even the legitimacy of discussing topics of interest to Members has been put into question.
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Other important functions of the WTO are also facing challenges. Inter alia, compliance with notification obligations is often unsatisfactory, thereby undermining the WTO’s monitoring function; and various issues are affecting the functioning of the WTO’s dispute settlement system.
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We call on Members to safeguard the integrity of the open, rules-based Multilateral Trading System embodied in the WTO and to work together to ensure its sound functioning. The WTO continues to be essential to achieving inclusive and sustainable global growth and development, including through the further integration of LDCs into world trade. MC11 presents an important opportunity to reaffirm the centrality of the WTO.
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We welcome the commitment from the recent G-20 Summit in Hamburg to make MC11 a success. We urge Members to engage constructively, to consider proposals on their own merit, and to work towards pragmatic outcomes. It will be important that Ministers provide political guidance on outcomes for MC11, including on the WTO’s future work.
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Time for Ethiopia to enhance regional economic integration
International trade never used to be an issue, at least, not one borne out of apathy or misrepresentation. Ancient civilisations seldom traded with outsiders, but rarely because they did not want to.
The malefactor was inconvenience, owing to the fact that transporting anything from point to point used to be such a headache. But as technology caught up with traders’ ambitions, as mail services, shipping, road and air travel became simple, and in some cases, informal, trade between whole countries and continents became the sensible way to go.
But international trade, or free trade as it came to be known, was never without its flaws, and the phenomenon was never lost on world leaders. A point of contention for the last 70 years, since most of the civilised world came to embrace the term fully, has been the manner in which free trade, while benefiting some, could hurt others. It has been argued that free trade in itself is not enough and should gear towards fairness instead of freeness.
Ethiopia has been on the flip side of “free” when it comes to free trade for some time. Ever since the Provisional Military Administrative Council, known simply as Dergue, took over the country in 1974, the bias towards international trade has never clichéd, although the Dergue itself has long abdicated or been made to.
The subsequent government, inundated with the Ethiopian People’s Revolutionary Democratic Front (EPDRF), promised a more pro-liberal sensibility – rekindling past predilections for the United States, Europe and their ways – once favoured by the nation’s last Emperor.
More than two decades have elapsed, and the country still reeks of protectionism and high tariffs. Internally, prospects appear to be better. Although the government still dominates the commanding heights of the economy, like finance, energy, transportation and telecommunications, it has been successful at privatising most other commercial companies and businesses. But privatisation is only the starting block to what every reasonable country in the world, in one form or another, is striving to be a part of – the globalised economy. Privatisation is very much the right step forward, but the term is too basic an economic statement for such an ambitious nation to still be making.
A Preferential Trade Area (PTA) was formed between some Eastern and Southern African countries in 1981, including Ethiopia. As the first stage of economic integration, a PTA is always formed with the aim of shortly establishing a Free Trade Agreement (FTA). But do not tell this to Ethiopia.
The Common Market for Eastern and Southern Africa (COMESA) was formed in 1994 to replace the PTA, but Ethiopia never amended the new agreement, leaving COMESA with only nine FTA members at the time.
The nation has never been completely turned off by the idea of trade liberalisation. Although not a full member of COMESA, the nation has some bilateral economic relationships with its neighbours such as South Sudan and Kenya. Major avenues of regional cooperation include transportation corridors and energy projects, worth usually millions of dollars.
Investments of this kind show that the country has no intentions of becoming a hermit kingdom. The government seems to fully realise that the COMESA free trade area is unique and important. But it has been stuck with a policy that has never been adequately justified – trade protectionism.
In 2015, reports came out that Ethiopia was finalising its accession into the COMESA FTA. Certain industry areas were selected by the Ministry of Finance & Economic Cooperation (MoFEC) as sections of the national economy that would get to join the trade agreement. The goodwill was reciprocated by members of the trade bloc. Addis Abeba was chosen to hold the 18th COMESA summit, and the nation’s Prime Minister selected to chair the top diplomatic conference.
A couple of years have elapsed since then, and Ethiopia has not come any closer to signing the agreement. It appears the Revolutionary Democrats with their leftist bent have reservations about the benefits, weighing whether or not the pros outstrip the cons.
Granted, similar to any free trade agreement, the COMESA FTA poses the same, rather legitimate, threat anti-globalists lament – job losses and outsourcing, unfair competition and reduced tax revenue. The last bit is of special concern to the Ethiopian government since some believe revenues collected from duties is too important an asset in the nation’s coffers to trade off for a trade agreement.
But the argument lacks substance. Tax revenue from COMESA member states is comparatively small, as it only makes up about three percent of the total income. The loss in revenues from duties imposed on imports from these countries is not anywhere as devastating as it would be from, say, China.
Detractors of the COMESA FTA also forget that a lowered tax revenue, although a grungy idea to pitch to the government, is good news for local consumers. More goods and services can, therefore, be attainable to the public at a lower price, aiding household welfare. It would also be the perfect anecdote to locally monopolised goods that are expensive.
The benefits do not end here. As trade between countries of the world increases, more nations are looking towards boosting commerce with their neighbours. All the largest free trade agreements, from the European Union (EU) down to the North American Free Trade Agreement (NAFTA), are signed between countries that share borders or are at least on the same continent. The key word here is distance. The farther a nation is from that of another, the pricier the goods when they finally reach their destinations. In addition to import taxes and the merchandise’s price, consumers are also expected to cover transport fees. An item from anywhere overseas, for this reason, is pricier and a burden on consumers.
The equation adds up both ways. If prices of goods imported from COMESA member states decrease, then so would the prices on the receiving end. Export market to these countries will be open for business from Ethiopian companies. Such circumstances should bode well for what the government is trying to achieve with the manufacturing industry.
The Ethiopian government has launched a number of industrial parks around the country, headed by the Industrial Park Development Corporation, to attract foreign investments. These massive projects were initiated bearing in mind the growing cost of labour in countries such as China and India, and eyeing overseas market as their destinations. They are part of the Revolutionary Democrats’ drive for an economy anchored on export-led industrialisation.
Foreign direct investment (FDI) is already shifting towards other low-labour cost countries such as Ethiopia. Although Ethiopia enjoys quota and duty free access to major markets in the United States and EU, products from the parks will be subjected to quotas and high tariffs to many other developing but important markets.
The COMESA FTA only satisfies the second level of economic integration between multilateral countries. Such trade blocs, in addition to their economic benefits, also have far-reaching social and political benefits.
Membership of the COMESA FTA, therefore, would give the nation geographically close customers.
The manufacturing industry, owing to its relative weakness, has always been a burden on the country. But studies have shown, time and again, that foreign investment flows towards nations with the cheapest labour cost, thereby boosting the manufacturing sector.
Tariffs may help fend off job losses in these fields, but only in the short term. The COMESA FTA, on the other hand, realised the right way, is more than capable of enhancing exports without significantly affecting job growth.
It is impossible to deny that some sectors could be negatively affected, but the consequences could be slackened by making good use of negotiating terms. The COMESA FTA contains provisions to help countries identify sensitive products and businesses. An agreement that ends up being signed should be carefully drafted to minimise possible shocks to the economy. Fewer tariffs and quotas could lead to porous borders and cultural transfers, which in turn could lead to better understanding. Regional trade empowers individual nations; the fruits of the EU should be a lesson to us all.
Ethiopia is a country that once dreamed of a strong and united Africa, and to realise the desire, helped found the African Union (AU). It seems bizarre that the FTA agreement has not yet been amended, that Ethiopia is missing an opportunity to help neighbouring nations become better integrated. Its leaders cannot afford to look like they are spoilers of a regional initiative.
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Concluding today, in Addis: AU Specialized Technical Committee on Transport, Trans-Regional and Interregional Infrastructure, Energy and Tourism
Next week, in Shanghai: BRICS trade ministers meeting
WTO’s negotiating Committee on Agriculture holds special session: highlights (WTO)
The EU, Brazil, and three other Latin American countries have tabled a new proposal on farm subsidy reform for negotiation ahead of the WTO’s eleventh ministerial conference in Buenos Aires, Argentina, this December. Colombia, Peru, and Uruguay also co-sponsored the proposal, which was submitted ahead of a 19 July meeting of the WTO’s negotiating committee on agriculture. Those countries are all agricultural exporters that favour faster liberalisation of global farm trade. The proposal coincided with three other submissions charting alternative approaches, and a new proposal from Singapore on transparency in agricultural export prohibitions or restrictions. Extract from report: Ambassador Stephen Ndung’u Karau (Kenya), Chair of the Agriculture Committee (pdf): The question we must ask ourselves now is how do we organize our work going forward? This issue is now becoming absolutely critical, given the tight timeframe we are operating within. At best, we have 12 working weeks between the “Jeûne genevois” holiday period and MC11. First, it seems to me we need to prioritize our discussions, based on the level of priority given by Members to the various topics, and allocate our time accordingly. Second, it is clear that we have not yet moved so far into what I would call a real intensive negotiation mode. We have had useful suggestions, discussions and exchanges but no real negotiation. While this preparatory phase is very important to prepare the ground for a successful negotiation, we also need to be realistic and pragmatic. [Various downloads available]
Rich nations have cornered 90% of farm subsidy entitlements: India-China study (BusinessLine)
Seeking to expose the double-standards of developed countries at the WTO, a joint paper by India and China has revealed that rich nations, including the US, the EU and Canada, have been consistently giving trade-distorting subsidies to their farmers at levels much higher than the ceiling applied on developing countries. Together, the developed world has cornered 90% of total entitlements, amounting to a whopping $160 billion annually. Calling for the elimination of such subsidies, the joint paper, a copy of which is with BusinessLine, draws a list of the most heavily and frequently subsidised items for the US, the EU and Canada over the past two decades. The numbers reveal that subsidies for many items given by the developed world are over 50 per cent of the production value, while developing countries are forced to contain it within 10 per cent or face penalties. [India’s agriculture trade policy has a pro-consumer bias: study; ICRIER/World Bank: Price distortions in Indian agriculture, pdf]
Global Infrastructure Outlook: infrastructure investment needs across 50 countries, 7 sectors to 2040 (GI Hub)
The findings are compelling. For instance, Asia has the largest overall need, requiring just over 50% of global investment in infrastructure, however the region is forecast to have a relatively small investment gap. The picture is very different in other regions where investment gaps are more prominent. The Americas and Africa, by contrast, are forecast to have proportionally much larger infrastructure investment gaps. In these regions investment gap is 32% and 28% respectively of investment need. Africa’s investment gap is forecast to widen further to 43%, if investment need includes SDGs. Quantifying country-level needs is a powerful and positive step. These insights will help governments identify and respond to infrastructure needs, and guide opportunities for private sector investors. The findings are the result of a major data collection and econometric analysis exercise, drawing on information from 50 or so separate datasets, alongside the development of bespoke models to produce estimates for countries and sectors where no data could be identified.
Chapter 5: Regional infrastructure needs: Africa (pages 55-63):
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Under our current trends scenario, the total infrastructure investment forecast for Africa to 2040 is projected to be $4.3 trillion, or $174bn per year. If African economies were able to raise their performance to match that of their best performing peers the total investment need would be $6.0 trillion, or $240 billion per year—a difference of almost 40%.
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The flip side of a strong focus on utilities infrastructure is that Africa dedicates a below average proportion of investment to the transport sector: this accounted for 27% of the total between 2007 and 2015, compared to the world average of 45. The difference is particularly striking for rail, which receives just three percent of infrastructure investment in Africa, compared to the world average of 12%.
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Our analysis suggests that Morocco and Kenya are performing relatively strongly amongst the African economies in our study: the investment need forecast is no more than 21% higher than the current trends forecast for each of these countries. In contrast, the gap is much greater for Egypt, South Africa and Tanzania, where the investment need forecast is just over 50% higher than the current trends forecast. For Angola, Ethiopia, Nigeria and Senegal the investment need is around one-third greater than would be delivered under current trends. [Various downloads available]
Kenya Economic Report 2017: sustaining economic development by deepening and expanding economic integration in the region (KIPPRA)
This report discusses the prospects of enhancing Kenya’s economic growth and development by boosting trade and enhancing industrial development, taking an integrated approach to infrastructure development, improving labour productivity and opportunities, and strengthening institutions by deepening participation in regional integration. These, together, complement domestic efforts in addressing the challenges of poverty, unemployment and inequality in the realization of Vision 2030. The report is organized as follows: Chapter 2 reviews developments in key macroeconomic indicators, demographic factors and labour market issues. Chapter 3 analyses the medium term prospects of the economy for the period 2017-2020. Chapters 4 to 10 review sectoral issues of regional economic integration, namely trade, tourism, agriculture and food security, industrial development, infrastructure, labour and governance. Dynamics in other partnerships and emerging global issues are discussed in chapter eleven. Chapter 12 presents conclusions and policy recommendations.
Anzetse Were: What do political party manifestos say on industrialisation in Kenya?
To be clear, access to EAC for manufactured goods is riddled with problems. Total exports from Kenya the EAC registered a 4% decline in 2016 to KES 121.7 billion, with exports to Uganda and Rwanda falling by 9.3% and 2.5% respectively. Further, opportunities offered by the EAC’s integrated market has institutional and regulatory barriers to trade such as such as customs clearance, standards and certification, rules of origin, licences and permits, truck inspections and language barriers. None of the manifestos address these issues. Further, the entry of China and India into the regional market has eroded Kenya’s EAC market share from 9 percent in 2009 to just 7 percent by 2013. The World Bank claims that Kenya’s trade performance is declining quickly due to an influx of goods from China into Uganda and Tanzania, which are major export destinations for Kenya. In the manifestos it is not clear how EAC market access issues will be addressed.
Zambia to engage SA on soya cake market (Daily Mail)
Ministry of Agriculture permanent secretary Julius Shawa says Government will soon engage South Africa on how farmers can access the $1bn soya cake market following demand in that country. Mr Shawa said Zambia which has this year produced about 390,000 metric tonnes of soya beans from 340,000 tonnes last year, could tap into that market and increase its trade levels with that country. He said at the just-ended Zambia-South Africa Trade and Investment forum that the demand by South Africa could boost production levels among Zambian farmers, thus contribute to accelerating trade volumes between the two countries.
Mozambique: Proposed local content law goes to the Council of Ministers
The document, now being developed, has already been reviewed by the Economic Council, which produced some of the recommendations. Speaking in Maputo during a meeting of the Conference on Local Content in the Oil and Gas Sector, which ended on Friday, Vasco Nhabinde said the aim was to stimulate domestic production and generate employment and income. He emphasized that the idea was to ensure that there is an effective technology transfer “because without technology transfer, local content will be worthless”.
Zimbabwe: ‘150% duty for second-hand vehicles’ (NewsDay)
Speaker of the National Assembly Jacob Mudenda wants the Zimbabwe Revenue Authority to charge 150% in customs duty on second-hand vehicles, claiming Zimbabwe has become Japan’s largest warehouse of used cars. Speaking at a Zimra and parliamentarians workshop in Harare yesterday, Mudenda said the tax collector had the muscle to charge that kind of tax, since car importers were siphoning the much needed foreign currency. Zimra is currently charging up to 96% duty for used car imports.
China: Imports from BRICS countries grow 33.6% in first quarter (Global Times)
China’s imports from BRICS countries increased 33.6% year-on-year to 473.70 billion yuan ($70.16bn) in the first quarter of 2017, accounting for 8.1% of the country’s total imports, official data showed Monday. China will further increase imports from other BRICS countries, with the figure expected to reach $8 trillion in the next five years, Wang Shouwen, deputy minister of the Ministry of Commerce, told a press briefing.
India-Africa ties: economics and multilateralism (Mint)
The third point relates to the implicit assumptions behind private sector investments—that they will automatically generate more trade. Unfortunately, intra-Africa trade accounts for only 14% of Africa’s total trade. It is true that poor infrastructure slows down intra-Africa trade traffic, and therefore higher investments in road and rail infrastructure will surely help. The problem lies elsewhere- the lack of a trade facilitation culture and customs capacity which hinders cargo movement. India and Itec can definitely help here. More importantly, there are other opportunities for India. Data from the African Development Bank shows only 31% of Africa’s trade is backed by bank-intermediated trade finance. This is clearly an opportunity for Indian banks. India’s banking presence in Africa seems to have lost its relevance over time: The geographical footprint is built around traditional Indian diaspora habitats in east and south Africa, and operations are tailored around ethnic banking services. Late in entering Africa, Chinese banks have already acquired stakes in leading banks. If India is serious about its Africa initiative, a lot will depend on how it marshals its banking and financial sector there.
Global compact for migration: consultations update (UN)
Although the net benefits of migration far outweigh its costs, the public perception is often the opposite, a senior United Nations official pointed out, as the latest round of consultations on a global compact for migration began in New York. The consultation is the fourth in a series of six thematic consultations that will take place this year and feed into the drafting of the Global Compact for Safe, Orderly and Regular Migration, expected to be adopted by UN Member States in 2018.
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WTO’s negotiating Committee on Agriculture holds special session
New proposals in agriculture talks form “tangible steps” forward
WTO members welcomed, at an informal agriculture negotiating session on 19 July, a recent surge of proposals and other submissions on agriculture talks, which many said represented a tangible step forward in the negotiations for an outcome at the 11th WTO Ministerial Conference (MC11), taking place in Buenos Aires in December this year. The meeting was followed by dedicated discussions on the issues of public stockholding for food security purposes and on a special safeguard mechanism for developing countries on 20 July.
“Many delegations considered that a substantial outcome at MC11 was within reach for Public Stockholding for Food Security Purposes, Domestic Support, Cotton and Export Restrictions. The same could not be said of the other topics,” Norwegian Ambassador Harald Neple told members on behalf of the regular agriculture talks chair, Kenyan Ambassador Stephen Karau.
Many of the recently tabled submissions concerned farm domestic support limits. One proposal also covered cotton and the issue of public stockholding for food security purposes. Another covered transparency in export restrictions, and another paper focused on the proposed special safeguard mechanism (SSM) for developing countries.
In presenting their joint proposal on agriculture, co-sponsored by Colombia, Peru and Uruguay, the European Union and Brazil called it “an important step in the negotiating process towards outcomes in Buenos Aires”. The proposal, covering domestic support, public stockholding for food security purposes and cotton, provides a new architecture which would put all WTO members on the same basis and encourage reform efforts, the proponents said.
New Zealand, in introducing its submission co-sponsored by Australia, Canada and Paraguay, stressed that it was aimed at complementing the discussions. The paper advocates a fixed cap on trade-distorting domestic support – expressed as a single figure that would not change over time. It would “establish enduring and meaningful constraints on trade-distorting domestic support over time”, New Zealand said.
A joint submission by India and China stresses that the current structure of the WTO Agriculture Agreement contains a major asymmetry. India, in presenting the paper, said developed members must eliminate Aggregate Measurement of Support (AMS)[1] entitlements as a pre-requisite for consideration of other reforms in the domestic support negotiations.
Switzerland and Japan introduced their respective submissions. Both members belong to the G10 group of members which stresses the multi-functionality of the agriculture sector and the need for that to be taken into account in the agriculture negotiations. Switzerland, speaking on behalf of the G10 group, said some proposed approaches could affect members of the group disproportionally.
Japan said that setting a limit on the basis of the percentage value of production would create disadvantages for members with relatively small agricultural production. On the other hand, having a numerical target would provide more predictability and be easier to monitor.
Members commended proponents’ efforts to put forward positive contributions, while many said they were still reviewing the submissions and could only offer preliminary comments at this stage.
Public stockholding
WTO members looked at two new proposals that address the issue of public stockholding for food security purposes, at a dedicated discussion on the topic on 20 July.
Public stockholding is a policy tool used by governments to purchase, stockpile and distribute food when needed. While stocking and distributing food is permitted under WTO rules, governments purchasing food at prices higher than market prices are considered to be subsidizing their farmers.
One of the proposals, submitted by the EU, Brazil and other co-sponsors, suggests some ideas on a permanent solution on public stockholding. The proposed solution covers both existing and new small-scale programmes, with least developed country (LDC) members exempted from the proposed disciplines. At the same time, the EU said that the proposed solution seeks to respond to concerns expressed by some members regarding the possibility for such programmes to disrupt international markets or affect the food security of other members.
Indonesia, speaking on behalf of the G33 group of developing countries, said that the group firmly believed that the best solution for this issue must satisfy all developing members facing food security challenges. The new G33 proposal is based on a submission the group tabled in 2015, which proposes the insertion of a new annex to the Agreement on Agriculture, where programmes for public stockholding for food security purposes would not be required to be accounted for in the AMS. The new element in the proposal is a requirement for countries that use such programmes to share more information.
Many members emphasised that WTO members have a clear and distinct mandate to find a permanent solution to this issue, and that it should not be linked with the broader agriculture negotiations on domestic support.
Some other members cautioned over the proposed exclusion of price support programmes from the AMS calculation. They said that public stockholding programmes could yield “unintended consequences” if governments unloaded the stocks on world markets and impact on prices for similar products in other countries. They stressed the need for stronger safeguards to address potential direct and indirect release of stocks in international markets.
WTO members reaffirmed the commitment in the Nairobi Ministerial decision “to engage constructively to negotiate and make all concerted efforts to agree and adopt a permanent solution” to the public stockholding issue by the 11th Ministerial Conference, which will take place in Buenos Aires in December 2017.
Cotton
The proposal by the EU, Brazil and other co-sponsors calls on members to agree to an overall limit on all the trade-distorting domestic support provided for cotton as a percentage of the cotton value of production, so as to fulfil the mandate to address cotton “ambitiously, expeditiously and specifically”, within the agriculture negotiations.
Benin informed members that “Cotton-4 countries” – Burkina Faso, Benin, Chad and Mali – would soon table a proposal on cotton.
Transparency in export restrictions
Singapore introduced its proposal on transparency of export restrictions, which it describes as a “side serving of salad”. A key element of the proposal, which is crafted as a draft Ministerial Decision, is the requirement that a notification should be submitted at least 30 days prior to the implementation of an export restriction measure, and in special situations, within 10 days of its implementation. The proposal also seeks to exempt food purchases for non-commercial humanitarian purposes by the World Food Programme (WFP) from the imposition of such export-limiting measures.
Special safeguard mechanism
Members briefly discussed a special safeguard mechanism (SSM) for developing countries, proposed by the G33 group. The SSM would allow developing countries to temporarily increase import tariffs in cases of import surges or price depression.
The G33 group submitted a new document listing questions on outstanding issues regarding such a mechanism. The chair reported that “sustained divergent views” continue on the topic.
[1] Some 30 WTO members that had larger subsidies at the beginning of the post-Uruguay Round reform period have committed to reduce these subsidies. The reduction commitments are expressed in terms of a “Total Aggregate Measurement of Support” (Total AMS)
Report by Ambassador Stephen Ndung’u Karau of Kenya
Chair of the Committee on Agriculture, meeting in special session* on 19 July 2017
As you will recall, following my appointment as Chairman of the Committee on Agriculture in Special Session on 26 April, I have held a series of 35 bilateral consultations with group representatives or coordinators, and individual delegations representing the whole Membership in its diversity.
I concluded this first phase by holding an informal open-ended meeting of the Committee on Agriculture in Special Session on 1 June, during which I reported on my consultations.
I also gave delegations the opportunity to introduce during that meeting the 14 submissions and communications that had been circulated since the last informal meeting of the Committee on Agriculture in Special Session in November 2016.
You will recall that in my concluding remarks at the meeting on 1 June, I invited delegations which had not yet tabled a submission to do so as quickly as possible, and in any event, before the summer break, if they wanted their ideas and suggestions to be part of our discussions.
Some new submissions were tabled recently and will be introduced today, and it is my understanding that work is still in progress on a couple of others.
I concluded on 1 June that it was necessary to deepen our work, topic by topic based on all the submissions and communications received thus far, with a view to engaging in an intense, pragmatic, focused and creative discussion process aimed at progressively reducing the gaps in negotiating positions and moving towards convergence.
I attended the informal ministerial meeting held on 8 June in the margins of the OECD meetings in Paris where the Director-General requested Ministers to instruct Geneva delegations to “remain ready to work constructively, and with a willingness to engage with greater specificity” and to “show open-mindedness and pragmatism”.
It is against this background that I decided to move to topic-based Room-E type meetings with the participation of approximately 30 delegations on all topics in which you have expressed an interest.
These topics are Public Stockholding for Food Security Purposes (PSH), Domestic Support, Special Safeguard Mechanism for developing country Members (SSM), Market Access, Export Restrictions and Other Issues, including Export Competition and Sanitary and Phytosanitary measures. Following the practice established by my predecessors, I also held consultations on Cotton in a Quad plus format.
To ensure inclusiveness and transparency in this process, I invited group coordinators in addition to the key stakeholders in these Room E type-meetings, so that they could report back to their respective groups.
It represented in total seven meetings: two meetings on PSH and SSM on 15 June and on 14 July, two meetings on Domestic Support on 20 June and 12 July, two meetings on Cotton on 16 June and 30 June, and one meeting on Market Access, Export Restrictions and other issues on 23 June.
As you are aware, I had initially intended to hold meetings more frequently. But on several occasions, delegations asked me to postpone our discussions either because of other commitments, overlap with other meetings or because they needed more time to get prepared.
I accommodated such requests for two main reasons:
First, because I consider there is no point in holding meetings for the sake of it. Adequate preparation in advance of our meetings within groups and between Members with different visions is absolutely crucial to make our meetings fruitful.
Secondly, to ensure inclusiveness and transparency and avoid a situation where some delegations, especially the smaller ones, would not be in a position to be appropriately represented.
This being said, I am of the view that we will need to significantly accelerate the rhythm of our discussions after the summer break, if we are committed to progress on substance and achieve convergence on the negotiating issues in time for MC11.
Substance
I will now report in detail on all these topic-based discussions.
I will not address PSH and SSM in my report today but will do so tomorrow during the respective dedicated sessions on these two topics.
Domestic Support
I held two consultations on domestic support. My consultations have confirmed that this pillar continues to be one of the priority issues for the vast majority of delegations.
To facilitate the discussions, I circulated a certain number of questions in advance of the meetings. The first set of questions concerned: a potential achievable for MC11; the key elements to constrain the use of trade-distorting domestic support; ways to express any potential new element; the treatment of the different elements; and the priority issues for subsequent discussions on Domestic Support.
The second set of questions built on debates resulting from the first one and concerned: the best potential use of existing elements of the Agreement on Agriculture to limit trade-distorting support, and the level and coverage of a potential new overall limit, should this idea be retained.
My overall assessment of the meeting was that the engagement by Members was encouraging and demonstrated the will to try to find an outcome for MC11. It was also very clear, however, that any outcome would be just an incremental step.
The responses broadly confirmed the known positions. Regarding the objective for MC11, the majority of Members can be broadly divided in two groups: 1) those favoring an overall limit – fixed or floating, and 2) those calling for the elimination of the AMS entitlements as a pre-requisite for any other domestic support reform. A possible framework for the future work was also mentioned by some.
Regarding the overall limit itself, Members supporting the idea have different views on what it should apply to, both in the short run and at a later stage. The differences were more pronounced as regards the Blue Box support and Art.6.2, as well as whether the limit should be combined with product-specific disciplines. Some other ideas were also suggested, notably considering per capita support and inflation rates.
Regarding AMS, some Members called for its substantial reduction, while others demanded its elimination for developed country Members, or making it correspond to the value of production in the case of developing Members.
Levelling the playing field, S&D, and transparency were also key priorities for many.
I also took note of redlines and sensitivities expressed. These are well known to you all: Article 6.2 and de minimis for developing Members, an overall limit based on the value of production, Blue Box, and product-specific disciplines for some.
Regarding product-specific limits, the opinions of those calling for disciplines ranged from general limits to per capita limits, including a reduction of the per product support that is above the de minimis limit.
These discussions confirmed that reducing trade-distorting domestic support is a priority for virtually all delegations. Nevertheless, how to go about it still differs significantly. I reminded delegations that doing nothing will not achieve their objective, nor does it help to level the playing field.
Regarding the priority issues for the subsequent discussions on domestic support, the responses varied significantly and basically covered all the elements I mentioned in my report.
Finally, let me acknowledge the fact that several submissions on domestic support were circulated in the last days and will be introduced today.
Market Access
I held one consultation on market access during which Members had the opportunity to comment on papers by Paraguay and Peru and a proposal from Russia.
Members expressed a wide range of views on the likelihood of an outcome on market access for MC11. Some thought incremental outcomes would be feasible at MC11, others considered that a commitment to pursue market access negotiations post-MC11 would be a realistic outcome. Others thought that an outcome in this area would not be possible.
With respect to Paraguay and Peru’s paper highlighting continuation of the reform process in market access, some Members supported the idea of incremental steps on tariff peaks, escalation, simplification, and in-quota duties. Some expressed doubts that there was sufficient time to conduct the necessary technical work. Members expressed some reservations about pursuing the approach suggested – including with respect to postponing discussions on the tariff reduction formula, the lack of explicit S&D, and the linkage between agriculture market access and other areas in the negotiations.
With respect to the Russian Federation’s paper proposing the elimination of the SSG, some supported the idea that MC11 could deliver an outcome on SSG – either elimination or modification – others did not see this as a feasible outcome for MC11 given the current negotiating environment.
Members’ comments on what they saw as priority issues reflected the diversity of positions in this area. Some would like to have concrete discussions on specific elements, while others considered that it would be better to focus on a work programme to support continuing discussions on market access. Still others advocated that attention should be given to transparency and updated market access information in order to lay the ground work for future market access outcomes.
Cotton
On cotton, I held two meetings in Quad plus format composed of the C4, Argentina, Australia, Brazil, China, Colombia, the European Union, India, Pakistan and the United States.
The second meeting gave participants the opportunity to make initial comments on a draft proposal on Cotton Domestic Support currently being prepared by the C4. These comments constituted useful inputs to the C4 to finalize their proposal.
Many participants were of the opinion that the most efficient way forward would be to focus, in view of MC11, on the most trade-distorting support granted to cotton farmers.
More systemic sensitivities as regards possible disciplines on Green Box and Blue Box support benefitting cotton producers were expressed by some delegations.
Some delegations suggested a ceiling on the trade-distorting support expressed as a percentage of the cotton value of production.
Some Members supported the objective of total elimination of cotton AMS and opposed any new disciplines on de minimis for developing country Members without an AMS commitment.
Some other Members disagreed with the principle of a differentiation in the disciplines between developing country Members with or without an AMS commitment.
The importance of special and differential treatment was underlined by some delegations, while some others insisted on the necessity for all Members providing trade-distorting support to contribute to an outcome on cotton, with one delegation suggesting that Article 6.2 support should also be included in the discussion.
The link between the overall negotiation on Domestic Support and the negotiation on cotton Domestic Support was again highlighted.
It was agreed that the C4 would continue to work on its draft proposal based on inputs received from various Members and that another Quad plus meeting would be held as and when appropriate.
The C4 may wish to update the Membership on the state of play of their consultations during this meeting.
A recent proposal tabled by a group of Members also makes reference to cotton along with Domestic Support and PSH.
Overall, most participants reiterated their support for a meaningful and specific outcome on cotton domestic support, but a couple of participants recorded their lack of optimism, taking into account the overall negotiation prospects.
Possible improvement in the duty-free and quota-free market access for exports of cotton and cotton-related products from Least Developed Countries and the cotton development component were also mentioned as possible elements for an outcome on cotton at MC11.
Finally, let me also recall that the next dedicated discussion on trade related aspects of Cotton will take place on 24 July.
Export Restrictions
I held one consultation exploring the feasibility and the content of a possible outcome on export restrictions at MC11. There was broad support among the Membership on Singapore’s ideas to enhance transparency of export restrictions, which could form the basis of such an outcome.
In this context, I note that Singapore just circulated a text-based proposal that may assist future discussions.
Some developing Members also underlined the importance of export restrictions as a policy tool to support food security needs and to contain price volatility in the event of food shortages. They resisted any attempt to curtail the S&D element in the existing rules. The potential burdensomeness of the proposed transparency requirements, especially for developing countries, was also raised.
Some Members also considered that an outcome on export restrictions should not just be limited to transparency alone. The issue of exempting non-commercial humanitarian transactions from such measures also came up in the discussions.
Export Competition
A couple of Members reiterated that export competition was still an unfinished business, and that this fact should be recognized at MC11, but none of them classified this topic as a priority for MC11.
Sanitary and phytosanitary (SPS) measures
Two Members have suggested that some SPS issues could be part of the deliverables for the next Ministerial Conference in Buenos Aires. They indicated that they were still considering which body or bodies would be the most appropriate forum to discuss their submission.
These Members used the opportunity of the July 2017 meeting of the SPS Committee to draw Members’ attention to their document and invited additional inputs. They also noted that they remained open to discuss their submission bilaterally with interested delegations as they planned the next steps.
Conclusion
Let me now conclude my report with some comments of a general nature.
As already mentioned in my previous report, my assessment, based on what I have heard thus far in our discussions, is that different topics are at different levels of maturity. Many delegations considered that a substantial outcome at MC11 was within reach for Public Stockholding for Food Security purposes, Domestic Support, Cotton and Export Restrictions. The same could not be said of the other topics.
This being said, some delegations considered that a substantial outcome was still possible, at least partially, for some of the other topics. Some other delegations expressed doubts about the possibility of reaching substantial outcomes on any of the topics under consideration.
The question we must ask ourselves now is how do we organize our work going forward?
This issue is now becoming absolutely critical, given the tight timeframe we are operating within. At best, we have 12 working weeks between the “Jeûne genevois” holiday period and MC11.
First, it seems to me we need to prioritize our discussions, based on the level of priority given by Members to the various topics, and allocate our time accordingly.
Second, it is clear that we have not yet moved so far into what I would call a real intensive negotiation mode. We have had useful suggestions, discussions and exchanges but no real negotiation.
While this preparatory phase is very important to prepare the ground for a successful negotiation, we also need to be realistic and pragmatic.
I have been asked several times by Members as to when we will move into text-based negotiations
This question is, of course, important for the topics where a substantial outcome is expected, but it is also relevant for topics where the Membership could envisage other types of outcomes, like a post MC11 work programme.
So, what is the current state of play? On some topics, we have one main written proposal which could serve as a possible basis for discussion, on other topics we have several contributions or proposals highlighting various options, sometimes close to each other, sometimes very far apart.
These written contributions are supplemented by your oral interventions during meetings, some of which contain very specific and concrete elements.
On some issues, some delegations also indicated that they did not see, for the time being, any prospect for such a text-based negotiation leading to a substantial outcome at MC11.
The issue we face today is how do we move forward considering the numerous elements available on the various topics, and their respective degree of priority for the Membership, should we decide to move into text-based negotiations.
This issue cannot be addressed in isolation from the rest of the WTO negotiations. On one hand, as reaffirmed several times by delegations, agriculture should form part of any outcome at MC11. On the other hand, priorities, process and prospects in agriculture must be seen in the context of overall priorities, process and prospects for MC11.
Keeping in mind this issue, I look forward to getting your views on the progress on substance made thus far, as well as on the process forward towards MC11.
* As read on his behalf by Ambassador Harald Neple from Norway.
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Global infrastructure investment need to reach $97 trillion by 2040
A ground-breaking new report by the G20’s Global Infrastructure Hub (GI Hub) outlines infrastructure investment needs globally and individually for 50 countries and seven sectors to 2040.
The report, Global Infrastructure Outlook, reveals the cost of providing infrastructure to support global economic growth and to start to close infrastructure gaps is forecast to reach US$94 trillion by 2040, with a further $3.5 trillion needed to meet the UN Sustainable Development Goals (SDGs) for universal household access to drinking water and electricity by 2030, bringing the total to $97 trillion.
Outlook, which can be accessed through an online tool, also reveals that $18 trillion – almost 19% – of the $97 trillion, will be unfunded if current spending trends continue.
Every year $3.7 trillion will need to be invested in infrastructure to meet the demands of an accelerating global population, the equivalent of the total annual GDP of Germany, the world’s fourth largest economy. And in order to meet the water and electricity SDGs, the investment need forecast increases by an additional $236 billion per year until 2030, when the goals are due to be met.
This is not just a major challenge for emerging countries that need to create new infrastructure, but also for advanced countries that have ageing systems that have to be replaced.
The United States will have the largest gap in infrastructure spending, at $3.8 trillion, while China will have the greatest demand, at $28 trillion, representing a massive 30% of global infrastructure investment needs.
The ultimate achievement of the SDGs by 2030 is reliant on the provision of quality infrastructure. On current trends, investment will fall substantially short of meeting SDGs for water and electricity.
Outlook also shows:
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By 2040, the global population will grow by almost two billion people – a 25% increase. Rural to urban migration continues with the urban population growing by 46%, triggering massive demand for infrastructure support.
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The world’s greatest infrastructure needs will be in Asia, which will require $52 trillion by 2040 to meet demand.
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Meeting the SDGs for electricity and clean water provision will require $3.5 trillion more than is currently needed to close infrastructure investment gaps.
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Closing the global investment gap will require annual infrastructure investment to increase from the current level of 3% of global GDP to 3.5%. Meeting SDGs will require this to increase further to 3.7% between now and 2030.
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The road and electricity sectors require the greatest spending as the global population becomes increasingly urbanised.
Outlook is a world leading project that includes a detailed analysis and online tool. It is the result of an intensive study of 50 countries and 7 industry sectors by the GI Hub and Oxford Economics, the leader in global forecasting and quantitative analysis.
“Outlook is a comprehensive and detailed analysis of infrastructure investment need. It gives the new country and sector spending data that governments and funding organisations have been calling for,” says Global Infrastructure Hub CEO Chris Heathcote.
“Outlook tells us three key things, how much each country needs to spend on infrastructure to 2040, where that need is for each infrastructure sector, and what their gap is, based on their current spending trends.
“Most significantly it advises governments and the private sector on where the greatest needs are, and how much should be spent to provide infrastructure for communities in the future.
“We believe this information will be key to governments, and indeed those organisations that fund, plan and build infrastructure projects into the future – and providing sustainable cities with social and economic benefits for all.”
The Outlook report and online tool can be found at: outlook.gihub.org
Regional infrastructure needs: Africa
Africa regional spending needs
Under our current trends scenario, the total infrastructure investment forecast for Africa to 2040 is projected to be $4.3 trillion, or $174 billion per year. If African economies were able to raise their performance to match that of their best performing peers the total investment need would be $6.0 trillion, or $240 billion per year – a difference of almost 40 percent.
Since 2007, we estimate that 38 percent of infrastructure investment in Africa has been directed towards the electricity sector, with 20 percent going to water. Given the low proportion of the population with access to electricity, water and sanitation services (as discussed in section four), the focus on these infrastructure sectors is perhaps unsurprising. While the proportion of investment going to electricity is similar to the world average, the share of investment dedicated to water infrastructure is more than twice the world average.
The flip side of a strong focus on utilities infrastructure is that Africa dedicates a below average proportion of investment to the transport sector: this accounted for 27 percent of the total between 2007 and 2015, compared to the world average of 45 percent. The difference is particularly striking for rail, which receives just three percent of infrastructure investment in Africa, compared to the world average of 12 percent.
The distribution of infrastructure spending is expected to remain broadly similar under both of the forecast scenarios, although the transport sector assumes greater prominence under the investment need scenario.
In dollar terms, electricity is forecast to receive around $1.6 trillion of investment between 2016 and 2040 under current trends, with water, roads and telecoms each receiving between $700 billion and $900 billion. The gap between the current trends and investment need scenarios is proportionately largest for roads, where the investment need forecast is almost twice the current trends forecast.
Total infrastructure investment in Africa was equivalent to 4.3 percent of GDP between 2007 and 2015. The continent will need to maintain investment at around this proportion of GDP to accommodate economic and population growth to 2040. This rises to 5.9 percent under the investment need scenario. While this will clearly be challenging, our analysis suggests that since 2007 Ethiopia, Morocco, Tanzania and Angola have all achieved infrastructure investment levels of 5.5 percent of GDP or more.
Country spending needs
The nine African countries in our study account for just over 60 percent of the continent’s GDP. By far the largest infrastructure market in Africa is Nigeria, which is estimated to have contributed 16 percent of investment between 2007 and 2015. Other large African infrastructure markets included in our study include South Africa, Morocco, Ethiopia and Egypt, which have each contributed between six and 11 percent of Africa’s infrastructure investment since 2007.
Our forecasts of the value of total infrastructure investment needs for each country are presented below. A small gap between the current trends and investment need scenario indicates that a country is already performing well, given its economic and demographic characteristics, while a large gap between the two scenarios suggests that a country lags behind its best performing peers.
On this basis, our analysis suggests that Morocco and Kenya are performing relatively strongly amongst the African economies in our study: the investment need forecast is no more than 21 percent higher than the current trends forecast for each of these countries.
In contrast, the gap is much greater for Egypt, South Africa and Tanzania, where the investment need forecast is just over 50 percent higher than the current trends forecast. For Angola, Ethiopia, Nigeria and Senegal the investment need is around one-third greater than would be delivered under current trends.
The infrastructure investment forecasts for Egypt, Nigeria and South Africa appear the most affordable out of the African countries in our sample, and amount to no more than 3.2 percent of GDP in the current trends scenario, or no more than 4.9 percent of GDP under the investment needs scenario.
In contrast infrastructure investment needs under the higher scenario represent the largest share of GDP for Ethiopia (17 percent), Tanzania (12 percent) and Senegal and Angola (both eight percent). For all of these countries except Ethiopia, this investment need would represent a noticeable uplift over the investment achieved in recent years (the strong past trend for Ethiopia reflects exceptionally strong spending in the electricity and water sectors).
For the roads sector our model suggests that the need to increase spending is common to most countries, with the exception of Kenya and Ethiopia. In the case of the latter, data from the International Road Federation and World Bank suggest that investment was extremely strong between 2007 and 2015. Indeed, the World Bank report that Ethiopia increased the length of its road network by 70 percent between 2005 and 2012. Given this recent focus on road development, Ethiopia is assessed to meet its road infrastructure needs through a continuation of current trends.
A tendency to under-invest in transport infrastructure is also in evidence for most countries in the rail sector, where only Egypt and Morocco are estimated to meet their future needs under current trends. A similar picture emerges for airports, although in this case Angola, Egypt and Ethiopia are the only countries on track to meet their needs under current trends. While the latter has seen improvements to its airport infrastructure over the last decade, spending is estimated to have been the lowest amongst all African economies in our sample as a proportion of GDP. Nonetheless, given the country’s stage of development (it has the lowest value of GDP per head amongst all countries in this study), maintaining current investment trends should be sufficient to meet airport infrastructure needs throughout the forecast period.
Ports investment is estimated to have been substantially higher in Nigeria than in other African countries since 2007, boosted by the government’s Port Reform Programme, which proved successful in attracting private investment to address limitations in the country’s ports sector. While Tanzania has a number of large ports, data from the Tanzania Port Authority suggest extremely low levels of investment. Despite this, Tanzania manages to out-perform higher-spending countries such as Nigeria and Angola on the WEF ports infrastructure performance measure. This may reflect that the available data do not fully capture investment in Tanzania’s ports, and our modelling implies that a continuation of low levels of investment should be sufficient to meet the country’s future ports needs.
Finally, within the telecoms sector, African countries are divided into two groups. South Africa, Angola, Morocco, Egypt and Nigeria are estimated to have investment needs of less than one percent of GDP. In contrast, Senegal, Kenya, Tanzania and Ethiopia are estimated to need to spend 2.5 to 3.5 percent of GDP developing their telecoms networks. For most countries in the latter group, the quality adjustment step within our model increases the forecast under the investment need scenario, suggesting that past investment has failed to deliver the expected infrastructure outcomes (measured in terms of connections per head), and a higher level of spending will therefore be needed to meet future needs.
Download: Global Infrastructure Outlook | Infrastructure investment needs 50 countries, 7 sectors to 2040 (PDF, 8.32 MB)
Outlook is the result of a year-long research partnership with Oxford Economics. The Global Infrastructure Hub acknowledges the contribution of peer reviewers: the International Monetary Fund, the European Bank for Reconstruction and Development, the Inter-American Development Bank, the Australian Treasury, University of Cape Town, and the Brattle Group.
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What party manifestos say on industrialisation in Kenya
The rising wages in Asia, the rebalancing underway in China, and the strong growth in Africa provide a window of opportunity for Kenya to expand its capabilities and global presence in export-oriented and labour-intensive manufacturing in the next 20 to 30 years.
But the performance of the Kenyan manufacturing sector has been weak, accounting for 9.2 per cent of GDP in 2016. Several decades ago, Kenya had a substantial industrial sector by regional standards, but its East African neighbours have been catching up in recent years.
Decisive and comprehensive action is required to reverse the decline, double manufacturing production and employment, and increase the share of manufacturing to 15 per cent of GDP in the next five years.
With this in mind, the Overseas Development Institute (ODI) and Kenya Association of Manufacturers (KAM) developed a 10-point policy plan to transform Kenyan manufacturing and create jobs.
These 10 points, based on close co-operation among a range of stakeholders, aim to inform pre-election debates and can also be used by the new government to implement a more focused and effective industrialisation strategy.
There are analyses of the manifestos of the three main political parties in the coming elections to determine the extent to which they support manufacturing in Kenya and the region.
The manifestos of the Jubilee Party, the National Super Alliance (Nasa) and the Third Way Alliance were launched at the end of June 2017.
Business environment
All three parties emphasise industrialisation as central to economic transformation in general terms – which is encouraging. Nasa is emphasising innovative initiatives and especially the small and medium enterprises and informal sector; Jubilee and the Third Way are more specific in their recommendations.
There are notable similarities with the 10 policy priorities in the KAM-ODI booklet. First, all three parties prioritise addressing either general or specific aspects of the business environment. The Third Way commits to addressing the counterfeit goods menace.
Second, all three want to enforce a fiscal regime that is predictable and fair, and emphasise fair taxation.
Jubilee discusses the action point on devolution. It proposes the KAM-ODI action point on land banks and Nasa and the Third Way, industrial parks, which need land.
The Third Way pledges to work with county governments to set aside land for industrial parks, offering a practical way to implement the KAM-ODI action point on securing land for special economic zones (SEZs) and industrial parks.
Reliable energy
The feasibility of these points will be linked to issues surrounding acrimony over land titles and cost of relocating populations from the said pieces of land. For example, an SEZ was due to be set up in the western part of the country but had to be scrapped as an agreement could not be reached on what land could be used due to claims of title on the piece of land.
Thus all parties will have to undergo a thorough land audit in the areas the government intends to develop industrial parks and SEZs and begin with areas where there is clear land title that is not contested.
In terms of energy, Nasa discusses the need for an energy policy. Jubilee highlights the need for lower electricity tariffs for industrial usage and the Third Way calls for liberalisation of the energy sector and revisions to electricity billing and pricing to reduce the cost of electricity for the manufacturing sector.
Nasa and Jubilee highlight the need for investment in electricity infrastructure. Jubilee also emphasises green energy and, in similar vein, Nasa and the Third Way focus on ramping-up clean and renewable power generation.
What most of the manifestos are not clear on is how they will reduce the cost of energy in the country. For example, Kenya needs a reduction of five US cents per kilowatt hour that would bring its cost closer to Tanzania’s. It is only the Third Way that states they will tackle the cost of energy issues by liberalising the energy sector and revising electricity billing and pricing.
Funding and credit
However, an additional problem with energy in Kenya is power outages; Kenya has more power outages than Uganda, Rwanda and Ethiopia. None of the manifestos are clear on how this will be addressed. All three manifestos are vague on the type of reforms and investments needed to address inefficiencies and incentivise investment in power transmission and distribution.
All three parties suggest the establishment of industrial funds or development banks specifically for industrialisation, such as an export-import bank (Jubilee and the Third Way) or a co-operative fund for agro-processing (Nasa). But none of the parties place strong emphasis on suggestions for financial sector development.
Similarly, the three manifestos do not give attention to foreign direct investment to promote industrialisation. While these plans sound feasible, the implementation of these financing schemes will determine uptake by the private sector. Ideally, the funds should offer financing, perhaps at concessionary rates.
The most important factor, however, is that the funds need to be patient so that private sector has time to use the capital effectively and generate returns over a realistic period of time. Yet the manifestos are not very clear on how financing to the sector will be structured.
Jubilee comes closest to specifics, stating that they seek to provide long-term credit funded by long-term bonds; yet one wonders why this strategy has not already been deployed. Further, none of the parties places emphasis on financial sector development or how to promote FDI to support industrialisation.
Skills
On skills, Nasa and the Third Way highlight the importance of general education, while Jubilee prioritises nurturing a globally-competitive workforce to power industrialisation.
Nasa and Jubilee stress linkages between universities and the rest of society, although Jubilee seems clearest on this and explicitly mentions the need to develop formal linkages between the private sector, academia and the government.
Currently, there is a sizeable gap between what is taught to students and what the job market requires.
Therefore, if curricula are not significantly revised and linked to a push to encourage students to take up science, technology, engineering and maths subjects, any partnerships with academia may not be fruitful in terms of creating a labour force with skills required for industrialisation.
Jubilee’s pledge to promote the study of science, technology, engineering and maths but again, one wonders this has not already been done. Both the Nasa and Third Way manifestos do not contain specifics on which subject areas to target for educational improvement.
Nasa and Jubilee highlight the role of a fit-for-purpose civil service to support industrialisation. Nasa stresses the need to reduce contractors’ cost of doing business with government, streamline procurement, prompt processing of payments and inculcating zero tolerance to corruption.
Reducing waste
Jubilee wants a truly fit-for-purpose public service, and mentions the importance of reducing waste, dealing with procurement and rationalising the public sector wage bill. The Third Way has a narrower focus on measures to combat corruption.
This element will likely prove to be the most difficult to implement as Kenya has notoriously been unable to hold those implicated in corruption scandals to account.
Thus, it is dubious as to whether any of the parties have the political will required to implement this element of the manifestos.
The Third Way manifesto places strong emphasis on developing value chains in priority manufacturing sectors, including agro-processing, textiles and leather; but some of the Alliance’s proposals to support value chain development are quite protectionist in nature.
The Nasa and Jubilee also mention value chains, with the former's manifesto emphasising synergies and linkages amongst enterprises.
The issue of value chains is closely linked to agriculture and what has become clear over the first iteration of devolution is that agriculture seems to be neglected by both county and national governments in terms of budget allocations.
According to the International Budget Partnership, national government allocated the sector as follows: 2 per cent in 2015/16, 1.3 per cent in 2016/2017 and 1.8 per cent in 2017/18.
Vague declarations
As the IBP points out, the Maputo Declaration 2003 calls for allocation of at least 10 per cent of total national budget towards agriculture. The average expenditure on agriculture in Africa is 4.5 per cent; Kenya’s national allocations are clearly sub-par.
Thus, for the value chain manifesto declarations to work, there is need to more robust allocations to agriculture at national and county level and better co-ordination between the two levels of government. Again, one of the manifestos articulate how they would make this happen.
In the context of the EAC, the push for exports in the KAM-ODI booklet is important. Both Nasa and Jubilee press for better market access, Nasa for SMEs in particular.
Improving and/or maintaining market access in the EAC is an important element of the Nasa and Jubilee manifestos, aligning well with the KAM-SET call for an export push.
Jubilee focuses on expanding Kenya’s access to the US market in textiles, whereas Nasa emphasises market access for MSEs. In contrast, improving access to markets for Kenyan exports is not prioritised in the Third Way Alliance manifesto.
Regulatory barriers
To be clear, access to EAC for manufactured goods is riddled with problems. Total exports from Kenya the EAC registered a 4 per cent decline in 2016 to Ksh121.7 billion, with exports to Uganda and Rwanda falling by 9.3 per cent and 2.5 per cent respectively.
Further, opportunities offered by the EAC’s integrated market has institutional and regulatory barriers to trade such as such as Customs clearance, standards and certification, rules of origin, licences and permits, truck inspections and language barriers.
None of the manifestos address these issues. Further, the entry of China and India into the regional market has eroded Kenya’s EAC market share from 9 per cent in 2009 to just 7 per cent by 2013.
The World Bank claims that Kenya’s trade performance is declining quickly due to an influx of goods from China into Uganda and Tanzania, which are major export destinations for Kenya.
In the manifestos it is not clear how EAC market access issues will be addressed. Jubilee and Nasa make general statements about Kenya’s role within the EAC, but there is little detail in either manifesto of specific measures or priorities to support access for Kenyan goods in the EAC market.
The Third Way’s does not make any reference to Kenya’s role in a regional context.
Anzetse Were is a development economist. This article was republished on her blog.
10 policy priorities to transform manufacturing and create jobs in Kenya
The Kenyan manufacturing sector has the potential to transform the Kenyan economy and kick-start a process of industrialisation that could create hundreds of thousands of jobs and improve livelihoods across the country. However, to make this a reality by 2022, it will take a concerted and coordinated effort by both government and the private sector.
Kenya has a number of great strengths, such as its geographical position in the region, its resilience and vibrant informal economy. Nonetheless, there are significant hurdles to overcome in the areas of land ownership, access to long-term finance, the business environment and access to reliable energy sources, to name just a few, if these strengths are to be fully capitalised upon in the quest for an industrialised national economy.
Developed by SET in partnership with the Kenya Association of Manufacturers (KAM), this policy briefing by Anzetse Were, Dirk Willem te Velde and Gituro Wainaina addresses Kenya’s current economic predicament and makes the case for political and financial investment in manufacturing. The central 10-point policy plan lays out seven policies and regulations that should be enacted to create an environment in which the sector can flourish, and three further suggestions for how to implement them in practice.
Download the policy brief: Ten policy priorities for transforming manufacturing and creating jobs in Kenya (PDF, 2.1 MB)
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tralac’s Daily News Selection
AU members should honour financial contributions: Namibia’s PM (New Era)
Prime Minister Saara Kuugongelwa-Amadhila has called on all member states of the AU to honour their assessed contributions on time and in full in accordance with the approved scale of assessment. “With regard to the 0.2% levy on eligible imports, while supporting principle of self-financing of the Union, it has become evident that the levy cannot be implemented until the Continental Free Trade Area is fully established in order to comply with the rules of the World Trade Organisation,” she said. The Prime Minister said bearing in mind CFTA negotiations are still ongoing, she is of the opinion that the July 2016 decision to implement the 0.2% levy by January 2017 should be deferred until domestic laws are amended and all the necessary structures at regional and continental levels are in place.
AU heading for world trade body conflict over membership levy (Business Day)
However, a confrontation between the AU and the WTO over the lawfulness of the new levy seems unavoidable. It would be “discriminatory in nature and a violation of most-favoured nation principles”, Gerhard Erasmus, associate at Trade Law Centre, says. “Since the AU levy will apparently be implemented as a new tariff, bindings under WTO schedules will be affected. Some African countries could have zero tariffs for the affected imported goods. WTO rules, in addition, require that any fee connected to the importation of goods must be a fair reflection of the cost of a related service and must not amount to a taxation for fiscal purposes,” Erasmus says.
Mozambique: National AGOA Utilization Strategy Report (SPEED+)
One of the additions to AGOA through the AGOA Extension and Enhancement Act is language in the legislation that states countries should produce AGOA Utilization Strategies to take advantage of the benefits. This AGOA Utilization Strategy (pdf) includes 21 recommendations on improving awareness of AGOA, competitiveness of specific sectors, and exploiting the benefits granted to goods made in Mozambique for the US market. Each recommendation includes identification of implementing entities as well as a recommended timeframe. As readers will note, there are a range timeframes from immediate to long term for Mozambique to better utilize AGOA and grow exports.
Ethiopia aims to generate $30bn from textile sector by 2030 (Xinhua)
Ethiopia has a target to generate $30bn in foreign exchange earnings from the textile and garment sector by 2030, according to Bogale Feleke, Ethiopian Deputy Minister of Industry. The deputy minister made the remarks while addressing a workshop organized to promote Ethiopia’s textile industry sector held in Addis Ababa yesterday. “We intend to increase our area of cotton production. At present, only 20% of the three million hectares are used for cotton production while we aim to increase to around 80%,” local media FBC quoted Feleke as saying. Noting his country’s commitment in developing 13 industrial parks in the near future, majority of them in the textile and apparel sector, Feleke revealed that Ethiopia intends to have close to 150 textile and garment companies by the year 2020.
Helping revive Egypt’s ‘white gold’ (UNIDO)
Tarek Kabil, Minister of Trade and Industry, highlighted the project’s relevance in the context of the importance of the textile industry to the national economy. He remarked that the sector contributes up to 3% of Gross Domestic Product, employs about one third of the country’s industrial labour force, and generates exports to the value of about US$2.6bn, constituting 15% of Egypt’s non-oil exports. The sector is therefore at the top of the Egyptian government agenda, as well as one of the strategic sectors included in the industrial strategy recently launched by the ministry.
SADC Industrialisation Week: update
SADC will hold the second Industrialisation Week in Johannesburg (31 July - 4 August) under the theme; Partnering with the private sector in developing industry and regional value chains. It will be co-hosted by the Department of Trade and Industry and DIRCO, in partnership with the SADC Secretariat and the Southern Africa Business Forum.
Inaugural EAC Competitiveness Report: preview
The EAC Secretariat has prepared the 1st regional Industrial Competitiveness Report 2017, which will be released to the public in October 2017. The report states that Manufacturing Value Added and manufacturing trade growth rates sustained by the EAC in recent years stand above global average but only around average of Sub-Saharan Africa. However, these growth rates fall short of some of the targets set in the EAC Industrialization Policy and stand below similar Regional Economic Communities in Sub-Saharan Africa, including ECOWAS. The same growth rates of the manufacturing sector have not kept pace with the service sector, thus insufficient to impress that acceleration needed to achieve the structural change targets set in the regional and in most national industrial policies/overarching development plans. The report argues that an important cause and at the same time consequence of this limited performance lies in the disconnected fabric of the industrial sector in the EAC Partner States, impressing only weak backward and forward linkages among manufacturing subsectors as well as with non-manufacturing sectors of the economy. Strong inter-linkages would strengthen the economy and foster a more robust industrialization process.
On the other side, the past 10-15 years have shown signs of upward convergence among Partner States both in terms of MVA and manufacturing trade values, particularly with Tanzania, Uganda and Rwanda growing significantly faster than their regional role model, Kenya. The EAC regional market proves to be one of the most dynamic markets in the world and hence provides a great opportunity for regional firms to expand. While in most cases EAC manufacturing firms managed to increase their intra-regional exports in certain dynamic sectors, this did not happen at the pace and extent needed to match the EAC demand growth, thus resulting in the EAC losing market shares particularly against emerging economies such as India (pharmaceuticals, heavy petroleum), China (iron and steel products and fertilizers) and Malaysia (fixed vegetable oils). [DEGRP: Industrial productivity, health sector performance and policy synergies for inclusive growth in Tanzania, Kenya]
Uganda Economic Update: Can public-private partnerships bridge the infrastructure finance deficit? (World Bank)
The Uganda Economic Update shows a shortfall of nearly $1.4bn in financing per year, equivalent to 6.5% of its GDP. Uganda needs to explore raising capital from the private sector to finance its infrastructure investments, which are key to driving growth, creating jobs and reducing poverty. The report shows Uganda’s economy growing at an annual rate of 2.5% by the of end March 2017. While this falls significantly short of earlier projected annual growth of 4.5%, GDP is still expected to rise to 5.2% in FY 2017/18, and to 6% in the following year. This is likely to be propelled by the development of oil-related infrastructure following the issuance of long-awaited oil exploration agreements. Its renewed tendency to grant tax exemptions and the low rate of collecting taxes - now at 13.5% of GDP - could undermine the government’s ability to provide services and support faster growth, notes the Update. Combined with poor return on public investments, this could make it difficult to service the country’s growing debt. Extract (pdf): While the growth rate for all sectors of Uganda’s economy decelerated, the services sector continued to be the main driver of economic growth. At present, the services sector accounts for 51% of the total value added to the economy. For the six months to December 2016, activity generated within this sector increased by 3.4%, relative to the level of activity in the corresponding period of 2015.
Is Kenya overbanking on new Special Economic Zones to drive growth? (The Standard)
When politicians address charged crowds during these campaigns, they are less likely to make strategic economic road maps. This is as litany of promises roll out of their tongues. This is especially so during the electioneering period. Politicians would have the electorate believe that they have thought through a strategy to ensure that manufacturing will be fast tracked through Special Economic Zone, and that they have rationally made a plan including where these zones will be located. If the number of economic zones and industrial parks that are being doled out is anything to go by, then this noble venture to spur manufacturing may be turning into an instrument to promote corrupt cronyism and reward businesses that are close to powers that be is defeating the logic of setting them up.
Kenya Horticultural Council launched (The Star)
The Kenya Horticultural Council has been officially launched to champion compliance of domestic and international quality standards and other market access requirements. Also unveiled at the launch was KS 1758 part two, a standard practice code for exporters and handlers dealing in fruits and vegetables. KHC is also mandated to enhance industry growth and development by providing high level lobbying and advocacy services for the industry with the aim of facilitating and sustaining access to existing and emerging markets. Kenya’s horticultural exports have been finding it hard to access the rich European market since the block capped maximum residue level to 0.02 parts per million in 2012. The horticulture sector contributes substantially to Kenya’s GDP with approximately Sh102bn annual turnover.
ECOWAS experts meet to harmonise standards (GBN)
The Ghana Standards Authority is hosting an ECOWAS Commission standards harmonisation workshop, which aims at reviewing and finalising critical draft standards that would promote sustainable economic development in the sub-region. The meeting would examine the harmonisation work performed by national experts in the chemical product sector, building and construction sector and in the tourism services within participating countries. Professor Alex Dodoo, the Executive Director of GSA, said the Technical Committee which had been in place since 2013 had manage to harmonise 20 standards already and now the focus was on 30 other standards that were going to be reviewed with the ultimate goal of improving trade among member states.
Angola-Nambia: Angola promises to honour its N$2.6bn debt (New Era)
Angola has promised to honour its outstanding N$2.6bn financial obligations to Namibia in a 2015 currency conversion agreement that saw Angola unable to pay over on time the billions owed to Namibia. The governor of Angola’s central bank, Valter Filipe da Silva, promised President Hage Geingob that despite the ongoing economic challenges facing his country, Angola would continue to honour its repayment schedule. According to Bank of Namibia deputy governor Ebson Uanguta, BoN received about $51m from the BNA last week. The curency conversion agreement between BNA and Bank of Namibia aimed to address declining trade particularly at the once thriving trading hub of Oshikango. A shortage of US dollars, which contributed to the decline in trade, prompted the currency conversion agreement.
Zimbabwe-Mozambique: Call for Forbes Border Post upgrade (The Herald)
Government must urgently expand Forbes Border Post to be able to handle increased cargo coming in from Beira, Mozambique. In an interview after touring the border post last Friday, chairperson of the Shipping and Forwarding Agents Association of Zimbabwe Mrs Sheilla Mashiri said Forbes Border lacked capacity to handle growing exports and imports. She said this had resulted in serious congestion.
Trade-related developments: update by WTO Director General
Key findings: (i) WTO members implemented 74 new trade-restrictive measures during the review period (mid-October 2016 to mid-May 2017), including new or increased tariffs, customs regulations and quantitative restrictions, amounting to almost 11 new measures per month. This represents a significant decrease over the previous period and marks the lowest monthly average since 2008. (ii) WTO members applied 80 measures aimed at facilitating trade over this review period, including eliminated or reduced tariffs and simplified customs procedures. This equates to an average of over 11 new measures per month which is the second-lowest monthly average since trade monitoring began in 2008. (iii) During the review period, the estimated trade coverage for trade-facilitating import measures ($ 183bn) significantly exceeded the estimated trade coverage of trade‑restrictive import measures ($49bn). (iv) This Report highlights that initiations of trade remedy investigations represented 44% of the total number of trade measures taken during the review period; although the amount of trade covered is relatively small ($27bn for trade remedy initiations and $6bn for terminations).
Today’s Quick Links: NEPAD Infrastructure Project Preparation Facility: update Yongfu Huang: Can aid for trade be a salve to the poorest nations? Ethiopian Investment Commission: Chinese firms create over 28,000 jobs in Ethiopia over past five years IGAD: communique on South Sudan Maghreb future is tied to resolving Western Sahara conflict South Africa, Indonesia agree to identify sectors to exploit investment opportunities ITC: Training Indonesian diplomats to spot export potential, promote trade partnerships 25 Turkish companies set for Dar trade forum Nigeria’s Minister of Industry, Trade and Investment, Dr. Okechuwu Enelamah, feels the pulse of local manufacturers Nigeria agrees to cap oil output at 1.8mbpd Dhaka ratifies trade deal with D-8 countries Mauritius, Japan to sign Memorandum of Cooperation for infrastructure development WCO welcomes India’s progress with its National Trade Facilitation Action Plan |
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WTO members record lowest monthly average in new trade restrictions since 2008
Between mid-October 2016 and mid-May 2017 WTO members recorded the lowest monthly average of new trade restrictions since the financial crisis of 2008, according to the Director-General’s mid-year report on trade-related developments presented to members on 24 July.
Director-General Roberto Azevêdo welcomed this news, and urged WTO members to show continued moderation. The report also shows that the trade coverage of the trade-facilitating measures was significantly higher than that of the restrictions.
The report calls on members to continue improving the global trading environment, including by implementing the WTO Trade Facilitation Agreement which entered into force in February this year, and working together to achieve a successful outcome at the 11th WTO Ministerial Conference in December.
The report, which was discussed at the 24 July meeting of the WTO’s Trade Policy Review Body (TPRB), shows that 74 new trade-restrictive measures were initiated by members during the review period, including new or increased tariffs, customs regulations and quantitative restrictions, amounting to almost 11 new measures per month. This constitutes a significant decrease over the previous review period (mid-October 2015 to mid-May 2016), where an average of 15 measures per month were recorded, and marks the lowest monthly average over the past decade.
During the same period, WTO members applied 80 new measures (over 11 new measures per month) aimed at facilitating trade, including eliminating or reducing tariffs and simplifying customs procedures. This marks the second lowest monthly average since the trade monitoring exercise began in 2008.
The trade coverage of import-facilitating measures (US$ 183 billion) was more than three times the estimated trade coverage of import-restrictive measures (US$ 49 billion) and more than six times higher than the coverage estimated for trade remedy initiations (US$ 27 billion). In addition, liberalization associated with the 2015 expansion of the WTO’s Information Technology Agreement (ITA) continued to feature as an important contributor to trade facilitation.
“The report shows an encouraging decrease in the rate of new trade-restrictive measures put in place – hitting the lowest monthly average since the financial crisis,” Director-General Roberto Azevêdo said. “The larger trade coverage of import-facilitating measures during the review period is also a very positive development and a clear sign that WTO members are working to improve the global trading environment. I urge WTO members to continue showing moderation and restraint in their use of trade restrictions, despite the persistent uncertainty facing the global economy.”
Key findings
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WTO members implemented 74 new trade-restrictive measures during the review period (mid-October 2016 to mid‑May 2017), including new or increased tariffs, customs regulations and quantitative restrictions, amounting to almost 11 new measures per month. This represents a significant decrease over the previous period and marks the lowest monthly average since 2008.
-
WTO members applied 80 measures aimed at facilitating trade over this review period, including eliminated or reduced tariffs and simplified customs procedures. This equates to an average of over 11 new measures per month which is the second-lowest monthly average since trade monitoring began in 2008.
-
During the review period, the estimated trade coverage for trade-facilitating import measures (US$ 183 billion) significantly exceeded the estimated trade coverage of trade‑restrictive import measures (US$ 49 billion).
-
This Report highlights that initiations of trade remedy investigations represented 44% of the total number of trade measures taken during the review period; although the amount of trade covered is relatively small (US$ 27 billion for trade remedy initiations and US$ 6 billion for terminations).
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Transparency and predictability in trade policy remains vital for all actors in the global economy. WTO members must show leadership in reiterating their commitment to open and mutually beneficial trade as a key driver of economic growth and a major engine for prosperity.
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Faced with continuing global economic uncertainties, WTO members should seek to continue improving the global trading environment, including by implementing the WTO Trade Facilitation Agreement, which entered into force in February this year, and working together to achieve a successful outcome at the 11th WTO Ministerial Conference in December.
Trade-restrictive measures
(average per month)
Note: Values are rounded. Changes to averages of previous years reflect continuing updates of the TMDB.
Source: WTO Secretariat.
Trade-facilitating measures
(average per month)
Note: Values are rounded. Changes to averages of previous years reflect continuing updates of the TMDB.
Source: WTO Secretariat.
Trade remedy trends – initiations and terminations
(average per month)
Note: Values are rounded.
Source: WTO Secretariat.
Overview of trade measures, mid-October 2016 to mid-May 2017
(by number)
Source: WTO Secretariat.
Trade coverage of import measures, mid-October 2016 to mid-May 2017
(US$ billion)
Note: ITA expansion measures are not included.
Source: WTO Secretariat.
AU members should honour financial contributions – Namibian PM
Prime Minister Saara Kuugongelwa-Amadhila has called on all member states of the African Union (AU) to honor their assessed contributions on time and in full in accordance with the approved scale of assessment.
Speaking in Addis Ababa, Ethiopia at the 29th African Union recently, Kuugongelwa-Amadhila said members states should continue to ensure that the AU has adequate financial resources to pave way for successful and effective implementation of Agenda 2063, including the Continental Flagship Projects.
“With regard to the 0.2 percent levy on eligible imports, while supporting principle of self-financing of the union, it has become evident that the levy cannot be implemented until the Continental Free Trade Area (CFTA) is fully established in order to comply with the rules of the World Trade Organisation,” she said.
The Prime Minister said bearing in mind CFTYA negotiations are still ongoing, she is of the opinion that the July 2016 decision to implement the 0.2 percent levy by January 2017 should be deferred until domestic laws are amended and all the necessary structures at regional and continental levels are in place.
Kuugongelwa-Amadhila called for the speedy conclusion of the CFTA negotiations. She also commended Rwandan President Paul Kagame for his “tireless efforts in leading the institutional reform process towards improving the effectiveness and efficiency of the African Union.”
“It is important that we streamline the work of our organisation to avoid wastage of resources and the duplication of efforts,” she said, adding that there is a need to review the existing structures by aligning them to the core mandate and functions of the organisation.
Kuugongelwa-Amadhila says while acknowledging that the purpose of the institutional reform process is to ensure the smooth functioning of the union, the reforms should not have unintended consequences of weakening the existing legal structures that govern the union.
The Prime Minister believes that carrying out the reforms, the due processes of the organs of the AU should be followed, as provided for in the Constitutive Act and the Rules of Procedure of the Union.
In this regard, she said the Executive Council’s role should be further strengthened.
She said Namibia support the call to hold one summit per year, and for the Bureau of the Union to focus on implementing assembly decisions in coordination with regional economic communities.
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EAC to release inaugural Industrial Competitiveness Report 2017
The East African Community (EAC) Secretariat has prepared the 1st regional Industrial Competitiveness Report 2017, which will be released to the public in October 2017.
The inaugural Industrial Competitiveness Report (ICR) 2017 is the result of collaboration among selected experts from the EAC Secretariat and Partner States, from both public and private sector, trained by United Nations Industrial Development Organization (UNIDO) experts in selected courses and methodologies, including the UNIDO Competitiveness Industrial Performance Analysis, under the regional project Strengthening institutional capacities for industrial policy in the East African Community (EAC) and funded by the Republic of Korea.
Addressing a stakeholder workshop convened to discuss the findings at the EAC Headquarters on Thursday 20th July 2017, the EAC Deputy Secretary General (Finance and Administration), Hon. Jesca Eriyo said the Report was one of the analytical output stemming from the EAC-UNIDO Programme for Strengthening Institutional Capacities for Industrial Policy Management, Monitoring and Evaluation.
Hon. Eriyo reiterated that the Community had made tremendous progress in its integration roadmap and that the market enlargement arising from the Common Market had created immense opportunities for doing business in the region but more importantly, opportunities for increasing production, diversification of economic base, realization of economies of scale; and finally opportunities for accelerating industrialization in each Partner States and EAC region as a whole.
The Deputy Secretary General, who represented the Secretary General, Amb. Liberat Mfumukeko at the occasion, said that in the EAC Region, the capacity and performance of the public sector that deals with industry related matters was generally low, and as a result, implementation of industry related policies and strategies had in some cases been inadequate, constrained by a number of factors, including inadequate industrial governance systems as well as weak monitoring and evaluation frameworks.
She noted that other issues that need to be addressed to foster and sustain industrial growth include inadequate capability to design, implement and monitor policies and strategies; challenges to enhance private sector participation; and inadequate systems for collecting, processing, storing and dissemination of industrial information, among others.
The EAC official commended the Government of Korea for financing the programme and UNIDO, who is the implementing partner.
Addressing the same workshop, the EAC Deputy Secretary General in charge of Planning and Infrastructure, Eng. Steven Mlote decried the huge amount of resources that the Community is losing in exporting raw materials, leading to the loss of job and investment opportunities. He reiterated the need for the region to work together in developing the manufacturing sector rather than competing against each other.
The EAC Principal Industrial Economist, Mr. George Ndira said industrialization should be a concern for the EAC Secretariat and it (Secretariat) should continue advocating for industrialization as it is the surest way to lift Partner States’ economies from the dependency syndrome and help in pulling millions of the population from abject poverty.
Mr. Ndira, who was representing the Director for Productive Sector, said the ICR is a compass to assist the region in monitoring our progress towards the goal of economic transformation and diversification. “This workshop is an opportune moment for all us to understand where we are and how much distance we are yet to cover to get to a stable state for long-term economic prosperity,” noted the EAC Principal Industrial Economist.
While presenting the findings of the EAC Industrial Competitiveness Report 2017, Mr. Andrea Antonelli from UNIDO’s Research and Industrial Policy Advice Group, said the main objective of the Report was to provide a compass to policy-makers, the private sector, and generally a wider audience of stakeholders interested and/or involved in industry on the broad direction of the industrial development trajectory of the EAC.
He said the Report was also intended to provide evidence-based, shared and implementable policy recommendations for the EAC and Partner States’ policy makers; and to generate further awareness on the importance to coordinate economic development activities in the EAC around a common goal to enhance industrial/manufacturing development.
“Specifically, the study was to provide a useful diagnostic tool for the EAC Secretariat as an important input to review its Industrial Policy and Strategy; act as a monitoring tool to assess progress against EAC and national industrial development targets and present a list of agreed indicators for EAC harmonized industrial performance assessment; among others,” affirmed the UNIDO official.
The report, which will be launched and availed to the public in September/October 2017, states that Manufacturing Value Added (MVA) and manufacturing trade growth rates sustained by the EAC in recent years stand above global average but only around average of Sub-Saharan Africa.
However, these growth rates fall short of some of the targets set in the EAC Industrialization Policy and stand below similar Regional Economic Communities in Sub-Saharan Africa including ECOWAS.
The same growth rates of the manufacturing sector have not kept pace with the service sector, thus insufficient to impress that acceleration needed to achieve the structural change targets set in the regional and in most national industrial policies/overarching development plans.
The report argues that an important cause and at the same time consequence of this limited performance lies in the disconnected fabric of the industrial sector in the EAC Partner States, impressing only weak backward and forward linkages among manufacturing subsectors as well as with non-manufacturing sectors of the economy. Strong interlinkages would strengthen the economy and foster a more robust industrialization process.
On the other side, the past 10-15 years have shown signs of upward convergence among Partner States both in terms of MVA and manufacturing trade values, particularly with Tanzania, Uganda and Rwanda growing significantly faster than their regional role model, Kenya.
The EAC regional market proves to be one of the most dynamic markets in the world and hence provides a great opportunity for regional firms to expand.
While in most cases EAC manufacturing firms managed to increase their intra-regional exports in certain dynamic sectors, this did not happen at the pace and extent needed to match the EAC demand growth, thus resulting in the EAC losing market shares particularly against emerging economies such as India (pharmaceuticals, heavy petroleum), China (iron and steel products and fertilizers) and Malaysia (Fixed vegetable oils).
The above findings call for renewed efforts to boost the manufacturing sector in the region and in Partner States and should not discourage the latest emphasis placed by many Partner States in this important common endeavour.
The comments received during the stakeholders workshop is expected to enrich phase two of the regional program on “Strengthening Institutional Capacities for Industrial Policy Management, Monitoring and Evaluation in the EAC region”.
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Uganda Economic Update: Can public-private partnerships bridge the infrastructure finance deficit?
The Uganda Economic Update released by the World Bank today shows the country currently with a shortfall of nearly $1.4 billion in financing per year, equivalent to 6.5 percent of its Gross Domestic Product (GDP). Uganda needs to explore raising capital from the private sector to finance its infrastructure investments, which are key to driving growth, creating jobs and reducing poverty.
The report, “Infrastructure finance deficit: Can public-private partnerships fill the gap?”, shows Uganda’s economy growing at an annual rate of 2.5 percent by the of end March 2017. While this falls significantly short of earlier projected annual growth of 4.5 percent, GDP is still expected to rise to 5.2 percent in FY 2017/18, and to 6 percent in the following year. This is likely to be propelled by the development of oil-related infrastructure following the issuance of long-awaited oil exploration agreements.
This infrastructure includes an oil pipeline that will be jointly developed with Tanzania, an oil refinery in western Uganda, and a Standard Gauge Railway to the Indian Ocean. The construction and services sectors will continue to be the main drivers of growth, the Update says.
Its renewed tendency to grant tax exemptions and the low rate of collecting taxes – now at 13.5 percent of GDP – could undermine the government’s ability to provide services and support faster growth, notes the Update. Combined with poor return on public investments, this could make it difficult to service the country’s growing debt. Other risks include unpredictable weather that could affect agriculture, uncertainty over the Kenyan elections, and continued strife in South Sudan, all of which could affect the economy significantly.
The Economic Update recommends the establishment of robust institutions and procedures to manage Public-Private Partnerships. It says Uganda adopted the Public-Private Partnership Policy Framework in 2010 while the Public-Private Partnerships Act was approved in 2015. However, a lack of implementation means public-private partnerships have been slow to take off. “Public-private partnerships have the potential to offer many benefits for the Government and the people, but their management requires strong structures and policy frameworks,” said Rachel Kaggwa Sebudde, World Bank Senior Economist.
In addition to strengthening the legal and regulatory frameworks, the report also calls for transparency and accountability to allow citizen engagement and involvement in decision making.
Leveraging Public-Private Partnerships to Plug Uganda’s Deficit in Infrastructure Finance
Public-private partnerships possess the potential to help Uganda raise the money it needs to fund investment in its infrastructure. The ninth edition of the Uganda Economic Update analyses public-private partnerships’ (PPPs) potential to mobilize private capital to bridge the gap in financing, something which would also help tackle poverty and improve the lives of Ugandans.
Traditionally, governments have been the main provider of public infrastructure and other public goods. Budgetary constraints, however, have made alternative options for financing necessary to supplement government resources. And, in this, experience shows that the private sector can successfully finance and manage investment in public infrastructure efficiently and profitably to supplement government-led public spending.
Uganda currently has a financing gap of about US$1.4 billion a year for infrastructure investment, but the cost of inefficient infrastructure is also high, estimated at US$300 million a year, due mainly to corruption – especially underpricing – and the sector’s inability to complete projects within budget and on time.
The country’s most successful PPP, the Umeme concession has distributed electricity more efficiently. Since March 2005, the company has increased the collection of sales revenue from 65 percent in March 2017 to 98 percent in June 2017, and improved people’s access to power in areas within reach of its services. But, despite its success, it has been tainted by operational and governance problems. A parliamentary assessment found irregularities and manipulation in the procurement of the concession, and the power distribution agreement had to be revised to minimize costs to the government.
“The success of public-private partnerships depends on the government’s ability to establish a framework with laws, systems, processes, and contracts that promote financially viable PPPs, especially where there are natural monopolies or market failures,” notes Rachel Sebudde, World Bank Senior Economist and lead author of the Update.
“To maximize the benefits of PPPs, the government must allocate sufficient resources to make sure projects are prepared well,” she said. “The selection of PPP projects should involve analysis to verify that a project is feasible, attractive to the private sector, and provides value for money.”
Uganda has instituted legal and regulatory reforms, including the PPP Policy Framework (in 2010), and the PPP Act (approved in 2015), but as a country it still lacks the institutions to implement these policies. Based on experience in Uganda and global best practices, the Update recommends areas of improvement to allow PPPs to achieve their intended objectives:
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Establish appropriate institutions to put existing legal and policy frameworks into practice. This can be done by building the capacity of the central PPP unit and other contracting authorities to enable them to prepare, appraise, and provide better oversight.
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Improve the mobilization of budgetary and non-budgetary resources, including from our own domestic resources and from bilateral and multi-lateral donors. Setting up a Project Development Facilitation Fund would help fund project preparation and a robust PPP pipeline, as well as act as a liquidity reserve to serve as a backstop for liabilities.
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Key information related to both operational and pipeline projects, including the PPP database, should be publicly disclosed in a timely manner to ensure greater transparency and accountability, enhance competition, stimulate investor interest, and allow better stakeholder and citizen engagement and involvement in decision-making.
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While the government is expediting the development of the pension sector and implementing the Capital Markets Master Plan, it should also mobilize domestic currency financing by establishing syndicates of commercial banks and large surplus institutions to finance PPPs, such as pension funds, particularly the National Social Security Fund (NSSF). Innovative mechanisms such as infrastructure debt funds can also be formed.
» Download: Uganda Economic Update, ninth edition: Infrastructure finance deficit – can public-private-partnerships fill the gap? (PDF, 1.27 MB)
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tralac’s Daily News Selection
Starting tomorrow, in Harare: Measuring and implementing trade facilitation in Zimbabwe
Next week, in Abuja: Establishing a trade facilitation roadmap in Nigeria
At WTO: Goods negotiations restart, members divided on transparency proposal
WTO members, on Friday, took up a proposal which proponents said would facilitate the participation of micro, small and medium-sized enterprises in global trade by establishing rules to bring about greater transparency and access to information pertaining to government regulations on food and product safety. The proposal received support from many Asian and European delegations as well as several delegations from Latin America. But opponents, which included many African members, including the African Group coordinator, some Latin American members and the United States, raised different types of concerns. Some are concerned that the adoption of this proposal might lead to an increased administrative burden in developing countries and may impinge on governments’ right to regulate.
World Economic Outlook Update: July 2017 (IMF)
In Sub-Saharan Africa, the outlook remains challenging. Growth is projected to rise in 2017 and 2018, but will barely return to positive territory in per capita terms this year for the region as a whole—and would remain negative for about a third of the countries in the region. The slight upward revision to 2017 growth relative to the April 2017 WEO forecast reflects a modest upgrading of growth prospects for South Africa, which is experiencing a bumper crop due to better rainfall and an increase in mining output prompted by a moderate rebound in commodity prices. However, the outlook for South Africa remains difficult, with elevated political uncertainty and weak consumer and business confidence, and the country’s growth forecast was consequently marked down for 2018. [World Bank: Assessing Africa’s policies and institutions - 2016 CPIA results for Africa]
South Africa: OECD’s Economic Survey
The Survey, presented today in Pretoria by OECD Secretary-General Angel Gurría and South African Minister of Finance Malusi Gigaba, identifies priority areas for future action, including continuing efforts to maintain macroeconomic stability, improve the business environment and deepen regional integration, all of which are critical for inclusive growth and job creation. Extract from the section on regional integration (pdf, pages 32-41): Moreover, the SACU arrangement has many internal difficulties with knock-on effects on SADC regional integration. Intra-union customs border posts have not been eliminated because revenue sharing is partially based on intra-SACU trade, thus reducing benefits of trade facilitation. Second, there is a substantial income transfer from South Africa to the other members. SACU revenues now represent the main source of government revenues for SACU members, except South Africa (Chapter 1). This has created perverse incentives across the other SACU members to resist any changes to tariffs and extension of the SACU union to new members (Flatters and Stern, 2006). Reforming the SACU sharing formula and mechanism of tariff settings would ease the negotiations toward customs policy harmonisation...The agreement between a fraction of SADC countries and the EU will increase the fragmentation of SADC trade agreements, which could hamper deeper SADC integration. To avoid this, members should agree to negotiate with external partners only under the SADC umbrella based on a binding and robust framework which guarantees that all countries’ concerns are taken into account. [Downloads]
Deepening SACU integration: the potential contribution of a regional development fund (GEG Africa)
This policy briefing summarises the results of four case studies in Botswana, Lesotho, Namibia and Swaziland. It describes the experiences of eight small firms in operating across SACU borders, and identifies opportunities for growing or diversifying their businesses within SACU. It also highlights a number of areas in which SACU member states could work together to improve the environment for cross-border trade and deepen regional integration. Conclusion (pdf): These results suggest that SACU should consider a two-pronged approach to deepening intra-regional value chains. Rather than focusing only on individual projects that serve the interests of specific countries and firms, it should first look to identify and alleviate the regulatory and infrastructure barriers that currently impede trade and investment flows across all sectors. With such an approach, the fund would likely also increase the number and feasibility of individual investment projects that would emerge to take advantage of improvements to the regional business environment. [The author: Yash Ramkolowan]
SACU and Namibia – the future: speech by Ms Paulina Elago (SACU)
Increased and expanded market within SACU offers one route to overcome the disadvantages of economic smallness, which characterise all the BLNS. In 2015, Namibia’s GDP was estimated at R147bn, Botswana, R167bn; Lesotho, R25bn; Swaziland R52bn; and South Africa R3.9 trillion. Individually, these economies are too small, on their own, to attract any major investment in the increasingly globalised economy. By belonging to SACU, Namibia has access to a single market of over 61 million people and a combined GDP of R4.384 trillion in 2015. Thus, SACU offers unlimited access to a wider market for the export of their goods and to some degree services within which traders and investors can take advantage of economies of scale. In order to exploit and maximise its benefits from SACU and other regional integration initiatives in general, Namibia would need to:
Mozambique to host SADC meeting on development corridors
“The meeting of ministers [26 July] will be attended by ministers of transport from Mozambique, South Africa, DRC, Malawi, Zambia, Zimbabwe, and Botswana, and will culminate in the approval and signing of two memoranda of understanding on the Beira and North-South Development Corridors”, read a statement from the Mozambican Ministry of Transport and Communications. Aspects of planning and development of quality strategic infrastructure necessary to enable the volumes of traffic of goods and passengers in growth in those corridors will be addressed.
Digital Mauritius 2030: strategic choices to shape the digital economy (GoM)
The one-day workshop brought together captains of the industry from the public and private sectors to strategise on the future of Digital Mauritius over the distinct timelines of 2020, 2025, 2030. Minister of Technology, Communication and Innovation, Mr Yogida Sawmynaden, said the Digital Mauritius 2030 Strategy would rest on several enablers which include the legal framework, regulatory arrangement, data protection foundations and institutional framework. Additional thematic consultative workshops will be organised to finalise the Strategy paper which will then be presented to Government for approval on the occasion of the 50th anniversary of Independence of Mauritius. [Statistics Mauritius: Information and Communication Technologies statistics - 2016]
Mauritius: Trade deficit widens 18.6% yr/yr in May (Statistics Mauritius)
Balance of Visible Trade showed a deficit of Rs 8,258m in May 2017 higher by 2.6% compared to the previous month and by 18.6% when compared to the corresponding month of 2016. In May 2017: total imports increased by 7.7% compared to April 2017, and by 6.3% compared to May 2016; total exports increased by 14.4% compared to the previous month but decreased by 5.3% compared to May 2016. Main trading partners in May 2017: France (11.9%), United Kingdom (11.1%), Italy (10.8%) and USA (9.9%) were the major exports destinations while the imports were mainly from India (19.3%), China (18.2%), France (9.2%) and South Africa (7.4%).
Trade experts fault US over AGOA review (New Times)
UNCTAD Secretary-General Dr Mukhisa Kituyi told The New Times that as one of those who was involved in negotiating the act, there was no clause that EAC would have to import second hand clothes. He added that the decision by the American government was politically and morally wrong and the region should not be bullied. Former AfDB President Dr Donald Kaberuka said the EAC should remain firm on doing the right thing which is to develop their textile industries and their value chains despite the threats. Dr Abdalla Hamdok the acting executive secretary of the United Nations Economic Commission for Africa said that AGOA has little impact on countries like Rwanda which do not export oil and minerals.
Rwanda: Hope for traders as four cross-border markets near completion (New Times)
In a recent interview with The New Times, François Kanimba, the Minister for Trade, Industry and EAC Affairs said that three markets; namely Cyanika (in Burera District) along the Ugandan border, Karongi and Rusizi I markets along the DR Congo border are in the final stages of completion. Also Construction works on (Rubavu) cross-border market is at 70%and will be completed by the end of this year, according to Kanimba. In 2016, cross-border informal trade brought in $150m up from $80m back in 2010 and there is a hope that the markets will boost the trade according to the minister. It is estimated that between 70-80% of cross-border traders are women mainly in informal trade, with 90% of the women traders relying on cross-border trade as their sole source of income.
Museveni clears $2.9b China loan for Malaba-Kampala SGR (The EastAfrican)
President Yoweri Museveni has approved the borrowing of Ush10.3 trillion ($2.9bn) for the construction of the standard gauge railway from the Malaba border with Kenya to Kampala in the clearest signal yet that the regional infrastructure project is back on track. In a letter to parliament last month, President Museveni said the loan, which is Ush2.1 trillion ($600 million) more than the $2.3 billion contained in the feasibility study, should be on condition that concerns over the technical specifications and project costs raised by the Parliamentary Committee on Infrastructure in February would be addressed.
Tanzania signs new business deal with Kenya (The EastAfrican)
Kenya has lifted restrictions on wheat flour and cooking gas imports from Tanzania, which has in turn allowed milk and cigarettes from Kenya. The countries’ Foreign Affairs ministers said in Nairobi on Sunday that the move followed discussions between presidents Uhuru Kenyatta (Kenya) and John Pombe Magufuli. Kenyans will however still have to apply for visas when travelling to Tanzania for business, though Mr Mahiga said they were looking into the issue. “If there are still some bottlenecks, we are pledging to address them to allow our citizens to travel easily,” he said. The two countries would continue to man border posts jointly while the production of an East African Community (EAC) passport would help ease movement across the states, he said. The two countries also agreed to set up a joint technical committee chaired by the Foreign Affairs ministers and comprising the EAC Affairs, Trade, Finance, Interior, Energy, Agriculture, Transport and Tourism ministries and any other relevant government agency. [Charles Onyango-Obbo: 20 years forward, 40 years back; Lenin haunts EAC]
Kenya: Grand plan for regional bloc merger falters (The Standard)
Almost five years after its inception, the Lake Region Economic Bloc, is yet to realise its full objectives as many of its flagships projects remain stuck. The regional bloc is spearheaded by Kisumu, Kisii, Siaya, Migori, Homa Bay, Vihiga, Kakamega, Nyamira, Bomet, Busia, Bungoma, Kericho and Trans Nzoia counties. According to the Head of LREB secretariat, George Kabongah, only four governors have committed Sh800m towards the proposed LREB Investment Bank and seconded staff to the secretariat.
New pan-African fruit industry association to strengthen trade between Africa and EU (BizNews)
Afruibana, a pan-African association of fruit producers and exporters from Cameroon, the Ivory Coast, and Ghana was officially launched during Cameroon Trade Minister, Luc Magloire Mbarga Atangana’s visit to European institutions on 19 July 2017. The minister, as a representative of the African, Caribbean, and Pacific Group of States during the various Councils of Ministers addressing the banana industry, was lauded for this initiative. Several important meetings will be on Afruibana’s institutional agenda in the coming months:
India’s dollar diplomacy takes off, puts China’s domination under threat (Economic Times)
Although a late starter, India is fast catching up with China in extending credit world over to build infrastructure and push economic ventures. While Delhi extended LoC worth $10bn to its partners between 2003-2014 the figure has now touched $24.2bn since the Modi government came to power. 52 LoCs worth $14.2bn has been granted since May 2014 and more are in pipeline when King of Jordan and President of Belarus visits Delhi later this year. While correcting malpractices that had crept into India’s African endeavours, New Delhi had completed 20 major ventures in the past two years, official sources told ET. The focus under LoC extended through MEA’s Development Partnership Administration wing is now on key infrastructure projects and not just capacity building ventures, sources said referring to two such endeavours in Africa – Presidential office in Ghana (symbol of Indo-Ghana friendship) and National Assembly building complex.
India-Africa trade may touch $117bn by 2020-21 (India Express)
Indian exports to the African continent are expected to grow to $70bn by 2021-22 from $24bn in 2015 -16 due to rising complementaries, the PHD Chamber of Commerce and Industry said in the report. Imports from Africa too are likely to increase to $47bn by 2021-22 from $27bn in 2015-16. “India has been able to intensify its presence in African countries through a significant line a credit worth $10bn for development projects in Africa over a five-year period,” PHD Chamber President Gopal Jiwarajka said. “With consistent expansion in trade, diversification and widening of products should also be focused on while trading with African nations in the coming years,” he added.
Quick Links: Jibrin Ibrahim: Breaking the yoke of Nigeria’s donor dependency USAID: House committee approves foreign aid budget in late-night session World Bank: Statement of loans to Africa, May 2017 New policy will reduce delays in procurement process of AfDB-funded projects UNCTAD adviser, Alibaba’s Jack Ma, launches African Young Entrepreneurs Fund Perez Tigidam: Why Jack Ma went to Kenya, Rwanda with 38 Chinese billionaires in tow SABER country reports on engaging the private sector in education: Zambia 2016, Swaziland 2016, Malawi 2015, Ghana 2015 |
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Can trade deliver the UN’s 2030 agenda?
Trade is a fundamental building block of the economy – but it’s going to need to evolve
Trade can be a source of prosperity, new ideas and shared values and ambitions. Today, the world strives to harness globalization in realizing the social, economic and environmental goals embodied in the 2030 Agenda for Sustainable Development.
Making sure that trade plays its part is a must, which means both sustaining it and ensuring its consistency with sustainable development.
Trade can create jobs, promote investment, spread technological progress and speed up communications and connectivity.
In developing countries, from Dhaka to Cape Town, trade has transformed economies over recent decades, lifting hundreds of millions people out of poverty. The resulting progress in human development has been remarkable.
Ten of the Sustainable Development Goals include targets that aim to share trade’s benefits more widely. From food security to affordable medicine, and from stopping illegal trafficking to doubling least developed countries’ exports, the Sustainable Development Goals offer a far-reaching strategy for transforming trade with positive spillovers for society and the planet.
International markets need to be open, but also need to be managed to ensure that trade does deliver. Trade must not leave people behind, yet today some does just that. The tide of globalization does not automatically lift all boats. Without policies for sharing prosperity, trade can increase inequalities, heightening social tensions and raise the prospect of outright unrest.
Without policies for protecting the planet, trade can weaken ecosystems and compound climate change. When world trade doesn’t work for the benefit of all, the promise of globalization is called into question. Trust in governments and in shared values declines, as we have seen with the recent resurgence of populist and isolationist politics.
Trade can be connected to policies that ensure alignment to the 2030 Agenda.
The Ethiopia-Djibouti corridor is an example of an integrated approach to enhancing transit, transport and trade facilitation to enable both countries to enhance its export capacities, attract quality investments, and develop quality trade and port services by developing its ‘soft’ infrastructure of enabling institutions, human capabilities and rules.
China’s “One Belt, One Road” initiative must exemplify the type of “win-win” trading infrastructure called for by the Sustainable Development Goals. Done right, such an initiative will open up new trading opportunities to landlocked countries that today struggle to participate in trade’s benefits.
The G20-Africa partnership, launched under the German G20 Presidency, can be another case in point, linking development assistance, to infrastructure investment and in turn enhanced intra-continental and international trading opportunities.
Harnessing trade requires us to understand that it is changing shape as globalization enters a new era. Some of the comparative advantages that enabled developing countries to grow and prosper through global trade, including low wage economies and weak environmental stewardship, are diminishing in importance.
Automation will reduce the potential for economic success through cheap labor-based exports. Similarly, enhanced environmental and related public health awareness, and commitment to addressing climate change, will thankfully reduce the interest in going for short-term success by causing long-term, often irreparable damage to people, the planet and economies.
Production of many goods and services will move closer to the consumer, benefiting larger countries and those regions of smaller nations that have successfully moved towards greater economic integration. Recycling, once mainly the voluntary privilege of well-off, urban consumers, is set to become the hallmark of vibrant, successful businesses, communities and entire economies that embrace the ‘circular economy’.
In the future, we will buy less that is produced thousands of kilometers away, and in fact own less, renting more products as services – from cars to bottles and shirts. Local, national and regional economies can flourish under such circumstances, enabled by the new digital context that will strengthen, for example, low cost financing, accessing markets and the accountability of both market and policy actors.
The 2030 Agenda for Sustainable Development provides the shared values and goals that can guide our extraordinary dynamism and innovation in shaping the next phase of globalization.
Trade will always be a fundamental building block of the global economy. Yet its form and impacts will evolve in response to technology, business and policy innovation. The task of the United Nations with United Nations Conference on Trade and Development as the spearhead is to support its member states in shaping this evolution to ensure that the 2030 Agenda is realized.
Amina Mohammed is Deputy Secretary-General of the United Nations.
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South Africa: Find new ways to boost growth and job creation
The South African economy has registered tremendous progress over the past two decades, boosting living standards and lifting millions out of poverty nationwide. Further reforms are now necessary, however, to revive economic growth and ensure that all South Africans can benefit from it, according to a new report from the OECD.
The latest OECD Economic Survey of South Africa says that wide-ranging structural reforms will be needed to put the economy on a new growth trajectory, boost job creation and improve inclusivity.
The Survey, presented in Pretoria by OECD Secretary-General Angel Gurría and South African Minister of Finance Malusi Gigaba, identifies priority areas for future action, including continuing efforts to maintain macroeconomic stability, improve the business environment and deepen regional integration, all of which are critical for inclusive growth and job creation.
“South Africa has accomplished many great things in the past two decades, but building stronger and more inclusive growth will require bold action from policymakers,” Mr Gurría said. “Ensuring a better future for all South Africans will require increased access to higher education, a stronger and fairer labour market, deeper participation in regional markets and a regulatory framework that fosters entrepreneurship and allows small businesses to thrive. Many of the necessary reforms will be difficult, but the rewards will be worth the effort.”
Given the limited scope for monetary or fiscal policy action to boost growth, the Survey suggests a range of structural policy reforms. It encourages South Africa to open key sectors, including telecommunications, energy, transport and services, to more competition. It also says that moving forward with the planned introduction of a national minimum wage will reduce in-work poverty and inequality. Wider development of apprenticeship and internship programmes will also increase the inclusion of youth in the labour market, while streamlining the labour dispute system should increase flexibility and lower barriers to job creation.
Skills shortages and mismatches remain key bottlenecks to growth and inclusiveness, and access to higher education remains limited. Establishing a universal student loan scheme contingent on future earnings, with the participation of banks and backed by government guarantees, is a feasible solution, the Survey says. A recent OECD report, Getting Skills Right: South Africa, analyses in further detail skills mismatches and explores potential strategies for addressing them.
Boosting entrepreneurship, which is low in South Africa when compared to other emerging economies, and growing small businesses can also be crucial to economic recovery and job creation, according to the Survey. The government has taken steps to ease requirements for starting a business, but red tape remains a burden. The quality of the education system and lack of work experience contribute to gaps in entrepreneurial skills. There is scope to broaden the sources of finance and ensure that government policies provide both financial and non-financial support for entrepreneurs and small businesses, the Survey says.
The OECD points out that while regional integration offers substantial opportunities for both South Africa and its neighbours, economic integration in the sub-region has not advanced much (read the extract below). Intra-regional trade in the Southern African Development Community (SADC) is only 10% of total trade, compared to about 25% in the ASEAN region or 40% in the European Union. Better implementation of existing SADC protocols and agreements would advance integration, promote trade and create jobs. Reducing non-tariff barriers, by improving customs procedures and simplifying rules of origin, would reduce trade costs in the region. More ambitious and effective infrastructure and investment policies are also needed to improve the inter-connectivity of systems across the region, the Survey says.
During his visit to Pretoria, the OECD Secretary-General is meeting with senior South African government officials, business and labour leaders and representatives of civil society.
Speech by Finance Minister Malusi Gigaba at the OECD launch of South Africa’s 2017 Economic Survey
South Africa engages with the OECD through the Enhanced Engagement Programme and is a key partner to the OECD. The SA-OECD cooperation is forward-looking and mutually beneficial, hence the commitment to policy exchange and practice dialogue. The release of Economic Surveys by the OECD forms part of knowledge exchange and best practices. The OECD is positioned as a global think tank on policy advice due to its comparative benchmarking practices with other countries.
It is worth highlighting some of the interconnections between what the government is doing together with some key recommendations of the survey. The Economic Survey is launched at an opportune time in which South Africa is addressing the challenges of unemployment and inclusive growth.
Growth has disappointed in the last few years. Weak consumer demand and persistently falling business investment have become a challenge worsened by slow growth of the global economy. In this context, reviving economic growth is crucial to increasing well-being, job creation and inclusivity.
The government has developed the 14-point Action Plan which has strong support from the President and Cabinet to address the challenges of slow domestic growth.
The Action Plan aims to accelerate progress, coordinate government efforts and act as a mechanism for accountability; and it has realistic, achievable objectives set against realistic and firm timelines. In some way, the Action Plan makes a genuine attempt to respond to some of the challenges raised in the OECD Economic Survey of South Africa, to provide political and policy certainty, raise consumer and business confidence, reignite growth in the economy and thus begin the path of raising our growth levels faster, bigger, inclusively and on sustainable basis.
Ladies and gentlemen, we agree with the observations made in the 2017 Economic Survey that, among others, boosting entrepreneurship and growing small businesses will contribute to creating jobs. We also agree that, notwithstanding the above, entrepreneurship in South Africa is low compared to other emerging economies. Steps have been taken to ease starting a business and the Department of Small Business Development is currently addressing the red tape associated with starting a small business through simplification of procedures.
The government is in the process of finalising a complementary government fund aimed at financing SMMEs in start-up phase. We further agree with the observation that the quality of the education system and lack of work experience contribute to gaps in entrepreneurial skills and, in that regard, government policies will provide more support for entrepreneurs and small businesses. We have identified a significant role that could be played by State-Owned Companies (SOCs) in advancing the objectives of employment and inclusive growth, particularly targeting micro enterprises and black owned small businesses.
For example, from April 2017, 30% of every large contract must be, where feasible, sub-contracted to SMMEs. We acknowledge that more needs to be done with regards to effecting rigorous monitoring and evaluation to ensure robust implementation of this imperative. We believe that this forms part of the developmental mandate of the State Owned Companies and will be strongly integrated in their Corporate Plans, monitored and evaluated through annual performance plans and implementation. The recent digitisation of procurement processes means that these changes can be monitored closely. Lastly, we believe that further reforms in the Telecommunications sector would be supportive of entrepreneurs and small businesses through reduction of costs to do business.
Government is taking actions to issue policy directives mandating ICASA to commence the licensing processes and we would like to complete the spectrum licensing process by the end 2018. Another key initiative is to direct the Competition Commission to investigate data prices. We are also taking steps to commence with the roll-out of the broadband programme. These would further reduce the cost of doing business in line with our efforts to grow SMMEs.
Ladies and gentlemen, government recognises that the sustainable South African economic growth is intricately linked to the growth of the SADC region. Slow growth and a rise in unemployment contribute to a decline in consumer demand. It is in this context that we agree with the observations made in the Economic Survey that regional integration offers substantial opportunities for South Africa and that more efforts should be directed in the implementation of existing SADC protocols and agreements. In this regard reducing non-tariff barriers by improving customs procedures and simplifying rules of origin would strengthen intra-regional trade in SADC.
It is important for South Africa to play a leadership role in demonstrating the benefits of regional integration. Intra-trade in the SADC region remains constrained by the infrastructure bottlenecks. In this regard, we are working with the Multilateral Development Banks for co-financing of the cross-border infrastructure. South Africa prioritizes addressing the challenges associated with intra-SADC trade through the implementation of the industrialisation plans and strategies. For example, the South African government in partnership with the SADC Secretariat and the Southern African Business Forum are co-hosting the SADC industrialisation week from 31 July to 4 August 2017 in Johannesburg. This SADC industrialisation week seeks to address all the issues surrounding intra-SADC-trade.
In conclusion, we commend the OECD for its partnership with South Africa and look forward to the successful completion of the Secretary-General’s visit.
I thank you.
Assessment and recommendations
Deepening regional integration within the Southern African Development Community
Regional economic integration can raise potential growth and create jobs in Southern Africa, where 7 out of 15 countries are landlocked and fragmentation into many small countries is important. SADC is already the largest export market and a major investment destination for South Africa. South Africa, as the largest member of SADC, should exercise more leadership in deepening regional integration and implementing existing agreements.
SADC intra-regional trade is low but has great potential
SADC intra-regional trade has increased only modestly since the establishment of the free trade area in 2008 and at 10% of total trade is low compared to about 25% in the ASEAN or 40% in the European Union. Intra-regional trade is dominated by South Africa, the largest member, which exports more to the region than it imports from it. This makes SADC trade dependent on South Africa’s economy and interest in fostering regional integration.
SADC members have similar economic structures and endowments with exports dominated by non-processed goods such as crops, minerals and other natural resource-based products. They tend to compete with each other rather than be complementary. Manufacturing exports are also very similar. However, high barriers to trade prevent the exploitation of comparative advantages based on differences in costs. The greater diversification of the South African economy compared to other members points to potential to exploit more traditional comparative advantages in more complementary goods, or trade in services.
Greater participation in value chains could also foster intra-regional trade. Success will depend partly on the capacity of member countries to increase their sourcing in the region to create more value for exports. The origin of exported value-added in SADC is mainly domestic (80%). Better trade policies (lower tariffs and larger share of imports covered by free trade areas) could improve GVC participation of SADC countries.
Reducing tariff and non-tariff barriers would foster regional trade integration
Trade of SADC countries faces higher tariffs on external trade than many other regional trade groups. For example, for the EU, external tariffs are not detrimental to intra-trade. Low external tariffs are important for imported intermediate inputs. As most of the SADC countries have high external tariff rates, there is room to reduce these tariff rates.
Customs strategies often focus on revenue mobilisation at the expense of trade facilitation. Some SADC members have even raised import tariffs on products originating from the region to raise revenue – in flagrant violation of their regional tariff liberalisation commitments (see Shayanowako, 2015). Moreover, the incidence of custom corruption remains high. Introducing a computerised one-stop border control point between SADC members can improve co-ordination between countries and help fight corruption and unnecessary red tape. The data gathered from border control points should then be collated to provide shared trade and investment statistics for the region. Finally, accelerating the adoption by all SADC countries of legislation facilitating inter-agency co-operation, advance rulings and post-clearance audit would facilitate intra-regional trade.
SADC has adopted rather complex rules of origin, defined product by product and requiring double-stage transformation. A simpler alternative would be the across-the-board approach adopted by the Common Market for Eastern and Southern Africa (COMESA). In SADC the rules of origin were mainly designed to protect existing industries from increased intra-regional competition, in particular the textile and clothing industry in South Africa. The complex and restrictive input-sourcing requirements of the SADC rules of origin have a negative impact on trade and attractiveness for industrial investment. In the absence of simplified rules of origin, the manual by the SADC Secretariat for rules of origin should be applied by all member countries.
Broadening the scope of the trade agreements could boost regional trade and integration
SADC members adopted a Protocol on Trade in Services in August 2012 aiming to establish an integrated regional market for services. The Protocol was amended in August 2016 as the negotiations dragged on. Service trade liberalisation within the region would allow consumers and businesses to have access to better services at lower prices through competition. Services are an important part of GDP: in South Africa the services sector already represents 70% of GDP and 16% of its exports. South Africa’s services trade restrictiveness is relatively high for some services.
For the effective implementation of the SADC Protocol on services, a directive could establish a timeline and guidelines for services liberalisation and provide derogations where needed (see Cronjé, 2014). Also, services trade liberalisation should respect service regulations taking into account norms and standards. There is a need for coherent regulatory policies across member states in many regulated services and regional regulatory co-operation.
Moreover, the Southern African Customs Union (SACU) arrangement has many internal difficulties with knock-on effects on SADC regional integration. Intra-union customs border posts have not been eliminated because revenue sharing is partially based on intra-SACU trade, thus reducing benefits of trade facilitation. Second, there is a substantial income transfer from South Africa to the other members. SACU revenues now represent the main source of government revenues for SACU members, except South Africa. This has created perverse incentives across the other SACU members to resist any changes to tariffs and extension of the SACU union to new members. Reforming the SACU sharing formula and mechanism of tariff settings would ease the negotiations toward customs policy harmonisation.
Economic Partnership Agreements (EPA) were introduced by the Cotonou Agreement in 2000, marking a major change in the trade relationship between the EU and developing countries. Non-reciprocal trade preferences that existed under the previous agreements were replaced by a reciprocal trade arrangement that also offers duty-free access for EU exports in developing countries’ markets. However, the negotiations and agreement on EPAs have proved difficult. So far, agreements have been concluded with six SADC countries (Botswana, Lesotho, Namibia, South Africa, Swaziland and Mozambique), which were provisionally applied as of 10 October 2016 pending ratification by all EU Member States. Mozambique is expected to ratify in 2017.
The EPAs contain some safeguards reducing their scope. Export taxes are allowed for some exports for a period of 12 years at predetermined rates. On agricultural exports, flexible activation clauses are included, permitting to protect, when deemed necessary, local producers from large inflows of EU goods and the EU has agreed to eliminate subsidies on several exported goods.
The agreement between a fraction of SADC countries and the EU will increase the fragmentation of SADC trade agreements, which could hamper deeper SADC integration. To avoid this, members should agree to negotiate with external partners only under the SADC umbrella based on a binding and robust framework which guarantees that all countries’ concerns are taken into account.
Reforming business environments in the region can strengthen regional integration
The level of industrialisation is low across SADC countries. Even in South Africa, which has the most sophisticated industry in the region, the share of manufacturing in GDP is low. SADC countries have failed so far to increase value added in sectors such as minerals and raw materials. Therefore, regional industrialisation has become a top priority in the SADC regional strategy. Member states adopted the SADC Industrialisation Strategy and Roadmap 2015-2063 in 2015. The industrialisation strategy rests on increasing productivity through manufacturing, including agro-processing and minerals transformation.
The main barriers to the development of industry in the region are related to the business environment. Lack of proper infrastructure and institutions, skill shortages, and complex regulations are common across SADC countries, as well as regulatory barriers and monopolistic behaviours that hamper competition. To enhance the business environment, increasing the stock of human capital is necessary. More effort should be put in developing vocational and training skills, and access to higher education. A complementary policy at the regional level would be to advance the negotiations on mobility of workers and business people.
To foster investment across member countries and attract foreign investment, SADC countries signed a Protocol on Finance and Investment in 2006. Investment has risen subsequently along with the acceleration of trade between SADC members, although investment flows across and toward SADC are still low. The stock of crossregional investment is lower than in other regional economic communities in Asia and Latin America. Intra-regional investments have been mostly driven by the development of regional value chains in the services sector (supermarket, banking, etc.).
Despite the signature of the SADC Protocol on investment and financial integration, bottlenecks to investment inside the region have remained high. The SADC Regional Investment Policy Framework has been developed recently, in co-operation with the OECD and NEPAD, to accelerate the harmonisation and implementation of investment policies in the region. Incorporating the regional framework into domestic reforms is crucial for its implementation.
A SADC/OECD (2017) benchmarking exercise confirmed that reforming the framework conditions and improving infrastructure are essential to attract investment. Establishing a central point to co-ordinate and systematically gather comprehensive, up-to-date information on all laws, regulations, incentive schemes, and procedures related to investment, is necessary in the region to increase attractiveness.
The financial sector in SADC is diverse and fragmented. Currency conversion costs are high and most countries still have restrictive exchange and capital control regulations in place. Cross-border transactions face different regulatory frameworks. SADC has put in place memoranda and guidelines to improve coordination, to harmonise the systems and to establish common frameworks for foreign exchange transactions, capital controls and banking procedures.
This Survey was prepared in the Economics Department by Falilou Fall and Christine Lewis under the supervision of Piritta Sorsa.
Read or download the full publication here: OECD Economic Surveys: South Africa 2017
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Trade experts fault US over AGOA review
The American government has been faulted by trade and economic experts for the out-of-cycle review of the African Growth and Opportunity Act (AGOA) which could see Rwanda and East African countries barred from duty-free access to the US market.
The review, which began on July 13, is a response to a move by Rwanda and fellow East African Community countries to phase out and eventually ban importation of second hand clothes.
This is aimed to develop local and regional textile industries as well as promote the dignity of the East African citizens.
The United Nations Conference on Trade and Development Secretary-General Dr Mukhisa Kituyi told The New Times that as one of those who was involved in negotiating the act, there was no clause that EAC would have to import second hand clothes.
He added that the decision by the American government was politically and morally wrong and the region should not be bullied.
“As UNCTAD, we can express an opinion about the principles on such an element, when I was the minister of trade and industry of Kenya, I helped negotiate AGOA, it was about how we can build the capacities of local traders to be able to export many products in the American Market,” he explained.
He said that the move by the American government to review the decision following the region’s move to develop their industries can be interpreted as de-campaigning progress.
“When America says that because a few exporters of second hand clothes want to continue having access to the African market, they will refuse to give access to their markets, what they are saying is that people of East Africa should make new clothes, export them to America and after they are done with them, they can export them back. Politically and morally it is wrong, the leadership of Rwanda and East Africa is right and should not lose sight of the bigger picture they have in mind,” he said.
Former African Development Bank President Dr Donald Kaberuka said that EAC should remain firm on doing the right thing which is to develop their textile industries and their value chains despite the threats.
Trade experts have downplayed the impact of the review saying that the volume of exports has been considerably low given that EAC is not a resource rich region.
Dr Abdalla Hamdok, the acting executive secretary of the United Nations Economic Commission for Africa, said that AGOA has little impact on countries like Rwanda which do not export oil and minerals.
“If you look closer at finer details, yes it provides for free access to the American market but 80 per cent of what was going into their market was oil and minerals. It did not have much impact for countries that did not have such products,” he said.
Exports from Rwanda, Tanzania and Uganda through the act totaled $43 million in 2016, whereas US exports into Rwanda, Tanzania and Uganda totaled $281 million in 2016.
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Tanzania exporters protest Kenya’s gas ban
Tanzanian gas exporters have termed Kenya’s ban on imports as protectionism, as its oil marketing firms lose their share of the market.
They say the move is against fair competition practice as set by the EAC Common Market rules.
However, the exporters may have to wait till the end of the year for a possible resumption of business after Kenya indicated that it will take up to six months to install a gas-testing facility at its border points.
The Tanzania LPG Association said that the ban has benefited select companies in Kenya.
“We don’t see any plausible reason for the ban on LPG trade between Kenya and Tanzania, save for undue influence by a few oil firms in Kenya keen to monopolise the LPG business in Kenya,” the association said in a statement.
“This decision is already having a major impact on Tanzanian LPG companies since these companies trade a large part of their volumes with their Kenyan counterparts. This ban will affect Kenyans as it will allow select firms to operate in a monopolistic set-up.”
The traders say they can readily supply the Kenyan market.
“The LPG cost in Mombasa is much higher than in Dar es Salaam. Monopoly and protectionism have pushed prices up in Mombasa. The main reason why LPG from Dar es Salaam or Tanga is cheaper is because the offloading and storage infrastructure at these two ports is more efficient. Firms in Kenya have higher storage unit costs due to facilities like floating storage, which need fuel to run, and higher maintenance cost compared with fixed storage facilities.
“Firms without floating storage incur demurrage charges due to delays in offloading of product at Mombasa port, unlike Dar es Salaam where occupancy is relatively low and Tanga port where there are no demurrage charges. This means that the gas coming from Dar es Salaam and Tanga is likely to be cheaper than that from Mombasa,” said the statement.
Tanzanian LPG companies export about 40 per cent of their annual volumes to Kenya. Dar imports 100,000 tonnes of LPG from the Middle East.
Data from the Petroleum Institute of East Africa shows that in March, when the ban was imposed, Lake Gas, owned by Tanzanian billionaire Ally Etha Awadh who recently acquired Kenya’s Hashi Petroleum, was Kenya’s biggest importer of gas, controlling 23.5 per cent of the LPG market. The firm became a big player in the LPG market last September.
Huge loss
But now, after the ban, the company is facing huge losses given that it trucks its products to the region from its Tanga terminal, which opened in July 2015.
The Tanga terminal can store up to 1,000 tonnes of LPG. Gas is re-exported from there to other markets like Kenya, Zambia, the DRC, Rwanda, Uganda and Burundi.
Hashi Energy has seen its market share drop from 22.2 per cent in September last year to 16.4 per cent in December, then further to 8 per cent in March. Lake Gas has been selling its branded gas locally, but this is mostly supplied through independent re-fillers.
The Tanzanian exporters have also taken issue with Kenya’s claims of adulteration, arguing that such issues should be dealt with on a case-by-case basis.
“We doubt if the issue of illegal refilling will be solved through a blanket ban on road importation of gas from Tanzania, as illegal refillers can still use LPG from Mombasa port. LPG imported into Kenya through Mombasa is distributed within Kenya and also exported to other East African member states by road. If illegal refilling is fuelled by product movement by road, then the concern above cannot be attributed to product coming from Tanzania alone,” the traders said.
Last week, Kenya said that it would be purchasing two gas testing facilities, to be installed at the border Custom points of Namanga and Voi, before the end of the year, in a bid to unlock the trade stalemate with Dar.
Energy Regulatory Authority acting director-general Pavel Oimeke said the country only has one functional machine at the Kenya Petroleum Refineries Ltd.
“The purchase of the additional two machines will ensure that all LPG entering the country through road border points is sampled and tested. The cost of the equipment will be $800,000,” Mr Oimeke said.