Search News Results
SACU and Namibia – The future
Remarks by Ms. Paulina M. Elago, Executive Secretary of SACU, on the occasion of the 38th Public Dialogue on “SACU and Namibia – the future”, held on 13 July 2017 in Windhoek
Allow me to briefly highlight the evolution of SACU, with a special focus on its evolving roles and objectives since its formation over 100 years ago. This will enable us to contextualise all pertinent issues around the theme and help us to understand the future direction of our Organisation and its role in supporting the economies of its Member States including the Republic of Namibia.
As the oldest Customs Union in the world today, SACU arrangement was formalized in 1910. The political changes following the independence of Botswana, Swaziland, and Lesotho necessitated a renegotiation of the 1910 Agreement, which culminated in the conclusion of the 1969 SACU Agreement. Further political and economic dispensation of the early 1990s warranted a complete renegotiation of the 1969 Agreement. This followed Namibia’s independence in 1990 and democracy in South Africa 1994.
The 1969 Agreement lacked joint decision making, therefore it was necessary to take these developments into account and conclude a new Agreement. The SACU Agreement of 1969 was thus renegotiated with the aim to democratize SACU and address the needs of the SACU Member States more effectively. The result was a 2002 SACU Agreement, which sets out a broad framework for enhanced integration with clear mandate, objectives, institutions, financing procedures and joint decision making.
The 2002 Agreement provides for the following SACU institutions: the Council of Ministers, Customs Union Commission, the Secretariat, Tribunal, Tariff Board, National Bodies, and Technical Liaison Committees. The establishment of National Bodies is at different levels across Member States as they institute appropriate legislative framework. The Tariff Board and Tribunal have not been established.
A SACU Summit, composed of the Heads of States and Government, has also been institutionalised with amendments to the SACU Agreement, 2002, in April 2013.
As a customs union, SACU continues to maintain a Common External Tariffs (CET) on imports from outside of the Customs Area. Pending the establishment of the SACU Tariff Board, the Department of International Trade (ITAC) of South Africa was delegated to set the CET in consultations with relevant authorities in other Member States as an interim measure.
SACU Member States have also pursued a unified and coordinated approach to negotiations with third parties through the Common Negotiating Mechanism.
Since 2002, SACU has concluded several trade agreements with some of its key trading partners. These include: Preferential Trade Agreement with the MERCOSUR group of countries; Trade, Investment and Development Cooperation Agreement with the US; SACU-EFTA FTA and most recently, the Economic Partnership Agreement with the European Union. With the conclusion of these Agreements, the market access opportunities are now availed for the Member States and the private sector to take full advantage of.
Since 2002, the Customs Union has been evolving. Taking into account the regional and global developments, the SACU Heads of States and Government adopted a new Vision for SACU in 2010, this being to be “An economic community with equitable and sustainable development, dedicated to the welfare of its people for a common future”. Consistent with the above-mentioned Vision, the SACU Mission is:
-
To serve as an engine for regional integration and development, industrial and economic diversification, the expansion of intra-regional trade and investment, and global competitiveness;
-
To build economic policy coherence, harmonisation and convergence to meet the development needs of the region;
-
To promote sustainable economic growth and development for employment creation and poverty reduction;
-
To serve as a building block of an ever closer community among the peoples of Southern Africa;
-
To develop common policies and strategies for areas such as trade facilitation; effective customs controls, and competition; and
-
To develop effective, transparent and democratic institutions and processes.
The SACU Vision and Mission define the future of SACU and the ambition of the SACU Member States to deepen regional integration efforts and moving towards the establishment of an economic community.
SACU Vision and Mission constitute a clear response by the SACU Heads of State and Government to the regional and global developments and how they see the SACU of the future. More specifically, the Vision seeks to construct a position for SACU within the multiplicity of regional integration initiatives such as SADC and COMESA and thus define the future of the Custom Union.
With this Vision, SACU Member States have decided to position SACU at the centre of regional integration agenda and ensure that the Organisation “serves as a building block for close economic integration” in the Southern African Region. To achieve this Vision and Mission, this requires the transformation and re-invigoration of the current Customs Union to an Organisation that is able to face the current and future developmental challenges of the region whiles remaining relevant and generating benefits for its members.
SACU Vision also represents a paradigm shift away from a focus on a mere revenue sharing arrangement to one that seeks to promote industrial development, as an overarching objective of SACU and thereby contributing to the development and diversification of the economies of the member States. To this effect, the development of effective policy tools and regional cooperation mechanisms that will contribute to regional industrialisation, constitutes a key element of the SACU Work Programme.
Following the adoption of the new Vision and Mission in 2010, the SACU Heads of State and Government have approved the following Priority Areas:
-
Regional Industrial Development Policy;
-
Review of the Revenue Sharing Arrangement;
-
Trade Facilitation;
-
Development of SACU Institutions;
-
Unified Engagement in Trade Negotiations;
-
Trade in Services; and
-
Strengthening the capacity of the Secretariat.
I should point out that the recent developments both at the global and regional levels, some of which have a great impact on the multilateral trade governance structure such as increased popularism and anti-globalisation; as well as the lack of common approaches to how we implement the Priority Areas in SACU, have prompted SACU to undertake some self-introspection with a view to reinvigorate the SACU Work Programme.
In this regard, I am pleased to inform this August gathering that following a self-introspection by the SACU Member States and discussions at the Ministerial and Summit levels, the SACU Council has approved a Work Programme, which was also endorsed by the Heads of States and Government at their recent Summit held on 23rd June 2017, in Swaziland.
The Work Programme comprises the following:
-
a review and development of a suitable architecture for tariff-setting, rebates, duty drawbacks and trade remedies;
-
a review of the Revenue Sharing Formula based on the principle that “no member State should be worse off” and the long-term management of the Common Revenue Pool;
-
the establishment of a Stabilisation Fund and exploring the feasibility of a financing mechanism for regional industrialisation;
-
identifying financing options for regional projects; and
-
the development of public policy interventions to promote and align industrial development and value chains.
Furthermore, the work above will, in some instances lead to a review of some aspects of the SACU Agreement, 2002, to facilitate the development of SACU economies. This however can only be done once there is consensus on specific topics.
The implementation of the Work Programme will be spearheaded by the two Ministerial Task Teams on Trade and Industry, and on Finance, to facilitate the urgent implementation of the Work Programme. In terms of the institutional set, the Ministerial Task Teams will report to the Council of Ministers, which in turn reports to the Summit. Senior officials will support the work of the Ministerial Task Teams.
In addition to endorsing the Work Programme, the Heads of States and Government also reaffirmed their commitments to SACU and the important role it plays in the economies of the Member States. This is in recognition of the fact that SACU is not only a source of significant revenue for most of the Member States, but through the free movement of goods, SACU can help build regional value chains, and thereby propel the region to tap into global value chains.
It is against this background that the SACU Summit directed the Ministerial Task Teams to prioritize industrial development and develop concrete cross-border projects to promote industrialization to ensure that the region is able to optimise economic benefits to withstand global economic shocks.
The new Work Programme is to be implemented over the next twenty-four months.
I should note that the work and the negotiations that will follow among the Member States will not be easy, however this will be necessary to ensure that SACU remains relevant and responsive to the needs and the development challenges of all the member States As a Secretariat, we stand ready to support the Member States to execute the Work Programme and ensure that SACU indeed became a vehicle for development in support of the economies of the Member States, going forward.
We are all aware that the Namibian Government regards and attaches great importance and priority to regional integration efforts. This is in recognition of the fact that regional integration offers the most credible strategy and approach for tackling its development challenges including the industrialisation drive. 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 R147 billion, Botswana, R167 billion, Lesotho R25 billion, Swaziland R52 billion 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:
-
Develop a clear strategy towards regional integration and ensure policy coherence and the mainstreaming of regional integration across all sectors of the economy. Such a strategy will articulate and ensure policy coherence between national policies and regional initiatives.
-
Accelerate efforts towards economic diversification to broaden its industrialise base so as to take advantage of the SACU growing market as well as the market opportunities that are being created with the conclusion of new trade agreements;
-
Ensure full implementation of ongoing programmes especially trade facilitation and regional customs modernization programmes.
-
A clear articulation of Namibia’s interests and positions to inform the discussion that will now ensue under the approved work programme.
Through such efforts, these could propel the country to be able to optimise economic benefits arising from its membership to SACU and other trade arrangements concluded with third parties. In turn, this should stimulate growth and strengthen the country’s ability to withstand global economic shocks.
In conclusion, allow me to once again thank the Agriculture Trade Forum and Friedrich-Ebert-Stiftung for organising this dialogue. This dialogue came indeed at an opportune time as SACU enters yet another phase in its history with a view to reposition and transform itself not only to remain relevant but to be responsive to the development needs of its Member States in the face of regional and global developments.
I thank you for your kind attention.
Related News
Goods negotiations restart, members divided on transparency proposal
WTO members on Friday (21 July) took up a proposal which proponents said would facilitate the participation of micro, small and medium-sized enterprises (MSMEs) 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 discussion took place in the negotiating group on non-agricultural market access (NAMA), which held its first substantive meeting since 23 July 2015. Since that time, negotiations in the group had stalled as members could not agree on the scope and level of ambition of talks to open markets for trade in industrial goods.
The transparency proposal – put forward by the European Union; Hong Kong, China; the Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu (“Chinese Taipei”); and Singapore – calls for WTO ministers to agree by the 11th Ministerial Conference in Buenos Aires this December on a series of actions, including the development of a common internet portal for sharing information, greater consultation with stakeholders and notification of final changes to domestic regulations covered in the WTO's agreements on sanitary and phytosanitary (SPS) measures and technical barriers to trade (TBT).
The proposal received support from many Asian and European delegations as well as several delegations from Latin America. These supporters of the proposal said timely access to thorough information on any changes to members' SPS and TBT regulations would lower trade costs for MSMEs while helping these smaller companies better understand market access opportunities in other countries. In their view, lack of information disproportionately affects these companies.
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. Others questioned whether the NAMA negotiating group was the right forum for such discussion given that agricultural products would also be covered by the proposal and some opponents doubted there was enough time to have an agreement by the December Ministerial Conference.
Finally, some of the opponents considered that the proposal raised complex legal issues which would be best discussed in the SPS and TBT committees, where the experts could look at the issues in more detail.
Responding to questions and concerns on the proposal, the European Union said the text was relatively short, so if members were focused it would not be difficult to achieve agreement by December on its text. The EU delegate said the NAMA negotiating group was the right forum for discussing this issue because many members have concerns that TBT and SPS measures have been used as non-tariff barriers which are taken up in the committee. Excluding agricultural products would be the easy way out, but they should also be addressed in the committee, said the EU, because trade in such products are of great importance to developing countries. The EU said it was open to discussions on how best to ensure that developing countries received adequate technical assistance and special provisions should the proposal be agreed by ministers.
Didier Chambovey, the Swiss ambassador to the WTO who chairs the NAMA negotiations, concluded by saying that the negotiating group had taken note of the comments, advised the EU and other proponents to meet with delegations opposing the proposal, and concluded by saying that he stood ready to hold informal consultations on the matter “should further developments take place”.
Related News
A firming recovery: World Economic Outlook Update, July 2017
The recovery in global growth that was projected in IMF’s April 2017 World Economic Outlook is on a firmer footing; there is now no question mark over the world economy’s gain in momentum.
Global output is projected to grow by 3.5 percent in 2017 and 3.6 percent in 2018. The distribution of this growth around the world has changed, however: compared with April’s projection, some economies are up but others are down, offsetting those improvements. Growth has been revised up for Japan and especially the euro area, where positive surprises to activity in late 2016 and early 2017 point to solid momentum. China’s growth projections have also been revised up, reflecting a strong first quarter of 2017 and expectations of continued fiscal support. Inflation in advanced economies remains subdued and generally below targets; it has also been declining in several emerging economies, such as Brazil, India, and Russia.
While risks around the global growth forecast appear broadly balanced in the near term, they remain skewed to the downside over the medium term. On the downside, rich market valuations and very low volatility in an environment of high policy uncertainty raise the likelihood of a market correction, which could dampen growth and confidence. The more supportive policy tilt in China, especially strong credit growth, comes with rising downside risks to medium-term growth. Monetary policy normalization in some advanced economies, notably the United States, could trigger a faster-than-anticipated tightening in global financial conditions. And other risks discussed in the April 2017 WEO, including a turn toward inward-looking policies and geopolitical risks, remain salient.
Projected global growth rates for 2017-18, though higher than the 3.2 percent estimated for 2016, are below pre-crisis averages, especially for most advanced economies and for commodity-exporting emerging and developing economies. Among the former, many face excess capacity as well as headwinds to potential growth from aging populations, weak investment, and slowly advancing productivity. In view of weak core inflation and muted wage pressures, policy settings should remain consistent with lifting inflation expectations in line with targets, closing output gaps, and – where appropriate – external rebalancing. Reforms to boost potential output are of the essence, and slow aggregate output growth makes it even more important that gains are shared widely across the income distribution. Financial stability risks need close monitoring in many emerging economies. Commodity exporters should continue adjusting to lower revenues, while diversifying their sources of growth over time.
The global economy maintains momentum
The cyclical recovery continues. Growth outturns in the first quarter of 2017 were higher than the April WEO forecasts in large emerging and developing economies such as Brazil, China, and Mexico, and in several advanced economies including Canada, France, Germany, Italy, and Spain. High-frequency indicators for the second quarter provide signs of continued strengthening of global activity. Specifically, growth in global trade and industrial production remained well above 2015-16 rates despite retreating from the very strong pace registered in late 2016 and early 2017. Purchasing managers’ indices (PMIs) signal sustained strength ahead in manufacturing and services.
Commodities and inflation. Oil prices have receded, reflecting strong inventory levels in the United States and a pickup in supply. Headline inflation also generally softened as the impact of the commodity price rebound of the second half of 2016 faded, and remains at levels well below central bank targets in most advanced economies. Core inflation has remained broadly stable. It has largely been stable in emerging economies as well, with a few, such as Brazil and Russia, witnessing strong declines.
Exchange rates and capital flows. As of end-June, the U.S. dollar has depreciated by around 3½ percent in real effective terms since March, while the euro has strengthened by a similar amount on increased confidence in the euro area recovery and a decline in political risk. Over the same period, exchange rate changes across emerging market currencies have been relatively modest, with some strengthening of the Mexican peso on tighter monetary policy and reduced concerns about U.S. trade frictions, and a depreciation of the Brazilian real on renewed political uncertainty. Capital flows to emerging economies have been resilient in the first few months of 2017, with a notable pickup in non-resident portfolio inflows.
Global growth forecast to pick up in 2017 and 2018
Global growth for 2016 is now estimated at 3.2 percent, slightly stronger than the April 2017 forecast, primarily reflecting much higher growth in Iran and stronger activity in India following national accounts revisions. Economic activity in both advanced economies and emerging and developing economies is forecast to accelerate in 2017, to 2 percent and 4.6 percent respectively, with global growth projected to be 3.5 percent, unchanged from the April forecast. The growth forecast for 2018 is 1.9 percent for advanced economies, 0.1 percentage point below the April 2017 WEO, and 4.8 percent for emerging and developing economies, the same as in the spring. The 2018 global growth forecast is unchanged at 3.6 percent. The revisions reflect primarily the macroeconomic implications of changes in policy assumptions for the world’s two largest economies, the United States and China.
Emerging and developing economies
Emerging and developing economies are projected to see a sustained pickup in activity, with growth rising from 4.3 percent in 2016 to 4.6 percent in 2017 and 4.8 percent in 2018. These forecasts reflect upward revisions, relative to April, of 0.2 percentage point for 2016, and 0.1 percentage point for 2017. As in the most recent WEO forecast vintages, growth is primarily driven by commodity importers, but its pickup reflects to an important extent gradually improving conditions in large commodity exporters that experienced recessions in 2015-16, in many cases caused or exacerbated by declining commodity prices.
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.
Risks
Short-term risks are broadly balanced, but medium-term risks are still skewed to the downside. Lower commodity prices would further exacerbate macroeconomic strains and complicate adjustment needs in many commodity exporters. Other downside risks threatening the strength and durability of the recovery include:
-
A more protracted period of policy uncertainty. Despite a decline in election-related risks, policy uncertainty remains at a high level and could well rise further, reflecting – for example – difficult-to-predict U.S. regulatory and fiscal policies, negotiations of post-Brexit arrangements, or geopolitical risks. This could harm confidence, deter private investment, and weaken growth.
-
Financial tensions. In China, failure to continue the recent focus on addressing financial sector risks and curb excessive credit growth (mainly through tighter macroprudential policy settings) could result in an abrupt growth slowdown, with adverse spillovers to other countries through trade, commodity price, and confidence channels. A faster-than-expected monetary policy normalization in the United States could tighten global financial conditions and trigger reversals in capital flows to emerging economies, along with U.S. dollar appreciation, straining emerging economies with large leverage, U.S. dollar pegs, or balance sheet mismatches. At the same time, to the extent that such monetary policy tightening reflects a stronger U.S. outlook, U.S. trading partners would benefit from positive demand spillovers. Finally, a broad rollback of the strengthening of financial regulation and oversight achieved since the crisis – both nationally and internationally – could lower capital and liquidity buffers or weaken supervisory effectiveness, with negative repercussions for global financial stability.
-
Inward-looking policies. Over the longer term, failure to lift potential growth and make growth more inclusive could fuel protectionism and hinder market-friendly reforms. The results could include disrupted global supply chains, lower global productivity, and less affordable tradable consumer goods, which harm low-income households disproportionately.
-
Noneconomic factors. Rising geopolitical tensions, domestic political discord, and shocks arising from weak governance and corruption can all weigh on economic activity.
These risks are interconnected and can be mutually reinforcing. For example, an inward turn in policies could be associated with increased geopolitical tensions as well as with rising global risk aversion; noneconomic shocks can weigh directly on economic activity as well as harm confidence and market sentiment; and a faster-than-anticipated tightening of global financial conditions or a shift toward protectionism in advanced economies could reignite capital outflow pressures from emerging markets.
Policies
Policy choices will therefore be crucial in shaping the outlook and reducing risks.
-
Strengthening the momentum. With countries at present facing divergent cyclical conditions, differing stances of monetary and fiscal policy remain appropriate. In advanced economies where demand is still lacking and inflation too low, monetary and (where feasible) fiscal support should continue; elsewhere monetary policy should normalize gradually, in line with economic developments, and fiscal policy should focus on supporting reforms aimed at expanding the economy’s supply potential. Countries in need of fiscal consolidation should do so with growth-friendly measures. Emerging market economies should continue to allow exchange rates to buffer shocks, wherever possible.
-
Making growth resilient and balanced. Efforts to accelerate private sector balance sheet repair and ensure sustainability of public debt are critical foundations for a resilient recovery. So are efforts from surplus and deficit countries alike to reduce excess current account imbalances.
-
Sustaining high and inclusive growth in the long term. This goal calls for well-sequenced and tailored structural reforms to boost productivity and investment, measures to narrow gender labor force participation gaps, and active support for those hurt by shifts in technology or trade.
-
Enhancing resilience in low-income countries. Among low-income developing countries, commodity exporters generally need sizable adjustment to correct macroeconomic imbalances, a challenge that would be exacerbated for fuel exporters by a persistent decline in oil prices. Policy priorities for diversified low-income developing countries vary, given the diversity of country circumstances, but an overarching goal for these economies should be to enhance resilience against potential future shocks by strengthening fiscal positions and foreign reserves holdings while growth is strong.
-
Working toward shared prosperity. A well-functioning multilateral framework for international economic relations is another key ingredient of strong, sustainable, balanced, and inclusive growth. Pursuit of zero-sum policies can only end by hurting all countries, as history shows. Because national policies inevitably interact and create spillovers across countries, the world economy works far better for all when policymakers engage in regular dialogue and work within agreed mechanisms to resolve disagreements. A rule-based and open world trading system is especially vital for global prosperity, but it must be supported by domestic policies to facilitate adjustment, not only to trade but to rapid technological change.
-
Cooperating to ensure evenhandedness. At the same time, the international community should continue to adapt the multilateral system to the changing global economy. Active dialogue and cooperation will help to improve and modernize the rules, while addressing valid country concerns. This process will ensure continued mutual benefits and evenhandedness. Together with strong domestic policies, it will also help avoid a broad withdrawal from multilateralism, either through widespread protectionism or a competitive race to the bottom in financial and regulatory oversight, which would leave all countries worse off.
Read the full July 2017 World Economic Update here.
Related News
tralac’s Daily News Selection
Francis Mangeni: Industrialization in Africa
Good practice would suggest that acquisition and deployment of technology, building a sound technological base, harnessing innovations together with knowledge and skills from around the world, should be an overarching goal and strategy that informs the entire industrialization and structural transformation policy; it should be the organizing logic that infuses all the interventions, and all sectoral initiatives. This is not quite as simple as building fibre-optic cables to enable internet access for chats and apps. It is prioritizing the knowledge economy as a national and regional ethos, on which to anchor human resource development, financial markets, private sector development, systems and institutional strengthening, long and medium term development strategies, annual planning and budgeting cycles, and all else that supports social economic transformation, including songs and poems. [The author is Director of Trade, Customs and Monetary Affairs at COMESA.
Innovation, diversification and inclusive development in Africa (UNCTAD)
Against this backdrop, the paper discusses linkages between innovation, transformation and inclusion. It also presents stylized facts on transformation, the state of innovation and inclusion in Africa and, more importantly, offers policy recommendations on how to promote technological innovation to trigger transformation and build inclusive societies in Africa. [The authors: Patrick N. Osakwe, Nicole Moussa]
Sustainability provisions in regional trade agreements: can they be multilateralised? (ICTSD)
Accordingly, this paper focuses on so-called deep integration RTAs. Deep integration refers to RTAs that go beyond border protection measures and include “behind the border” measures, such as product and market regulation. These agreements are analysed on the basis that they contain the most comprehensive provisions on sustainable development and trade. To date, most of the signed deep-integration RTAs are by developed countries with some developing countries participating in the agreements, although not as demanders. The focus is primarily on deep-integration RTAs that have a global economic impact on third parties, and on trade and sustainable development. Nonetheless, some other relevant examples are discussed, including the Chilean case, which concerns a developing country that has concluded deep-integration agreements with both developed and developing countries. Addressing sustainability issues is not only a regional concern, but also a multilateral one. There has been interest in harnessing a process of multilateralising regionalism, by which selected deeper measures incorporated in RTAs could be diffused more widely and consistently across regional negotiations, and lead to convergence at the multilateral level. Given the wide range of country experiences in incorporating sustainability into RTAs, and the evident lack of progress in advancing trade negotiations through the WTO, this is clearly a challenging proposition. The paper assesses the extent of the challenge and explores options for sustainable development to be incorporated into the WTO. [The authors: Peter Draper, Nkululeko Khumalo, Faith Tigere]
Tanzania pushes for introduction of SADC universal visa (The Citizen)
Tanzania yesterday reminded SADC member states to consider introducing the universal visa. The reminder was issued by Foreign Affairs and East African Cooperation minister Augustine Mahiga when opening the 19th meeting of the SADC Ministerial Committee of the Organ on Politics, Defence and Security Cooperation in Dar es Salaam yesterday. Dr Mahiga, who is also MCO chairman, said there had been little progress in the implementation of the univisa since its piloting phase stalled in 2008. He added that facilitation of movement of people and goods was among tenets of regional integration and economic development, hence the importance of relaxation of visa requirements among member states. “This will also ease the implementation of the protocol on the facilitation of free movement of people, which is critical for our citizens to enjoy the benefits of regionalism and contribute to the realisation of the dreams of our founding fathers regarding true and deeper integration,” Dr Mahiga told the meeting. [Magufuli: No citizenship for Burundi refugees]
The East African Community’s Intellectual Property Regime: launch updates
(i) Kenyan manufacturers seek to curb illicit trade. Kenya’s industrialists on Thursday launched a regional intellectual property rights regime study which aims to curb illicit trade which affects the growth of industrialization. Kenya Association of Manufacturers said the EAC Intellectual Property Rights Regime Study aims to enhance regional protection of IPRs, as a contributor to achieving the industrialization agenda. Speaking during the launch in Nairobi, KAM CEO Phyllis Wakiaga noted that illicit trade affects manufacturing value-added industries in Kenya and the EAC, erodes the market share of genuine manufactured products, threatens expansion and survival of industries and hampers creation of job opportunities. “It is against this backdrop that the KAM initiated the study on the status of IPRs within the EAC with a view of identifying gaps and recommending the best practices to eliminate illicit trade and counterfeiting activities in the region,” Wakiaga added.
(ii) Anti-counterfeits war plan gets 5 more years. The Anti-Counterfeit Agency plans to strengthen its market intelligence, boost internal capacity and enforcement role as it announced the extension of its strategic plan in the war against fake products. Executive director, Elema Halake said the first plan was largely successful in the war that saw the agency make close to 700 arrests across the country, seize counterfeit goods worth in excess of Sh1.6 Billion and destroy counterfeit goods worth approximately Sh700 million since 2011. “This Strategic plan gives us the tools we need to succeed in a rapidly changing environment and will ensures that our law enforcement mandate remains relevant to the people it serves,” said ACA Board Chairman, Pradeep Paunaranha. Under the five-year plan, ACA will strengthen its human capital capacity, finance and infrastructure.
Tanzania gas dealers hit out at ‘monopolistic’ Kenyans (Business Daily)
Tanzanian liquefied petroleum gas dealers have accused Kenyan “monopolistic” firms of influencing the government’s April ban on commodity through the Namanga border, renewing the long-running trade feud between the two countries. About 40,000 metric tonnes, or 40%, of estimated 100,000 tonnes imported into Tanzania annually are re-exported into Kenya, the Tanzanian LPG lobby claims. “The consequence of the ban is that some companies in Kenya operate in a monopolistic set-up contrary to fair competition practices as set by East African common market rules,” the lobby group claimed. “It is easy to notice that monopoly and protection practices have pushed prices up in Mombasa and affect consumers in Kenya. Dar es Salaam used to make Mombasa competitive.”
Botswana: International Merchandise Trade Statistics April 2017 (pdf, Statistics Botswana)
Botswana recorded a trade deficit of P1,366.7m in April 2017. The current deficit follows another deficit of P215.2m registered during March 2017. During April 2017, total imports were valued at P5,171.3m, showing an increase of 20.5% (P879.3m) from the March 2017 value of P4,292.0m. This increase was mainly attributed to the increase of more than 100% (P435.4 million) in fuel imports from P394.2m in March 2017 to P829.6m in April 2017. SACU was the major source of imports into Botswana during April 2017, accounting for 69.5% (P3,592.0m) of total imports. South Africa was the main source of imports during the month, having contributed 57.9% (P2,995.1m) to total imports. April 2017 total exports were valued at P3,804.6m, showing a decrease of 6.7% (P272.2m) from the March 2017 value of P4,076.8m. This decrease is mainly due to a drop of 7.4 % (P280.2m) in diamond exports, from P3,811.3m in March 2017 to P3,531.1m in April 2017. Exports destined to the SACU region were valued at P243.7m representing 6.4% of total exports (P3, 804.6m) for the month. South Africa received exports valued at P226.3m, accounting for 5.9% of total exports during the same month.
Egypt’s long-awaited South American trade deal to start next month (The National)
Argentina said it has sent the regional bloc Mercosur its ratification of the group’s 2010 trade agreement with Egypt, and the pact will go into force within a month. The trade deal, which covers food, cars, auto parts and industrial supplies, was signed by Egypt and Mercosur members Argentina, Brazil, Uruguay and Paraguay in 2010, but it did not go into effect because Argentina’s congress had not approved it. The deal will eliminate tariffs on 60% of Argentina’s exports immediately and phase in reduced tariffs for other products over 10 years, the ministry said. Tariffs in Argentina on imports of beef, pears, apples and cars and auto parts from Egypt will also be lifted, it added.
Why it’s important for India to trade with Latin America (The Wire)
For those who think that Latin America is too far and the cost of freight too high, and therefore that the region should be less important for India’s trade, here is an eye opener from the 2016-17 (April-March) statistics of the commerce ministry of India. (i) In 2016-17, India exported more to Mexico ($3.5bn) than to neighbours such as Thailand ($3.1bn), Myanmar ($1.7bn) and Iran ($2.4bn) or traditional trade partners Russia ($1.9 billion) and Canada ($2 billion). (ii) India’s exports to Colombia ($787m) were more than the exports to some West European countries such as Austria, Ireland and Scandinavian countries. (iii) Guatemala imported more from India ($243m) than some Central Asian and East European countries. (iv) India’s trade with the Dominican Republic ($900m) was more than the trade with Portugal, Greece and some other European countries. For those who think that it is very difficult for India to compete with Chinese exports, here is another piece of information:
India: National Trade Facilitation Action Plan launched (KNN India)
Union Finance Minister Arun Jaitley has released the National Trade Facilitation Action Plan and said this Action Plan gives a time bound map, not only for implementing Trade Facilitation Agreement, but also for India’s initiatives for trade facilitation and ease of doing business which goes beyond TFA. It also covers many activities in the areas of infrastructure augmentation, particularly the road and rail infrastructure leading to ports and the infrastructure within ports, airports, ICDs, land customs stations that cuts across all stakeholders for which various ministries like shipping, civil aviation, railways, road transport and highways, home affairs, finance and commerce have been assigned specified targets. The national plan would be monitored by the steering committee (the operational arm of the National Committee on Trade Facilitation) chaired by the revenue secretary and the commerce secretary, it said, adding, “The plan would be reviewed by the cabinet secretary.”
Nigeria: Airlines losing traffic to Ethiopia on price, connectivity (BusinessDay)
International and domestic airlines operating in Nigeria are gradually losing passenger traffic to Ethiopian Airlines over the East African carrier’s relatively cheaper fares, easy connectivity and most recently, concerted efforts by the country at becoming a one-stop-shop for tourists in Africa. The obvious price discrepancy gives the average Nigerian customer the choice to opt for relatively cheap African carriers, especially Ethiopian Airlines. The airline, which is the most connected in Africa, with 54 African and 94 destinations worldwide, is further consolidating on its efforts at becoming the largest aviation hub in Africa, with the attraction of tourists and corporate businesses from across the continent to Ethiopia’s hospitality and tourism offerings.
Nigeria: Apapa chaos traps thousands of containers at port (BusinessDay)
Goods estimated at several billions of naira are trapped in hundreds of containers at Apapa seaport, as trucks can no longer access or exit the various terminals inside the ports due to the current logjam in Apapa. This has resulted in the return of vessel queues last seen 11 years ago, with sources at the ports claiming no fewer than 20 ships are waiting at sea to berth, even as already berthed vessels are unable to discharge their cargoes and leave. Port operators say if this persist, ships will soon start charging a premium to bring goods into the country, which would translate into higher cost of goods on the streets.
Bitcoin – an opportunity for African trade? (GTR)
Bitcoin continues to be the subject of much debate and controversy, but for many African companies the choice is simple. For them, the cryptocurrency is not at all related to anonymous black market business – it’s about enabling them to flourish. GTR’s Sanne Wass spoke with Elizabeth Rossiello of BitPesa to find out more.
Bringing the desert together: how to advance Sahelo-Maghreb integration (European Council on Foreign Relations)
This paper proposes a more holistic approach to regional stabilisation, one that acknowledges the need for better security capacity and coordination while also emphasising the need for greater regional integration between North Africa and the Sahel. This approach can help limit the appeal of operating in the informal sector while providing opportunities for legal work in the Sahel. The formalisation of some previously illicit or clandestine economic activity can, in turn, improve development and economic diversification in the Maghreb while providing labour opportunities for the region. To accomplish these goals, the paper proposes that French and international efforts to improve intra-Sahel and Sahel-Maghreb integration focus on migration, economic reform, security coordination, and regional institutional frameworks. [The author: Andrew Leibovich]
Quick Links: Realising the potential of Africa’s youth: the YouthConnekt summit, in Kigali. Keynote speech by UNDP’s Abdoulaye Mar Dieye ECOSOC High-level Political Forum on the SDGs concludes Prof Aryeetey honoured by University of Sussex for contributing to the study of African economies EAC to harmonize policies on e-waste management Botswana: Donkey exports - a well-intentioned trade gone wrong Guinea-Bissau: Third review under the extended credit facility arrangement Margaret McMillan: Chinese investment in Africa |
Related News
Industrialization in Africa
Brexit, now in full remorse, has been a test of the place of regional economic integration in the world.
As right-wing populism recedes, following the tragicomic reign of Trump in the West and the election of the pro-EU Emmanuel Macron in France, the developmental approach taken by the Tripartite might well be a best practice for the whole world in pursuing regional economic integration. The approach bases regional economic integration on at least three simultaneously critical pillars – building of large regional markets to support critical levels of investment, cross-border economic infrastructure including rural infrastructure, and industrialization, with a focus on small to medium scale enterprises, for social economic transformation.
Political economists such as Dani Rodrik and happiness economists such as Joseph Stiglitz and Jeffrey Sachs, have long called for such an approach though only in sketches traceable in their overall narrative and specific suggestions for addressing inequality and other economic challenges from the current version of globalisation. The upshot of the academic, political and economic turmoil surrounding globalization for over 20 years, is that creation of decent jobs, economy-wide rather than for a privileged few, remains a core priority for governments and regional economic integration bodies, going to their very legitimacy.
The United Nations Economic Commission for Africa (ECA) has done some brilliant work over the years, through its annual Economic Report on Africa and Assessing Regional Integration in Africa, on which to consistently build in terms of deeper and specific analysis, and in terms of implementation of Decisions and Action Plans so far agreed by the African Union. That work supported the adoption by the African Union in 2012 of the Action Plan for Boosting Intra-Africa Trade (BIAT) and the initiative to negotiate and conclude an Agreement establishing a Continental Free Trade Area covering the 55 African countries – the negotiations were eventually launched on 15 June 2015. BIAT has 7 clusters or programme areas, including enhancement of productive capacities and trade facilitation. It is estimated that implementation of the Continental FTA together with trade facilitation measures will double intra-Africa trade by 2022 to about 25 percent of total trade, which is still diminutive.
There has been a perceived dichotomy between trade and industrialization, and between manufacturing or goods and services; with the policy implication of focusing on manufacturing, away from trade or markets and away from services. This approach has been wrong to the extent that without markets, investment and production would not be forthcoming in the first place. Also, services inputs make up 60 percent of the value of manufactured products, many of which derive their efficacy from their services components – think of a mobile phone or an aircraft or a computer, and in the internet of things, practically about all items. This has been explained in the 2015 ECA Economic Report on Africa themed Industrialization Through Trade, and in the World Bank publication by Nora Dihel on The Unexplored Potential of Trade in Services in Africa of 2016. Appropriate trade policies and instruments support industrialization, and services in Africa will be part of the solution through facilitative policies in key areas such as movement of skills, and creation of regional markets for financial, energy and transport services that support competitiveness.
In addition, it can no longer be argued that resources should move from the agricultural sector to the industrial sector and then to services, as the pre-ordained development trajectory. Calestous Juma has over the years argued, for instance in his 2011 book The New Harvest with a second edition in 2015, as well as the joint WTO-World Bank publication of 2015 called The Role of Trade in Ending Poverty, that poverty in the rural areas will only be eradicated through agricultural modernization and enhancement of agricultural productivity through innovation and the building of rural infrastructure. African Regional Economic Communities have programs in this area, and of course governments, that include interventions for providing agricultural inputs and rural infrastructure as well as structured trading. The Common Market for Eastern and Southern Africa (COMESA) for instance, has established a specialized agency called the Alliance for Commodity Trade in Eastern and Southern Africa (ACTESA), which supports small scale farmers with inputs and extension services. Such interventions will be a basis for agro-based industrialization, where agriculture is not equated to just farming, but construed broadly to encompass the regional and global value chains from seeds to final products on shelves in retail outlets.
Rather, all these elements (trade, innovation, infrastructure, manufacturing) are part and parcel of the same holistic interventions for industrialization.
The emphasis on value addition and diversification, while in order, has mostly been implemented upside down without the desired industrialization results. Interventions have sought to achieve value addition and diversification usually through investment incentives into mainly the natural resources or extractive sector. Yet what should be done first, or at least simultaneously, is building the technological and innovation capabilities at the national and regional levels, through dedicated interventions. It is when such capabilities exist in critical amounts that value addition and diversification will happen.
There are many good practices on how to harness technology, skills, creativity and innovation from around the world, or how to restructure our education systems along the lines of entrepreneurial universities (Strathmore University in Nairobi for instance), and how to put in place partnerships between universities and researchers, banks and other financing institutions and industry especially SMEs, with a view to identifying ideas that can be commercialized into whole new industries, getting patient or angel capital/ investors for the ideas, and twinning fledgling entrepreneurs with seasoned entrepreneurial or tutoring networks around the world.
Another dimension of value addition is that interventions have focused on value addition in the very same extractive sectors, getting trapped into vicious cycles, as Sir Paul Collier explained in his little book called The Bottom Billion. Rather, dedicated interventions to go beyond the existing product range should be prioritized, to achieve a repertoire of high value and high technology content products for regional and global export markets. This has usually been called regional or global value chains, an expression that can easily miss the point of the utter criticality of wholly new product ranges. As an example, Taiwan’s major export in the 1960s was mushrooms. But Taiwan did not get to being a global producer and exporter of micro-chips and computer parts that it is now, through adding value to mushrooms. Rather, deliberate government policy was put in place to move into a learning economy and innovation driven mode, beginning with rehabilitation of four dilapidated research institutes left behind by colonial Japan. Other examples can be drawn from South Korea, and Finland; as well Mauritius in the 1980s and to some limited extent Kenya lately.
Quite some noise has been made about the re-balancing of China and how Africa can strategise to tap the 85 million jobs or so that will move from China with the industries that are being relocated away. Justin Lin has advanced Helen Haiyu, a Chinese entrepreneur who has successfully pursued her African dream in Ethiopia and elsewhere, as an exhibit of how this can actually happen. Justin, however, has famously downplayed regional integration as quite a waste of resources, recommending instead, the building of colonial style railways and roads to seaports to facilitate exports from Africa to China and some developed countries. This is the model that Ethiopia is following, as alleged proof that regional markets are not that important to support industrialization (Ethiopia seems to prefer the preferential schemes such as the European Union’s Everything-but-Arms Initiative (EBA) and the Africa Growth and Opportunity Act (AGOA) of the United States as channels of export markets, to the immense potential in intra-Africa trade estimated by Mckinsey Global Institute’s Lions on the Move 2.0 of October 2016 at about 4$ trillion already in consumer products and business-to-business inputs). Justin Lin and Celestin Monga, the new Chief Economist of the African Development Bank, have published a book entitled Beating the Odds, where this argument is reinforced, that even without the oft touted pre-requisites like infrastructure, African countries could focus on special economic zones and industrial parks, and building routes, for exportation to global markets
This therefore is a policy area that needs to be looked into carefully. In questioning the worth of regional integration, Justin Lin stabs at the entire architecture of African continental integration and its Agenda 2063, the blue print and template for the social economic transformation of Africa. His views can therefore be written off as unfortunate, given that a lot of soul searching and exquisite analytical work has gone into the development of these overarching continental development strategies encapsulated in African regional economic integration. However, Justin Lin and his team have operations Africa-wide and have won medals from presidents in recognition of their work and contribution. The largely false narratives they purvey around need to be addressed, in order to always have the most appropriate ways forward on strategic and existential issues concerning Africa. Trade for Africa is a developmental tool, and therefore not limited to foreign exchange earnings, but is part of the process of strengthening regional value chains for structural transformation, and creating regional markets to support cross-border economic infrastructure for regional connectivity that facilitates resource flows and competitiveness.
One point Justin Lin is correct on of course, is that political leadership is required and there is need for a careful selection of the sort of high growth strategic investment to bring back home. This strategy was successful followed by the statesman Lee Kuan Yew, the father of Singapore, and is well articulated in his international best seller called From Third World to First. As a case study, the prime ministers of Ethiopia have not left investment selection and attraction to statute books containing incentives and to market forces. They have physically and aggressively gone out into the world to screen, select and bring home investors that share the national developmental goals and objectives. Lee Kuan Yew was prepared and did go back to school a number of times, and sent cohorts of young civil servants into top notch schools around the world, to harness knowledge and innovation, for deployment into the national development effort. Such political leadership is indispensable, along the lines that President Kagame of Rwanda is consistently following.
As a first step but also a regular ongoing exercise, governments and institutions with strategic roles in the national economies and in the RECs need to be mapping out SMEs with a view to developing and maintaining inventories of start-ups and new ideas that need nurturing and incubation, and aggressively supporting them with patient capital, entrepreneurial tutoring, and market and investment information, within a framework of facilitating trade into regional and global markets. The entrepreneurial university and other training initiatives, short-term re-tooling and skills development, are required to continuously build business skills in the private sector and improve employability. In addition, innovation reports and awards around Africa and the world, should be paid close attention to for new ideas that generate whole new economies, and high value high technology content products.
The role of the developmental state cannot be over-emphasized. A number of publications on this abound, recently as part of the backlash against runaway globalisation. Within the mess, a lot of good analytical work has emerged, notably by Dani Rodrik, espousing a political economy that should have provided the development path for developing countries over the years. A number of case studies are available for good practices; such as the Botswana requirement for cutting and polishing of diamonds before exportation, as well as broadly the developmental approach to regional integration in Africa taken by the COMESA-EAC-SADC Tripartite and the African Union at large where the trade-industrialisation-infrastructure nexus provides the joint pillars for integration programs.
When all is said and done, Government has a role as buyer (government procurement, which is a sizable market and can assist SMEs, a Kenyan law requiring that 30 percent of government procurement should be from youth, women, and disadvantaged and other marginalised groups has been a huge factor for inclusive growth), as financier (through development banks and corporations), as regulator (through putting in place the required policy framework and overseeing the proper functioning of trade and investment markets as well as enforcing investor rights and obligations through appropriately persuasive initiatives, for instance South Africa’s guidelines for its investors into Africa), and as facilitator (through sorting out and promoting strategic and high growth investment, especially into high growth but presently risky areas, including public goods – this is supposed to be the secret of China’s rapid economic growth and transformation).
Governments are better advised, building on best practices from China for instance, to embed training components into their large-scale procurement projects such as infrastructure building in transportation, energy, irrigation, and other public utilities and goods. A requirement for service suppliers to work in credible partnership with local universities, research institutions and staff in government departments, can provide learning opportunities for sustainability and for maintenance of these public goods after initial propagation or construction. At the same time, large scale infrastructure projects are part and parcel of and indeed a motor for industrialization. The training component should at the same time allow for local ownership of knock-on inventions and innovations, through enabling clauses on the intellectual property in the creative ideas that can emerge.
The fourth industrial revolution is said to be here, and Africa is awash with warnings not to be left behind again as happened in the past. Scenario setting is on – and Africa is being reminded, for instance by a group of 60 researchers in their report on Knowledge and Innovation in Africa – Scenarios for the Future, that it lost out on the industrial revolution mainly because it was marginalized out of the knowledge networks of the time, and due to intellectual property laws that monopolized skills and innovations into a few hands in the UK, and subsequently Europe and the US though these other countries fought the UK laws in openly using initial inventions that spurred the industrial revolution. The report calls for open collaborative innovation, pointing out that knowledge networks support entrepreneurship and economic growth. The message is that Africa must ensure it is networked into the global knowledge networks and systems in an organic manner that doesn’t leave outcomes to chance or blind market forces. The recent G20 summit held on 7-8 July 2017 called for follow up on the World Information Summits that were the in-thing at the beginning of the millennium, seeking to avoid a digital divide between developed and developing countries. Momentum towards this direction will be very much a priority.
In conclusion, industrialization requires well known interventions, according to rich discourses on economic development over the years. However, formulating, sequencing and implementing the interventions needs careful thinking. For instance, should technology and innovation, as well as a national or regional intervention for harnessing knowledge and skills from around the world, be a standalone intervention in the plethora of interventions usually written into national and regional industrialization policies and strategies? Good practice would suggest that acquisition and deployment of technology, building a sound technological base, harnessing innovations together with knowledge and skills from around the world, should be an overarching goal and strategy that informs the entire industrialization and structural transformation policy; it should be the organizing logic that infuses all the interventions, and all sectoral initiatives. This is not quite as simple as building fibre-optic cables to enable internet access for chats and apps. It is prioritizing the knowledge economy as a national and regional ethos, on which to anchor human resource development, financial markets, private sector development, systems and institutional strengthening, long and medium term development strategies, annual planning and budgeting cycles, and all else that supports social economic transformation, including songs and poems.
Dr Francis Mangeni is Director of Trade, Customs and Monetary Affairs at the Common Market for Eastern and Southern Africa (COMESA).
The views expressed in this article are those of the author and do not necessarily represent the views of tralac.
Resolute action key to retaining development gains, meeting 2030 Agenda by target date
Turning promises into progress in achieving a sustainable future depended on harnessing a collective will and taking resolute action to meet the deadline set in the 2030 Agenda for Sustainable Development, speakers said on Thursday as the High-level Political Forum concluded its general debate.
With more than 100 ministers, high-level officials and representatives sharing experiences and suggestions over the course of the 2017 session, many speakers had stressed the importance of working together to foster balanced progress in achieving the 2030 Agenda’s 17 Sustainable Development Goals. They also called for more targeted efforts to prevent the reversal of hard-won gains and to promote long-term sustainable development.
Sharing lessons learned in aligning the Goals with national plans, several speakers recommended new ways to do so, while others highlighted concerns about uneven progress. Hugo Martinez, Minister for Foreign Affairs of El Salvador, spoke on behalf of the Community of Latin American and Caribbean States (CELAC), emphasizing a need to recognize that each country – including the least developed countries, landlocked countries, small island developing States, countries in conflict and post-conflict countries, as well as various middle-income countries – faced specific challenges in seeking sustainable development.
Echoing that notion, representatives of developed and developing countries in special situations underlined a need to shift strategies. In the face of persistent climate change risks, Vanuatu’s representative said a business-as-usual approach no longer worked, demonstrating a clear need to shift the Millennium Development Goals mindset into a Sustainable Development Goals approach. In that vein, Namibia’s representative cautioned about the challenges posed by climate change, calling for international support by way of transferring technology related to climate action and access to climate financing.
Some delegates elaborated on how Goals-based aid targeting was helping developing States achieve results. Hamish Cooper, Principal Adviser of Multilateral and Legal Affairs at the Ministry of Foreign Affairs and Trade of New Zealand, said his Government had focused attention particularly on Pacific small island developing States, which faced economic and environmental vulnerabilities. In recognition of the risk posed by natural disasters, New Zealand was pursuing development cooperation by investing in the design and construction of climate- and disaster-resilient infrastructure.
But, some speakers said, resilience must straddle other sectors. Indeed, social gains must also be accompanied by economic achievements, said the representative of Bhutan. Given the similarities between Bhutan’s development philosophy of the Gross National Happiness concept and the Sustainable Development Goals, integrating those Goals into national plans had been easy. Having made progress in social and environmental dimensions of sustainable development, Bhutan now needed economic transformation, which would be a game changer to bolster economies and develop resilient and sustainable infrastructure.
After the general debate, the Economic and Social Council adopted a Ministerial Declaration aimed at accelerating the pace of implementing the 2030 Agenda and recognizing that fulfilling the Goals required bolstered partnerships and urgent action.
Prior to the text’s adoption, the Council decided, by separate recorded vote, to retain two paragraphs. Operative paragraph 4 – retained by a recorded vote of 30 in favour to two against (Australia, United States), with 18 abstentions – called for further effective measures and actions to remove the obstacles to the full realization of the right of self-determination of peoples living under colonial and foreign occupation, which continued to adversely affect their economic and social development and their environment.
Operative paragraph 21 – retained by a recorded vote of 32 in favour to 1 against (United States), with 16 abstentions – stated that efforts would continue to promote a universal, rules-based, open, transparent, predictable, inclusive, non-discriminatory and equitable multilateral trading system under the World Trade Organization as well as meaningful trade liberalization.
At the end of the meeting, Wu Hongbo, Under-Secretary General of Department of Economic and Social Affairs, and Frederick Musiiwa Makamure Shava, President of Economic and Social Council, made closing remarks.
Mr. Wu recalled that the Forum’s high-level segment had featured several key messages on the implementation of the 2030 Agenda, including that eradicating poverty remained the greatest global challenge and was an indispensable requirement for sustainable development. The 2030 Agenda – together with the Addis Ababa Agenda, the Paris Agreement and the Sendai Framework for Disaster Reduction – provided a comprehensive structure for eradicating poverty. Integrating policy across the three dimensions of sustainable development had become the standard and an inclusive follow-up and review would be fundamental. The Forum had featured far-reaching discussions that had pointed to tremendous capacity gaps, but also new opportunities.
Mr. Shava noted that the Council system had worked to provide integrated policy recommendations, address gaps and contribute to the overall review of progress in the implementation of the 2030 Agenda. The high-level segment represented the culmination of that work. An international enabling environment in the form of institutional frameworks and actions could be decisive for the effectiveness of poverty eradication and strategies, although globalization had created pressing challenges.
The challenges faced by the global institutional system required a new assessment of how the promise of sustainable and equitable growth could be turned into a reality for all people around the world, he said. There was growing consensus that the interconnectedness and global nature of challenges in all areas of sustainable development could not be solved by one nation alone. The 2030 Agenda provided a comprehensive framework for addressing economic, social and environmental tasks by providing global norms for sustainable and inclusive development. Discussions over the past two weeks had emphasized the importance of keeping the momentum going forward, and in that context, efforts must continue to be intensified.
Also delivering statements were ministers and high-level representatives of Burkina Faso, Nicaragua, Oman, Australia, Andorra, Kazakhstan, Bosnia and Herzegovina, Jamaica, Tonga, Trinidad and Tobago, Albania, Armenia, Cabo Verde, United Republic of Tanzania, Kuwait, Saudi Arabia, Timor-Leste, Côte d’Ivoire, Saint Vincent and the Grenadines, Chad, Iraq, United Arab Emirates, Lebanon, Tunisia, Ukraine, Myanmar, Israel, Greece, Azerbaijan, Syria, Malta, Russian Federation, Turkey, United States, Venezuela, Nigeria, Japan, Ecuador (on behalf of the “Group of 77” developing countries and China), Maldives (on behalf of the Alliance of Small Island States), Mexico, Viet Nam and Iran, as well as the State of Palestine and the Holy See.
Also participating were representatives of the Inter-Parliamentary Union, International Labour Organization (ILO), International Telecommunication Union (ITU), International Civil Aviation Organization (ICAO), United Nations Industrial Development Organization (UNIDO), Food and Agriculture Organization (FAO), World Health Organization (WHO), World Tourism Organization, United Nations Conference on Trade and Development (UNCTAD), Joint United Nations Programme on HIV/AIDS (UNAIDS) and the United Nations Environment Programme (UNEP).
The following organizations also made statements: Institute for Democracy and Electoral Assistance, OGT International, IUS PRIMI VIRI International Association, International Committee for Peace and Reconciliation Inc., International Federation of Medical Students’ Associations, Le manif pour tous, Legiao da Boa Vontade, Financing for Development CSO Group and Together 2030.
Speakers from the major groups for women, indigenous peoples, children and youth, non-governmental organizations, workers and trade unions, business and industry, as well as from the education and academic entities stakeholder group and the volunteer stakeholder group.
Oral decision
The Council took note of the documentation that had been before it during the high-level segment of the 2017 session, including the Report of the Secretary-General on eradicating poverty in all its forms and dimensions through promoting sustainable development, expanding opportunities and addressing related challenges; Report of the Secretary-General on progress towards the Sustainable Development Goals; Report of the Secretary-General entitled “Beyond gross domestic product: multidimensional poverty and the Sustainable Development Goals”; Note by the Secretary-General – Progress report on the 10-year framework of programmes on sustainable consumption and production patterns; The World Economic and Social Survey 2017 – Reflecting on seventy years of development policy analysis (document E/2017/50); and the World economic situation and prospects as of mid-2017 (document E/2017/65).
Related News
Financial resource curse in resource-rich countries
Why do commodity-dependent developing countries have typically lower levels of financial development than their peers?
The literature has proposed many possible explanations, but it typically does not dwell on the deep mechanisms that drive such an outcome. In this paper, we argue that one of the main causes is the shocks to commodity prices. We test the hypothesis on 68 commodity-rich developing countries over the period 1980-2014, and we find strong evidence of the financial development resource curse through the channel of commodity price shocks, after controlling for other explanations found in the literature.
The findings are robust to the different types of commodities, the nature of the shocks, various indicators of financial development, and alternative econometric methods. We also show how the impact of these shocks can be mitigated through good quality of governance.
Introduction
It has been well-established in the literature that resource-abundant economies typically suffer from lower financial development. This is particularly the case in fuel exporters. Several hypotheses have been advanced for this outcome, for instance, lack of integration of commodity sector to the rest of the economy, poor governance especially the higher levels of mismanagement of financial and human resources in commodity-rich countries, including prevalence of rent-seeking behavior.
However, to the best of our knowledge, no work has explicitly considered commodity price shocks as a potential cause of the financial development resource curse in resource-dependent countries. This paper contributes to the literature by analyzing another channel that has not been sufficiently explored. This is the channel through which resource abundance can impede financial development, namely the impact of commodity price shocks. We draw on Kinda et al. (2016) who established that commodity price shocks often lead to financial sector fragility, and sometimes even financial crises. They find strong evidence that commodity price shocks weaken the financial sector notably by increasing nonperforming loans (NPLs), reducing provisions to bank non-performing loans, lowering bank liquidity, and reducing bank profits. They show that these effects operate through the reduction in growth rates, government revenue, and savings, and the increase in unemployment, debt in foreign currency, and fiscal deficits.
In this paper, we hypothesize that commodity price shocks lead to weak financial development. To do this, we conduct an empirical study based on a sample of 68 commodity-rich developing countries over the period 1980-2014. In line with the previous literature, this paper’s approach to financial sector development is limited to the banking sector. Specifically, we use four indicators to measure the development of the financial sector: domestic credit to the private sector over GDP, bank deposits over GDP, liquid liabilities over GDP, and domestic credit to the private sector to bank deposits (a proxy for the effectiveness of financial intermediation). In addition, we explore whether the quality of institution matters. We use the GMM estimator to deal with the endogeneity issues of all right-hand variables in our baseline model.
The main findings of this paper are the following. First, we find additional robust evidence of the financial development resource curse through the channel of commodity price shocks. The effect of commodity price shocks – whatever their nature – on the various indicators of the financial sector development is always negative. This implies that commodity price shocks tend to undermine the development of the financial sector. Second, we show that the impact of these shocks can be mitigated. Countries with good institutions tend to avoid the financial development resource curse as they are able to ensure better law enforcement and limit the misuse of the commodity windfalls.
Montfort Mlachila is the IMF’s Senior Resident Representative in South Africa. Rasmané Ouedraogo is an Economist at the IMF.
IMF Working Papers describe research in progress by the authors and are published to elicit comments and to encourage debate. The views expressed herein are those of the authors and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
Related News
Clean energy transition will increase demand for minerals, says new World Bank report
A new report released by the World Bank highlights the potential impacts that the expected continuing boom in low-carbon energy technologies will have on demand for many minerals and metals.
Using wind, solar, and energy storage batteries as key examples of low-carbon or “green” energy technologies, the report “The Growing Role of Minerals and Metals for a Low-Carbon Future” examines the types of minerals and metals that will likely increase in demand as the world works towards commitments to keep the global average temperature rise at or below 2°C.
According to the report, minerals and metals expected to see heightened demand include: aluminum, copper, lead, lithium, manganese, nickel, silver, steel, and zinc and rare earth minerals such as indium, molybdenum, and neodymium. The most significant example is electric storage batteries, where the rise in relevant metals: aluminum, cobalt, iron, lead, lithium, manganese, and nickel – grow in demand from a relatively modest level under 4°C to more than 1000 percent under 2°C.
The report shows that a shift to a low-carbon future could result in opportunities for mineral-rich countries but also points to the need for these countries to ensure they have long-term strategies in place that enable them to make smart investment decisions. In readiness for growth in demand, countries will need to have appropriate policy mechanisms in place to safeguard local communities and the environment.
“With better planning, resource-rich countries can take advantage of the increased demand to foster growth and development,” said Riccardo Puliti, Senior Director and Head of the Energy and Extractive Industries Global Practice at the World Bank. “Countries with capacity and infrastructure to supply the minerals and metals required for cleaner technologies have a unique opportunity to grow their economies if they develop their mining sectors in a sustainable way.”
The future demand for specific metals is not only a function of the degree to which countries commit to a low-carbon future, it is also driven by intra-technology choices. The low-carbon technologies that emerge as most applicable and beneficial, will play an important role in defining the commodity marketplace of the next 50 years. For example, the three leading forms of alternative vehicles – electric, hybrid, and hydrogen – each have different implications for metal demand: electric vehicles require lithium; hybrid vehicles use lead; and hydrogen-powered vehicles use platinum.
Demand for individual metals and minerals will reflect the component mix of low-carbon technologies, corresponding with economic changes and technical developments. To position themselves well, countries will need reliable sources of economic data and market intelligence, as well as the capacity to turn that information into plans, investments, and sustainable operations.
Based on current trends, it is expected that Chile, Peru, and (potentially) Bolivia, will play a key role in supplying copper and lithium; Brazil is a key bauxite and iron ore supplier; while southern Africa and Guinea will be vital in the effort to meet growing demand for platinum, manganese, bauxite, and chromium. China will continue to play a leading role in production and reserve levels in practically every key metal required under low-carbon scenarios. India is dominant in iron, steel, and titanium, while Indonesia, Malaysia, and Philippines have opportunities with bauxite and nickel.
A “green” technology future has the potential to be materially intensive, the report states. Increased extraction and production activities could also have significant impacts on local water systems, ecosystems, and communities. As countries develop their natural resource endowments, it will be critical that sustainability, environmental protection, and options to recycle materials be integrated into new operations, policies and investments.
“The Growing Role of Minerals and Metals for a Low-Carbon Future” report is intended to contribute to a richer dialogue around the opportunities and challenges for resource-rich countries that a low-carbon future presents. The analysis is designed to support policy-makers and other stakeholders in the areas of extractives, clean energy and climate change to better understand the issues involved and identify areas of common interest.
Related News
Sustainability provisions in regional trade agreements: Can they be multilateralised?
With the rise of deep-integration regional trade agreements (RTAs), the role of sustainable development has become an inevitable discussion. Recent agreements reflect a trend in favour of incorporating comprehensive sustainable development provisions, not just among developed countries, but also among some developing countries, with different countries employing different approaches to ensure the protection of social, economic, and environmental concerns.
Despite the different approaches, similarities across the RTAs have emerged. The emerging homogeneity in these RTAs has opened discussions about a possible convergence between regionalism and multilateralism. Having multilateral commitments on trade and sustainable development could advance the cause of sustainability, while at the same time bolstering the multilateral, rules-based, trading system. However, there are challenges associated with convergence, particularly with the enforceability of sustainability provisions. Also, there is a general reluctance among developing countries to take on binding commitments in this area.
Given the lack of progress generally in the World Trade Organization (WTO) on sustainability issues and the hesitance of developed countries to adopt enforceable obligations, a plurilateral solution seems difficult, although not impossible. A proper navigation course is required for this initiative to be successful; the paper explores several options in this respect.
Introduction
Sustainable development has been commonly defined as development that meets the needs of the present without compromising the ability of future generations to meet their own needs. It has become a bedrock principle for policy objectives across the world, incorporating three pillars – economic development, social development, and environmental protection – that are considered interdependent and mutually reinforcing.
Accordingly, sustainability is an important objective in regional trade agreements (RTAs), and ensuring that trade effectively contributes to sustainable development remains one of the main political mandates in modern trade. The proliferation of RTAs has also seen a growing awareness of sustainable development concerns. Over time, several bilateral and regional trade agreements have incorporated explicit sustainability provisions, which have been evolving toward more comprehensive approaches as states are becoming more resourceful and creative in their efforts to address sustainability in RTAs.
To date, RTAs are characterised by a wide scope of sustainable development provisions, from innovative cooperation mechanisms, through provisions to address conflicts at the intersection of trade and sustainable development, to measures promoting compliance with international or domestic environmental and labour laws, or regulatory commitments to advance social or environmental objectives. However, the incorporation of comprehensive measures is not universal; rather, it is limited to certain countries that have sustainable development commitments as part of their political mandates. To date, many RTAs do not contain comprehensive commitments, and, in some cases, no commitments on sustainable development at all.
Accordingly, this paper focuses on so-called deep-integration RTAs. Deep integration refers to RTAs that go beyond border protection measures and include “behind the border” measures, such as product and market regulation. These agreements are analysed on the basis that they contain the most comprehensive provisions on sustainable development and trade. To date, most of the signed deep-integration RTAs are by developed countries with some developing countries participating in the agreements, although not as demanders. The focus is primarily on deep-integration RTAs that have a global economic impact on third parties, and on trade and sustainable development. Nonetheless, some other relevant examples are discussed, including the Chilean case, which concerns a developing country that has concluded deep-integration agreements with both developed and developing countries.
Addressing sustainability issues is not only a regional concern, but also a multilateral one. There has been interest in harnessing a process of multilateralising regionalism, by which selected deeper measures incorporated in RTAs could be diffused more widely and consistently across regional negotiations, and lead to convergence at the multilateral level. Given the wide range of country experiences in incorporating sustainability into RTAs, and the evident lack of progress in advancing trade negotiations through the World Trade Organization (WTO), this is clearly a challenging proposition. The paper assesses the extent of the challenge and explores options for sustainable development to be incorporated into the WTO.
Sustainability Provisions in RTAs
Sustainable development has always been at the heart of the WTO and part of the trading system. It is mentioned in the Preamble of the Marrakesh Agreement Establishing the WTO, and the 2001 Doha Ministerial Declaration. Other areas that cite sustainable development provisions include the terms of reference of the Committee on Trade and Environment and the WTO covered agreements, such as the General Agreement on Tariffs and Trade (GATT) under Article XX, the General Agreement on Trade in Services (GATS) under Article XIV, the Agreement on Technical Barriers to Trade (TBT), and the Agreement on the Application of Sanitary and Phytosanitary Measures. The mentioned agreements address environmental concerns that are necessary to protect human, animal, or plant life or health.
Today, sustainable development provisions are being adopted at the regional level by different states. Originally, only a handful of states recognised and incorporated sustainability provisions. The United States (US), Canada, and the European Union (EU) were forerunners that linked and integrated sustainable development and trade in their agreements. In recent years, an increasing number of states have started joining the ranks of the US, Canada, and the EU in incorporating sustainability provisions in their RTAs. For example, the European Free Trade Association (EFTA) has adopted a new model for its RTA agreements that contains a comprehensive chapter on trade and sustainable development. Moreover, some previously negotiated agreements that do not contain a sustainable development chapter are being renegotiated, such as the EFTA-Canada RTA. However, according to Bartels (2013), the practice is far from universal, even among developed countries. For example, Australia still retains its position on separating trade and environmental issues, while Japan has not strongly advocated for sustainable development issues in its agreements. Thus, the level of commitment to deep integration will differ across RTAs. Below is a discussion on the evolution of sustainability provisions as demonstrated by leading states and their RTAs.
Main Sustainability Provisions
From the preceding analysis, a growing number of RTAs now go beyond merely giving lip service to sustainability to including sustainability provisions in the body of the agreement, through detailed chapters, specific paragraphs, or side agreements. Furthermore, it should be noted that RTAs, despite being concluded by different parties, have similar provisions. Yet, only the “most ambitious agreements include a range of provisions, others focus on environmental cooperation, and a substantial number only refer to environmental issues in the preamble and in exceptions clauses”. In summary, these are:
-
Environmental/labour cooperation mechanisms
-
Environmental/labour standards – International Labour Organization (ILO) declaration, Montreal Protocol;
-
Procedural guarantees;
-
Enforcement mechanisms;
-
Dispute settlement mechanisms;
-
Preambular references;
-
Environmental and labour chapters – issues covered range from timber (USPeru), genetic resources (EFTA – Colombia), to fisheries (TPP); and
-
General exceptions – GATT Article XX, SPS and TBT provisions.
Cooperation mechanisms vary depending on the specific issues being addressed, such as, labour, environmental, and marine issues. Environmental cooperation provisions are included either in the body of the RTA or in the side agreements (including joint statements, arrangements, etc.). The areas of cooperation in different RTAs vary significantly and depend on a range of factors, such as whether the trade partners have comparable levels of development or not (in which case, cooperation often focuses on capacity building), or whether they have common borders. Most RTAs considered above include provisions on environmental cooperation – for example, those of Canada, the EU, Japan, and the US.
Most RTAs have incorporated articles reaffirming the parties’ commitments to international standards. One of the common commitments incorporated refers to the implementation of the ILO core labour standards contained in the Declaration on Fundamental Principles and Rights at Work, and the promotion of objectives included in the ILO’s Decent Work Agenda. Another important provision is the enforcement obligation, which obliges parties to enforce sustainable development provisions. Other important provisions cover transparency, which calls for the publication and sharing of information with the public, and the right to regulate, which is a clause reiterating the compatibility between the parties’ trade obligations and their right to adopt or maintain environmental regulations and standards.
Of course, enforceability is binding only if agreements are subjected to dispute settlement. Dispute settlement mechanisms are established within most of the agreements. However, sustainable development provisions in RTAs have mostly been excluded from the general dispute settlement mechanisms in RTAs, except for US trade agreements. The separate remedy for environmental disputes and the fact that trade sanctions are not allowed for environmental disputes, provides insight into the lingering reservations concerning the trade and environment debate. Yet, not all US RTAs with enforcement provisions in environmental chapters allow for dispute settlement for all the provisions in the chapter. For example, Article 17:2.1 (a) of the dispute settlement process is only available under the CAFTA-DR for a violation of terms in the environment chapter when a party is failing “to effectively enforce its environmental laws through a sustained or recurring course of action or inaction, in a manner affecting trade between parties”. Sustainable development provisions generally do not guarantee any form of protection, as they are generally excluded from binding dispute settlement.
ISDS provisions have emerged as a trend in recent RTAs, despite the controversy surrounding them. The provision on ISDS dates to NAFTA and, as demonstrated in recent agreements, has been incorporated in other agreements, such as the TPP and the CETA. The provision is most likely to be included in future agreements, such as the TTIP. Given recent agreements signed and under negotiation, it is still expected that the EU will seek to include an ISDS clause in any EU-Australia FTA. ISDS creates another platform to resolve disputes. Investors will no longer have to rely on their governments to bring disputes. On the one hand, this gives investors the platform to challenge sustainable development provisions that may pose a threat to the implementation of those provisions domestically. Ultimately, the EU plans to set up an investment court that moves away from the system of ISDS to a permanent body to decide investment disputes. According to the EU, the Multilateral Investment Court would have the potential to replace the dispute settlement provisions included in those older agreements.
Peter Draper is Managing Director at Tutwa Consulting Group. Nkululeko Khumalo is a Senior Associate at Tutwa Consulting Group and a trade and competition law consultant. Faith Tigere is an intern at Tutwa Consulting Group.
This paper has been produced under the RTA Exchange, jointly implemented by the International Centre for Trade and Sustainable Development (ICTSD) and the Inter-American Development Bank (IDB). The RTA Exchange works in the interest of the sharing of ideas, experiences to date and best practices to harvest innovation from RTAs and leverage lessons learned towards progress at the multilateral level.
Related News
tralac’s Daily News Selection
Featured tweet, @AUTradeIndustry: The 9th Meeting of the CFTA Continental Task Force commenced to review Technical Documents for the 3rd CFTA Technical Working Groups
Featured newsletters: tralac, West Africa Brief
Jack Ma’s team of Chinese billionaires arrives in Kenya to hunt for deals (Business Daily)
Jack Ma, the founder and executive chairman of Chinese e-commerce behemoth Alibaba, jetted into Nairobi Wednesday evening, starting a packed two-day visit that peaks with a public appearance at the University of Nairobi this afternoon to offer Kenyan youth tips on how to build successful business empires. Mr Ma, who is currently Asia’s richest man with a fortune of nearly $30bn (Sh3.11 trillion or nearly half of Kenya’s economic output), is accompanied by a large delegation of super-rich Chinese. In the entourage are China’s richest billionaires among them Internet tycoon Bob Xu, Alibaba’s founding partner Lucy Peng, founder and chairman of Mengniu Dairy Niu Gensheng and real estate tycoon Huang Youlong. The 38 men and women, from the Beijing Chamber of Commerce, will be looking to cut multi-billion shilling deals with the government and local businessmen.
Assessing Africa’s policies and institutions: 2016 CPIA results for Africa (World Bank)
Policy and institutional quality weakened in Sub-Saharan Africa amid a difficult global economic landscape and challenging domestic conditions. The average Country Policy and Institutional Assessment score for the region’s IDA-eligible countries edged lower to 3.1 in 2016. Forty percent of the countries saw a deterioration in their overall quality of policies and institutions in 2016, more than in 2015, and the number of countries with a decline in CPIA score outpaced improvers by a margin of two to one. Weaker performance was evident across a range of countries, especially among commodity exporters and fragile countries. The dispersion in policy and institutional quality among the region’s IDA countries increased in 2016. With a CPIA score of 4.0, Rwanda again led all countries in the region; Senegal and Kenya were among the top scoring countries, each posting a score of 3.8. The number of countries with relatively weak performance (scores of 3.2 or less) ticked up, and now accounts for more than half the countries in the region. [Download, pdf]
Enhancing African capacities in peace and security: UNSC open debate (UN)
Smail Chergui (Commissioner for Peace and Security of the AU): Financing peace support operations was a perennial issue that hopefully could be resolved soon. Noting that implementation of the Kigali summit decision on financing was underway, he said his organization was convinced that its efforts since 2001 on alternative sources of funding would be achieved. To enhance accountability, the AUC had asked the UN and EU to nominate representatives to its Peace Fund. However, he said, Africa would not be able to fund peace initiatives on its own. Predictable and sustainable funding for addressing peace and security challenges, including through UN assessed contributions, remained a common African position, he said, looking forward to a possible Council decision in September on dedicated support by the Organization to all Council-mandated African peace support operations. Valentine Rugwabiza (Rwanda) said threats on the continent had grown more complex, which called for stronger partnerships between the UN and regional organizations. Liu Jieyi (China), Council President for July, said Africa faced multiple peace and security challenges, with terrorist groups infiltrating the heart of the continent and some countries dealing with unemployment, poverty, refugees and sluggish economic growth. The international community must vigorously help the continent solve its problems, he said, including effective support for African Union peace operations through adequate, stable and sustainable funding.
State of the Least Developed Countries
Extracts (pdf): Although FDI flows to the LDCs have increased significantly, there has been wide fluctuation in year on year levels. While FDI increased from $41bn to $44bn in 2015, they declined by 13% in 2016 to $38bn. Despite improved business environments in many LDCs, there is still room for improvements of the regulatory frameworks. Remittances to LDCs have increased over the past years and stood at 4.3% of GDP in 2015, after peaking at 5.2% in 2002-2003. LDCs have implemented various policies in order to enhance the effectiveness of their use. Combining remittance receipts with broader access to other financial services can increase the impact of remittances on growth by facilitating savings and investments. Recent progress towards graduation from the LDC category is encouraging. Equatorial Guinea’s graduation in June 2017 reduced the number of LDCs to 47. Nine LDCs reached the graduation thresholds in 2015 and several others expressed their aspiration to graduate from the category by 2020 or shortly thereafter. Upon request by graduating and aspiring-to-graduate countries, United Nations support, under the leadership of OHRLLS, has been stepped up in recent years.
Mozambique: IMF staff concludes visit
Performance in some sectors of the economy has improved since the latter part of 2016. Growth declined to 3.8% in 2016 and is now projected to edge up to 4.7% in 2017. Publication of the detailed summary of the Kroll audit report is welcomed; more needs to be done to fill the information gaps on the use of loan proceeds.
Brexit: SACU trade with UK not to be disrupted (Daily Maverick)
UK and SACU trade ministers agreed on Wednesday to replicate southern Africa’s European Union trade deal in a new trade agreement that will have to be negotiated with Britain when it leaves the EU in April 2019.
Nigeria to focus on meeting Africa’s growing oil demand (ThisDay)
The Minister of State for Petroleum Resources, Dr Ibe Kachikwu, has disclosed that Nigeria will make a calculated change of direction in its oil and gas business in order to focus on meeting the growing demands of countries in the African continent. Rather than pushing further in its traditional petroleum trade destinations such as Europe and the Americas which he said their demands were thinning down, Kachikwu stated that Nigeria would now shift its focus to push to take over the African market, making sure that majority of the volumes of oil and gas demands of the continent came from her oil fields. Nigeria would work with Angola to ensure that both countries secure and satisfy oil demands from the continent. [Nigeria to end fuel importation in 2019, Downstream oil sector has $10bn investments deficit]
Nigeria’s forex inflow hits $15bn in first quarter (ThisDay)
The aggregate foreign exchange inflow into Nigeria’s economy in the first quarter of 2017 has been estimated at $15bn. This, however, represented a decline of 9.2% below the level in the fourth quarter of 2016, but showed an increase of 1.4% over the level at the end of the corresponding period of 2016. The Central Bank of Nigeria disclosed this in its first quarter 2017 economic report (pdf). The report indicated that the performance of the external sector in the first quarter of 2017, improved with an overall balance of payments surplus equivalent to 3.1% of GDP, compared with 0.6% in the corresponding period of 2016.
Kenya: Remittances, tourism rise cushion reserves (Business Daily)
Tourism inflows and diaspora remittances increased by 43% and 7% respectively in the year to May, offering crucial forex reserve support at a time import bill has been growing. Latest data from Central Bank of Kenya shows that tourism inflows rose to $1.02bn (Sh106.3 billion) in the year to May 2017 from $714m (Sh74.2 billion) a year earlier. This means tourism has replaced horticulture as the third largest foreign exchange earner for Kenya after diaspora remittances and tea. Diaspora remittances rose to $1.75bn (Sh181.9 billion) in the 12 months to May from $1.64bn Sh170 billion) over a similar period last year, as horticulture and tea declined in the period.
Abidjan-Lagos Corridor: experts finalise draft design, legal framework (ECOWAS)
The workshop (15 July, Abuja)agreed that in accordance with Article 2 of the Abidjan-Lagos Corridor Treaty signed by the Presidents of the Abidjan-Lagos Corridor highway development Project, ALCoMA will play a full managerial role in the affairs of the Corridor in contrast to the advisory roles of most counterpart Corridor Management Committees. The ALCoMA Headquarters will be located in one of the five Corridor States in line with the ECOWAS Regulation regarding hosting of Regional Agencies which include, among others, conformance with the ECOWAS Principles of Constitutional convergence and the provision of a fully equipped Headquarters at the host Country’s Expense.
Ghana: Customs removes barriers along transit trade routes (Graphic)
The Customs Division of the Ghana Revenue Authority has started removing customs barriers along the country’s transit trade routes, in line with reforms at the entry ports and trade routes. The division has, however, suggested the necessity to maintain four of the 60 intercepting barrier points. The Chairman of the Select Committee and Member of Parliament for Tema East, Mr Daniel Titus-Glover, for his part, expressed worry over the refusal by the ministries of Finance and the Interior to be integrated onto the eMDA system and urged the two ministries to integrate their systems, so that they could monitor transactions going on in the trade and revenue chain. He also urged GCNet and West Blue to look at the corporate interest of Ghana and get their systems integrated as soon as possible. [Parliamentary Select Committee On Trade, Industry And Tourism engages stakeholders over Veep’s directives on port efficiency]
Quick Links Carlos Lopes: For Africa, the G20 Hamburg Summit is a door stopper, not a bookend Ireland: Call for applications for the Africa Agri-Food Development Programme Irish charities merge to strengthen trade links with Africa Non-tariff measures in Mercosur: deepening regional integration and looking beyond Nigeria: FG launches contract monitoring website Solar resource mapping in Malawi: annual solar resource report Wind resource mapping in Zambia: tower commissioning report WHO report on the global tobacco epidemic 2017 ICTSD: India’s trade minister says multilateralism at crossroads, outlines “multi-pronged” approach India’s foreign trade: June 2017 data Inaugural US-China Business Leaders Summit: joint statement Trump’s honeymoon with China ends as dialogue turns frosty |
Related News
Innovation, diversification and inclusive development in Africa
A key guiding principle of the newly adopted Sustainable Development Goals is to “leave no one behind”. Bringing this vision to fruition will require eradication of poverty, fairer income distribution and sustained social progress over the next fifteen years. Furthermore, it will inevitably require creating decent employment through transformation of the production and export structures of African economies.
Technology and innovation are crucial for addressing the challenges of low structural transformation and inclusive development in Africa. For example, technological innovation can enhance competitiveness and trigger a shift of resources from low to high productivity activities thereby inducing transformation of the structure of an economy. It can also foster inclusion through enabling the acquisition of knowledge and skills which permit economic agents to fully participate in, and benefit from, the development process.
Against this backdrop, the paper discusses linkages between innovation, transformation and inclusion. It also presents stylized facts on transformation, the state of innovation and inclusion in Africa and, more importantly, offers policy recommendations on how to promote technological innovation to trigger transformation and build inclusive societies in Africa.
Innovation, transformation and inclusion: the linkages
The economic literature suggests that development occurs through structural changes involving movements of labour and other resources from low to high productivity activities both within and across sectors. Osakwe (2016) shows that African countries have not been able to successfully transform their economies and foster inclusive development despite the rapid growth experienced by the continent over the past decade. This paper argues that technological innovation will play a vital role in addressing both the challenges of structural transformation and inclusive development and African governments should,therefore, strengthen efforts to foster technological innovation.
Economic theory suggests that technological innovation is the main driver of sustained long run growth and the diffusion of such innovation permits lagging countries to shift production towards sectors with increasing returns thereby promoting growth convergence. Technological innovations are associated with new products and processes and also create new patterns of demand resulting in a change in the sectoral composition of an economy. In addition, they trigger investment, enhance productivity growth and facilitate changes in the organisation of firms.
Scope and nature of structural transformation in Africa
Output and employment
There has been a significant change in the structure of African economies over the past few decades, with services playing a dominant and increasing role both in output and employment. The share of services in value-added increased from 38 per cent in 1970 to 57 per cent in 2014. This increase in the share of services went hand in hand with a decrease in the share of mining and utilities in total value added. With regard to agriculture, its share has been relatively low and flat over the period and in 2014 it accounted for just 15 per cent of total value added in Africa. As with the agriculture sector, the share of manufacturing in value added remains very low relative to the share of the services sector. In fact, in 2014 manufacturing accounted for only 12 per cent of total value added, which is lower than its peak value of 14 per cent in the 1980s.
Another approach to examining the nature of structural change that has occurred in Africa at the domestic level is to look at the share of various activities in total employment. It is well-known that most of the continents labour force is in the agriculture sector. In particular, in most countries, two-thirds of the labour force works in the agriculture sector which accounts for a low share of value added, indicating that average labour productivity is much lower in agriculture than in other key sectors. The finding that labour productivity in agriculture is relatively very low suggests that there is a need to reallocate some labour to productive activities in industry and services. While some of this reallocation is already taking place, they seem to be going mostly to the services sector and, more importantly, to low rather than high productivity activities in the services sector.
To further explore the productivity issue, we computed relative productivity levels across sectors using an extended version of the Groningen Growth and Development Center (GGDC) database, which provides disaggregated data on employment and value-added for 13 African countries beginning in 1960. The results suggest that in 2010 (relative to the situation in 1960): (1) labour productivity in manufacturing either declined or remained largely unchanged in most of the countries in the sample, Botswana being an exception; (2) in most countries labour productivity levels were relatively high in the mining sector; and (3) a lot of the labour that moved from agriculture and industry into the services sector ended up in the category “other services” which consists of: community, social and personal services; government services; and trade,restaurants and hotels. These activities classified under “other services” have very low productivity compared to the other components of services such as “finance, insurance, real estate and business services” and “transport, storage and communications.” The category “other services” also has the second lowest productivity level after agriculture. Historically, at the initial stage of development labour tends to move from agriculture to manufacturing and then, as incomes rise, to services. However, African countries seem to be by-passing this normal process of structural change, with labour moving from agriculture and industry to low-productivity services. This development is of concern to African countries because it has negative consequences for their ability to exploit the potential of industrialisation for employment generation.
An interesting question to pose at this stage is what factors drive productivity changes in Africa? Following McMillan and Rodrik (2011) and de Vries et. al. (2015), we decompose labour productivity growth into three components: the within effect (which captures productivity growth within sectors); the between-static effect (which reflects differences in productivity levels across sectors); and the between-dynamic effect (which reflects differences in productivity growth across sectors). The within effect will be positive when labour productivity growth in the sectors is positive and the between effects are positive when labour moves from a less to a more productive sector. A lot of the productivity growth that occurred in African countries in the sample in the period 2000-2010 was driven by positive productivity growth within sectors(the within effect) and a reallocation of labour from sectors with low productivity levels to those with higher productivity levels (the between-static effect). The results also show that the reallocation of labour across sectors also created dynamic losses in the sense that the marginal productivity of additional workers in the expanding sectors has been below those of existing activities in other sectors and this is reflected in the fact that the between-dynamic effects are negative.
Africa’s patterns of structural changes and productivity growth are quite different from those of developing Asia, where all three components of productivity growth made positive contributions over the past four decades. In the 1990s and 2000s, within sector productivity grew in all sectors, but mostly in manufacturing, boosted by high investment levels, which in turn generated various linkages and positive effects of economies of scale, technological advance, and knowledge and skills acquisition. This process generated a positive dynamic reallocation effect that has been growing over the decades, indicating that the movement of workers affected positively the growth of productivity in the expanding sectors, which was mainly manufacturing.
Structure of Africa’s exports
The structural changes that are taking place in Africa can also be examined from an international perspective. A key feature of Africa’s participation in international trade is that the continent is an exporter of primary products and an importer of manufactured goods and services. Furthermore, this dependence on primary commodity exports has increased over the past few decades. As a result of the increase in commodity prices in the early 2000s, there was an increase in the share of primary goods in the value of SSA’s total merchandise exports (from 75 per cent in 1995-2000 to share of primary goods in the value of SSA’s total merchandise exports (from 75 per cent in 1995-2000 to 82 per cent in 2010-2015) and, consequently, a decline in the share of manufactured goods (from 25 to 18 per cent).
Not only do African countries export mostly commodities, their exports are also highly concentrated in a few commodity products, and this pattern has accentuated in recent years. While in 1995-2000, Africa’s top 10 export products accounted for about 54 per cent of the value of total merchandise exports and included two manufacturing products (men’s clothing and articles of apparel), in 2010-2015 they represented about 65 per cent and were exclusively composed of commodities.
Another feature of Africa’s commodity exports is their low level of processing, which reflects the fact that technological capacities for upgrading and value addition are low on the continent. In 2014, the share of unprocessed commodities in Africa’s total merchandise exports was 57 per cent. The most vivid illustration of Africa’s low capacities in processing its natural resources is that of petroleum products.The continent exports petroleum in raw form, and re-imports it transformed into intermediary and finished products. The lack of local processing of Africa’s resource exports leads to loss of scarce foreign exchange and has important negative implications in terms of local employment, knowledge and technology acquisition.
This aggregate picture does not reflect the export patterns and experience of all African countries. There area number of countries where the share of manufactures in total merchandise exports is significant. Over the period 2010-2015, manufactures exports accounted for at least 30 per cent of total merchandise exports in 15 African countries. In fact, the share was more than 50 per cent in Tunisia,Morocco, Lesotho, Mauritius and Swaziland. That said, the bulk of the continent’s manufactures exports is concentrated in a few countries, with only four accounting for more than three quarter of the total in 2010-2015: South Africa (39 per cent), Morocco (14 per cent), Tunisia (12 per cent) and Egypt (12 per cent).Within the category of manufactures exports, medium skill and technology intensive manufactures had the highest growth rate (11 per cent) while labour intensive and resource intensive manufactures had the lowest growth rate (5 per cent) over the period 1995 and 2015.
Another interesting fact in the data is that Africa’s intra-regional merchandise export has a different pattern from its total merchandise export to the world. In particular, unlike the continents exports to the world, Africa’s intra-regional exports are almost equally distributed between manufactures and commodities. That said, the share of commodities in Africa’s intra-regional exports has increased from 51 per cent in 1995-2000 to 56 per cent in 2010-2015 as a consequence of the strong rise of commodity prices since the early 2000s. The implication of this is that intra-regional trade has the potential to foster economic diversification in Africa. Despite the modest share of intra-regional exports in Africa’s total merchandise exports (14 per cent in 2010-2015), it accounted for 35 per cent of Africa’s total manufactures exports in 2010-2015 (up from 23 per cent in 1995-2000).
The authors of this paper are Patrick N. Osakwe and Nicole Moussa from UNCTAD.
Related: Regional trade agreements, integration and development | UNCTAD Research Paper No. 1
Related News
Least developed countries face challenges in funding sustainable development – UN report
Lack of funding is among the biggest challenges for the world’s 47 least developed countries (LDCs) in their implementation of sustainable development targets, according to a United Nations report released yesterday.
“While we continue to see mixed progress for this group of countries, there is tremendous potential to close the gaps and achieve momentum toward their investment needs,” said Fekitamoeloa Katoa ‘Utoikamanu, the newly-appointed High Representative for the Least Developed Countries, Landlocked Developing Countries and Small Island Developing States, in a press release.
Under-Secretary-General ‘Utoikamanu urged these Governments to work with development partners, civil society and the private sector to alleviate poverty, cut inequality and save the environment.
Launching the 2017 edition of the State of the Least Developed Countries report at the UN Headquarters in New York, she noted that the LDCs are among the most vulnerable countries in the world with large segments of their population living in extreme poverty with few prospects to improve their situation.
This year’s report, compiled by her office (UN-OHRLLS), focuses on the financing of the Istanbul Programme of Action (IPoA), which charts out the vision and strategy for the sustainable development of LDCs through 2020, on the Sustainable Development Goals (SDGs), which were adopted by all countries in 2015 with a view to create a peaceful, inclusive world free of poverty by 2030.
Achieving the goals of IPoA complements efforts to achieve the SDGs, she stressed.
However, due to large gaps in investment, including for sustainable energy and ICT, the report notes that access to all modes of financing needs to increase for LDCs.
The average gross domestic product (GDP) growth for LDCs remained low at 3.8 per cent in 2015, the lowest rate in the past two decades and well below the 7 per cent target set by the Istanbul Programme, according to the report.
The LDCs share of total trade continued to decline, from 1.09 per cent in 2014 to 0.97 per cent in 2015, making it difficult to reach the 2 per cent target.
Despite the significant challenges, the report also highlights progress in a few key areas including in the transport sector, and access to electricity, which rose from 32.3 per cent of the population in 2010 to 38.3 per cent in 2014.
In addition, a greater share of the total amounts of climate finance flowing from developed to developing countries needs to be allocated to LDCs, especially for adaptation projects that result in reduced vulnerability.
In June 2017, Equatorial Guinea graduated from the group, bringing the number of LDCs to 47. Nine LDCs reached the graduation thresholds in 2015, while several others aspire to graduate by 2020 or shortly thereafter.
Related News
Assessing Africa’s policies and institutions: 2016 CPIA results for Africa
The latest Country Policy and Institutional Assessment (CPIA) Africa results show that policy and institutional quality weakened in Sub-Saharan Africa in 2016 amid a difficult global economic landscape and challenging domestic conditions.
CPIA Africa is an annual report that describes the progress Sub-Saharan African countries are making on strengthening the quality of their policies and institutions. The report presents CPIA scores for the 38 African countries that are eligible for support from the International Development Association (IDA), the concessional financing arm of the World Bank Group.
CPIA scores reflect the quality of a country’s policy and institutional framework across 16 dimensions, grouped into four clusters: economic management (cluster A), structural policies (cluster B), policies for social inclusion and equity (cluster C), and public sector management and institutions (cluster D, also referred to as the governance cluster). The scores, which are on a scale of 1 to 6, with 6 being the highest, are computed by World Bank staff and based on quantitative and qualitative information. The assessment also relies on the judgments of World Bank staff. CPIA scores are used mainly to inform IDA’s allocation of resources to poor countries. Yet the information contained in the CPIA is potentially valuable to governments, the private sector, civil society, researchers, and the media as a tool to monitor their country’s progress and benchmark it against progress in other countries. By presenting the CPIA scores for African countries, this report aims to provide stakeholders with information that can support evidence-based debate that can, in turn, lead to better development outcomes.
This year’s report assesses developments in policy and institutional quality in 2016 as measured by the CPIA score.
Sub-Saharan Africa faced another challenging year in 2016. Economic activity continued to weaken, amid less favorable terms of trade, slowdown in global growth, and difficult domestic conditions. Output growth decelerated sharply to 1.3 percent, the slowest pace in over two decades and not as stellar as the average annual growth of around 5 percent in the pre-global financial crisis period of 1995-2008. Regional growth in 2016 was insufficient to raise gross domestic product (GDP) per capita, which contracted by 1.3 percent. At the same time, Sub-Saharan Africa’s poverty rate remains high: 41 percent of the region’s population – nearly 390 million people – were living in extreme poverty in 2013. Weak economic performance threatens gains in poverty reduction, and the region urgently needs to regain momentum on growth and make it more inclusive.
Some countries have shown signs of economic resilience, growing at much faster rates than others. Recent analysis undertaken in Africa’s Pulse identifies countries that have experienced strong growth, and examines the links between the quality of policies and institutions and better economic performance. Countries with a strong GDP growth rate – above the top tercile of the Sub-Saharan African distribution (5.4 percent) between 1995 and 2008 – in recent years and over a longer period are classified as “established.” “Improved” countries are those with a growth rate below the top tercile in 1995-2008, but with a recent rate of growth higher than that of the top tercile. Established and improved performers are viewed as being resilient. The latest data show that only seven of 45 countries in Sub-Saharan Africa exhibit resilience: Côte d’Ivoire, Ethiopia, Kenya, Mali, Rwanda, Senegal, and Tanzania. Overall, the analysis finds that the difficult economic conditions facing the region in 2015 and 2016 have taken a toll on countries’ economic resilience.
Resilient countries have better policy and institutional quality than other countries. Although macroeconomic policy vulnerabilities, especially fiscal vulnerabilities, have increased across the region, the quality of the monetary framework and fiscal policies remains generally stronger in established and improved performers compared with other countries. Public debt-to-GDP ratios are also lower in these countries. Relatively stronger macroeconomic policy frameworks mean that these countries have more flexibility to formulate a policy response to economic shocks. In tandem, resilient countries perform better on policies that help bolster and sustain growth over the longer term and make it more inclusive. For example, on structural policies that boost competitiveness, foster private sector development, and promote diversification, these countries perform better, as evidenced by higher scores on the quality of the business regulatory environment and greater level of financial depth. Finally, the countries categorized as established and improved exhibit greater quality of government effectiveness, respect for the rule of law, and transparency and accountability of the public sector. Nevertheless, there is considerable scope across all countries in the region to accelerate and deepen structural and institutional reforms that will boost productivity and provide the basis for sustainable and inclusive growth.
2016 CPIA Results
Policy and institutional quality weakened in Sub-Saharan Africa amid challenging global and domestic conditions. The average CPIA score for the region’s IDA-eligible countries edged lower to 3.1 in 2016. Rwanda again led all countries in the region with a score of 4.0. Other countries at the high end of the score range were Senegal and Kenya, each with a score of 3.8. The number of countries with relatively weak performance – that is, with scores of 3.2 or less – ticked up and account for more than half the countries in the region. The regional dispersion in policy and institutional quality increased, as a deterioration in all four clusters of the CPIA in South Sudan pulled down the low end of the score range.
Nearly 60 percent of the IDA countries in the region saw a measurable change in overall policy and institutional quality in 2016, mostly on the downside. Weaker performance was especially evident among commodity exporters and fragile countries, but also in other countries. Forty percent of the countries (15), more than in 2015, experienced a deterioration in their CPIA score. Far fewer countries (7) saw improvements, similarly to the outcome in 2015. Broadly, the number of countries with weaker overall scores outpaced improvers by a margin of two to one.
There were some common patterns across countries that experienced a weakening in their overall policy and institutional quality. All but two of these countries posted a decline in the economic management cluster. The deterioration in other clusters was less widespread, at six countries apiece for the structural policies, policies for social inclusion and equity, and governance clusters. The sharpest fall in the aggregate CPIA score was witnessed in Mozambique and South Sudan, a decrease of 0.3 point. For Mozambique, the decline reflects the economic crisis in the country following the discovery of hidden debts in 2016. For South Sudan, the deterioration in the score indicates the broad-based erosion of policy and institutional quality amid conflict and political instability. Both countries have seen a cumulative decline of 0.5 point in their score since 2012. Zimbabwe’s 0.2-point decline, which reversed the 0.2-point gain in the CPIA in 2015, was largely due to lack of fiscal prudence and central bank financing of the fiscal shortfall. Other countries experienced a less sharp slippage in policy and institutional quality: Benin, Burundi, the Central African Republic, Chad, Cabo Verde, the Democratic Republic of Congo, the Republic of Congo, Ghana, Niger, Nigeria, Sierra Leone, and Uganda all saw a 0.1-point drop in the CPIA. In some cases, the slippage reflects a continuing weakening of the policy framework (Burundi, Cabo Verde, and Nigeria).
Countries with improvement in policy and institutional quality experienced modest gains in the aggregate CPIA. Gains were capped at 0.1 point in all seven countries in this category: Côte d’Ivoire, the Comoros, Cameroon, Guinea, Madagascar, Mauritania, and Sudan. All but one of these countries experienced stronger performance in the quality of governance, especially in the quality of budgetary and financial management. In a few countries, the quality of policies for social inclusion and equity also improved. The higher score in the Comoros and Guinea represents the second consecutive year of gains. A few countries saw tangible improvements in one or more policy areas of the CPIA that did not translate into a lift in the aggregate country score (Burkina Faso, Tanzania, and Togo). Elsewhere, improvement in one policy area was offset by weakness in another (Senegal and Ethiopia).
There were notable divergent trends in the regional performance of the components of the CPIA. Unfavorable economic conditions continued to take a toll on countries across the region, deepening macroeconomic vulnerabilities. With macroeconomic policy buffers continuing to erode, the scope for fiscal and monetary policy to mitigate shocks to economic activity was constrained. A more challenging policy environment pulled down the quality of economic management to an average score of 3.2. This movement reflects a continuing weakening trend in the quality of economic management in recent years (2014-16). The slippage in performance was evident across all three policy areas: monetary and exchange rate, fiscal, and debt. The most affected was fiscal policy, with nearly one-fourth of the region’s countries experiencing a worsening of this component. In some cases, weakness in the macroeconomic framework was evident across all policy areas of economic management (the Republic of Congo and Mozambique). Among the structural policies cluster, rising risks in the financial sector in several countries pulled down the performance of this sector (and the CPIA score of this component), but the cluster score was unchanged. Improvements in financial inclusion were observed across the region, and financial infrastructure is being strengthened as well.
There were positive developments in policies for social inclusion and equity. Namely, the human development policy area improved slightly, reflecting gains in health sector performance in a few countries, and the quality of social protection and labor edged up due to a strengthening of safety net programs in some countries. Yet, these favorable trends did not translate into measurable improvements in the policies for social inclusion and labor cluster score. Reversing the trend observed in 2015, there was a modest net gain in the number of countries registering an improvement in performance of the public sector management and institutions cluster: 10 countries experienced an increase, while six recorded a decline. Within this cluster, there was an uptick in the quality of public administration, but not in the cluster score.
The divergent trends across the components of the CPIA narrowed the gap between the four policy clusters. A deterioration in the quality of economic management in recent years has pulled down the score for this cluster to that of structural policies and policies for social inclusion and equity. At the same time, the governance cluster continues to lag all other clusters, with a score of 3.0. The pattern of a weaker macroeconomic framework marks a departure from the generally sound macroeconomic policies that countries had adopted in the period preceding the global financial crisis and in the wake of the crisis. This worsening trend, along with limited improvement in other policy areas, constrains countries’ efforts to regain the momentum on growth.
Not surprisingly, there is considerable variation in performance across country groups in Sub-Saharan Africa. Resilient countries lead other countries in the region on strength of policy and institutional quality. The performance gap between these two groups is especially large in the quality of economic management (0.9-point difference in CPIA score), but also in other policy areas. The gap between non-fragile and fragile countries is likewise large across all policy areas. The latest CPIA results show that performance on policy and institutional quality in Sub-Saharan Africa’s non-fragile IDA countries remains comparable to that of similar countries elsewhere. The reverse pattern is seen for the region’s fragile countries, which generally continue to lag fragile countries outside the region. Overall, the average CPIA score for the region’s IDA countries is weaker than the average for other IDA countries. Countries with resilient growth performance tend to have better quality of policies and institutions than non-fragile countries outside the region.
Related News
Jack Ma’s team of Chinese billionaires arrives in Kenya to hunt for deals
Jack Ma, the founder and executive chairman of Chinese e-commerce behemoth Alibaba, jetted into Nairobi Wednesday evening, starting a packed two-day visit that peaks with a public appearance at the University of Nairobi this afternoon to offer Kenyan youth tips on how to build successful business empires.
Mr Ma, who is currently Asia’s richest man with a fortune of nearly $30 billion (Sh3.11 trillion or nearly half of Kenya’s economic output), is accompanied by a large delegation of super-rich Chinese.
In the entourage are China’s richest billionaires among them Internet tycoon Bob Xu, Alibaba’s founding partner Lucy Peng, founder and chairman of Mengniu Dairy Niu Gensheng and real estate tycoon Huang Youlong.
The 38 men and women, from the Beijing Chamber of Commerce, will be looking to cut multi-billion shilling deals with the government and local businessmen.
The Chinese tycoons are expected to scout for business opportunities in East Africa’s largest economy where Chinese influence has been rising rapidly, with the balance of trade highly in favour of China. Mr Ma, a special adviser for youth entrepreneurship and small businesses for the United Nations Conference on Trade and Development (UNCTAD), is expected to share insights on entrepreneurship with Kenyan youth before flying out to Rwanda for a similar engagement.
UNCTAD Secretary-General Mukhisa Kituyi said Mr Ma will focus on opening markets for small businesses and encouraging the culture of enterprise in Africa.
“I have discussed with Jack Ma and others that I would like us not only to grow African enterprises but also to start raising voices that a special market access waiver for produce from Africa, particularly from small business, is neeed,” Dr Kituyi said.
“Effort should be made to encourage young Kenyan entrepreneurs to access the Chinese market just like the Chinese are accessing local markets. Our challenge is not finding agents to import Chinese goods, I am looking for people who are willing to sell African goods to China.”
Mr Ma is this afternoon expected to address 500 young business leaders at the University of Nairobi and meet business leaders. A champion of global trade, Mr Ma has been urging developing countries to use e-commerce to bolster their economies, instead of creating regulations and taxes that could kill the emerging sector.
“We should not discipline the baby before it is born,” Mr Ma recently told a gathering in Geneva, Switzerland during UNCTAD’s annual E-Commerce Week.
China’s longtime angel investor Bob Xu is the founding partner of ZhenFund, a seed fund formed in collaboration with Sequoia Capital China and with more than 400 portfolio companies.
In his eight years as an investor, Mr Xu has made four investments that went on to go public in the US, one in China, while eight others have grown into billion-dollar businesses, including the bike-sharing company OFO, AgTech company Meicai, e-commerce companies Mia.com and RED.
One of Mr Xu’s biggest wins was investing $180,000 at a $2 million valuation in the online cosmetics company Jumei.com in 2009. The company then went public in 2014 at a market cap of about $3 billion (Sh311 billion).
Also in Mr Ma’s entourage is Alibaba’s founding partner Lucy Peng, the executive chairman of Ant Financial Services, the online finance arm of Alibaba Group.
Related News
tralac’s Daily News Selection
East African Community legal notice: assorted Customs Union notices, related decisions (pdf, 30 June)
East African Business Council: Annual Report 2016/2017
During the past year, EABC has continued to grow stronger and stronger, representing the private sector at the regional level and playing the critical role of advocating for a conducive business environment in the region. It has not been easy, but the Secretariat has worked intensively beyond their capacity to ensure that EABC remained fully visible in the region and articulated key recommendations from the private sector to the policy makers. Some of the key achievements during the period are:
East and Southern Africa to develop trade database (SciDev)
The database, termed as an innovation to reducing barriers to free trade in Africa, will have data from 26 countries that make the tripartite free trade area of COMESA, EAC and SADC. It will use the non-tariff barrier mechanism that involves online and short message reporting information and communications technology tools supported by national and regional bodies that represent the public and private sectors. “We are here to help nations on how to develop information portals and a database on trade,” says Vonesai Hove, NTBs component manager of the Tripartite Capacity Building Programme. Hove says that under the programme, member states will receive financial and technical support to develop database that will contain information on countries’ prerequisites for trade. Such information, she says, will help traders adhere to health and environmental care standards, for example, as required by countries. The training involved ten countries: Botswana, Egypt, Kenya, Malawi, Rwanda, South Africa, Tanzania, Uganda, Zambia and Zimbabwe. The initiative is funded by the AfDB.
Rwanda: Cross-border women traders call for friendly operating environment (New Times)
Cross-border women traders have called on the government to support them and also improve the trading environment. The women traders operating between Rusizi-Bukavu and Rubavu-Goma border posts say corruption, sexual harassment and inadequate operating capital are affecting businesses. Janet Mukamunana, a member of Icyerekezo Cyiza Cooperative that sells tomatoes and onions, said these challenges have affected business growth and their earnings. “As a result, we cannot compete with traders from the DR Congo who deal in similar products”, she said during a recent tour of the cooperative by the Rusizi District leaders.
Kenya plans team of negotiators to steer trade talks (Business Daily)
Kenya seeks to set up a permanent team that will negotiate all trade agreements between Nairobi and other countries as it seeks to reap maximum benefits from such pacts. Kenya has no permanent national structure charged with negotiating trade deals, with the exception of a team that handles matters relating to the WTO. “There also lacks a mechanism of ensuring that experts from line ministries and private sector institutions who are seconded to undertake specific negotiations remain as standing committee members to ensure institutional memory, consistency and retention of capacity for trade negotiations in a core group/committee of negotiators,” reads the National Trade Policy unveiled last week.
Madagascar signs Tripartite Trade Agreement (EAC)
The Republic of Madagascar has become the 20th country to sign the Tripartite Free Trade Agreement. The Tripartite Agreement was signed on 13th July 2017 by His Excellency Mahafaly Solonandrasana Olivier, Prime Minister of the Republic of Madagascar, on behalf of the Government, in Antananarivo. At the Kampala meeting, the EAC Secretary General reported progress on the legal scrubbing of Annexes II, IV and X, negotiations on tariff offers and the signature and ratification of the Agreement. Amb Mfumukeko indicated that there had been limited progress on Phase II negotiations and the Agreement on the Movement of Business Persons. However, studies on Phase II issues had been undertaken and disseminated and that TTF was in the process of mobilizing resources to facilitate the necessary consultative meetings. [30 countries ratify protocol on African court]
Madagascar: 2017 Article IV Consultation (IMF)
The authorities and staff agree that the growth impact of scaling up public investment depends in part on promoting private investment, including FDI. The main impediments to private sector-led growth are weak governance, poor infrastructure (especially transport and electricity), and a shallow financial system with limited access to financial services. The authorities are focused on “quick win” reforms for improving the business climate, while still advancing on fundamental reforms. With support from the Word Bank, the Economic Development Board of Madagascar has a program to improve the country’s score in the Doing Business Indicators (it ranked 167th out of 190 countries in 2017, compared to the Sub-Saharan Africa average of 143rd). Already, there were improvements in the 2017 survey in opening a business and ease of international trade. Broader reforms to address key structural weaknesses, such as infrastructure (including roads, ports, and airports), electricity, and access to financing, are also vital but will take longer to yield fruit, despite the ambitious efforts underway. Moreover, the authorities are reviewing and revising commercial law. In March 2017, the decrees implementing the new Public Private Partnerships law were adopted, which creates new opportunities with appropriate safeguards for public finances. The authorities are also drafting new or revised laws intended to promote activity related to mining, petroleum, special economic zones, and industrial development. Selected Issues Paper: Madagascar’s governance indicators weakened significantly during the transition period 2009-13. Governance indicators that generally were on par with middle-income countries in Sub-Saharan Africa (SSA) ten years ago have regressed and converged to the average of fragile SSA countries. It is likely that this deterioration in governance is currently reducing Madagascar’s economic growth by about ½ percent a year (or possibly more) and the tax revenue-to-GDP ratio by 3 percent or more. More generally, corruption is associated with less macroeconomic and political stability, potentially creating a vicious circle. After the return of constitutional order in 2014, the government has started to address corruption, mainly through the introduction of new laws so far. More emphasis is needed on effective implementation and raising sufficient resources to fight corruption. This paper summarizes the current situation, surveys the economic costs of corruption, and provides a few ideas on how to advance anti-corruption reforms. [Madagascar: Economic Development Paper (prepared by member countries in broad consultation with stakeholders and development partners)]
Boosting investments: Nigeria’s path to growth (pdf, PwC)
Based on our analysis of the dataset, we observe that the impact of country specific characteristics such as demography, economic size and political climate on growth is not statistically significant. As a result, the model is estimated without further adjustment. We find that Nigeria requires at least an investment of 20% of GDP per annum, far above the investment level of 12.6% of GDP in 2017 (see figure 5). Today, this translates to an investment of NGN20 trillion ($55bn), reflecting that Nigeria would have to nearly double its current investment level. Assuming Nigeria maintains its most consistent run in investment growth, similar to the trend recorded between 1996 and 1999, investment to GDP could potentially increase by 2 percentage points a year. This suggests that Nigeria could attain an investment rate of 20% of GDP by 2021.
Journal of African Trade: articles in press, available for download
(i) Trade facilitation and trade participation: are sub-Saharan African firms different? (Author: Abdoulaye Seck); (ii) Infrastructure, trade facilitation, and network connectivity in Sub-Saharan Africa (Author: Ben Shepherd); (iii) Structural change and industrial policy: a case study of Ethiopia’s leather sector (Author: Michael Mbate); (iv) Trade and economic growth in developing countries: evidence from sub-Saharan Africa (Author: Pam Zahonogo); (v) Modelling the economic impact of the tripartite free trade area: its implications for the economic geography of Southern, Eastern and Northern Africa (Authors: Andrew Mold, Rodgers Mukwaya)
Knowledge Platform on Inclusive Development Policies (INCLUDE): profiled recent outputs
(i) Boosting youth employment in Africa: what works and why? (pdf): The conference (30 May, The Hague) was attended by 140 experts from governments, the private sector, NGOs and knowledge institutes in Europe and Africa. The objective of the conference was to use state-of-the-art knowledge to answer the question: How can we achieve substantial progress in creating employment opportunities for large numbers of African youth? In preparation for the conference, the INCLUDE Secretariat developed a synthesis report outlining the main issues for debate.
(ii) Inclusive business strategies in Africa: The Rotterdam School of Management, the Eastern and Southern African Management Institute and the Netherlands-African Business Council hosted representatives of businesses, organisations and government bodies (22 June, Nairobi) to participate in the Inclusive Business Strategies in Africa, From Knowledge to Action conference. The main objective of the conference was to share the results of the two‐year NWO/WOTRO research programme, part of the INCLUDE Knowledge Platform on Inclusive Development Policies and to discuss how inclusive business strategies can contribute to inclusive development in Sub‐Sahara Africa. [Various downloads available]
Etihad Airways increases flight frequencies to Cairo and Lagos (Logistics Update Africa)
A fifth daily scheduled service will be introduced on the Cairo route, effective 1 October 2017, taking frequency to the Egyptian capital up from 28 to 35 flights a week. A new Saturday flight to Nigeria’s commercial capital of Lagos, beginning 2 December 2017, adds to the weekend travel option, increasing frequency from four to five services each week, and offering greater flexibility and convenience to local travellers.
Indonesia to promote, expand trade in South Africa, Nigeria (Jakarta Post)
A trade mission team is ready to visit South Africa and Nigeria (20-26 July) in a bid to expand trade with the non-traditional markets, which have large populations and high growth rates. “Both South Africa and Nigeria are gateways to access the larger African market,” said Trade Minister Enggartiasto Lukita in a press statement released on Wednesday. “South Africa is key to access members of SACU while Nigeria is a gateway to ECOWAS.” He added that the visit was slated to accelerate the signing of preferential trade agreements between Indonesia and each of the two African countries. Representatives from 21 firms will join the team.
China is training Africa’s next generation of transport and aviation experts (Quartz)
Plans to build five transportation focused universities and a China-Africa aviation school on the continent are going ahead, according to the dean of Chang’an University in Xi’an, China, speaking at a conference in South Africa last week. Starting this year, 500 aviation personnel from Africa will start training in China each year, Chinese officials said earlier this year.
Mali eyes direct India cotton trade (The Hindu)
Niankoro Yeah Samake, Mali’s Ambassador in India, told The Hindu here recently that about 20% of Mali’s cotton is consumed by India. However, most of the trade is through foreign companies. “So, there are opportunities to trade directly.” Currently, Europe and China are the biggest buyers of the West African nation’s cotton. Mali produces long staple cotton and only 5% of it is processed in that country and the rest is exported. Mali’s government agency buys cotton from all the farmers. Annual cotton production in Mali in the last two years increased from five lakh tonnes to eight lakh tonnes. Currently, there are no investments from the Indian textile sector in that country.
Quick Links: Neva Makgetla: Why too much pulling in different directions is killing SA’s growth story Keith Rockwell: Greater economic integration required for West Africa to attain its potential COSATU: Statement on BRICS Trade Unions Forum (24-27 July, Beijing) Mozambique: Imported products will soon be labelled in Portuguese – INNOQ High-Level Political Forum on Sustainable Development: Tuesday’s discussions summarised |
Related News
East and Southern Africa to develop trade database
Inadequate access to trade data has hindered free flow of goods and services in fields such as agriculture and health among countries in East and Southern African, experts say.
However, this could be in the past with plans to set up a transparent and easily accessible database containing countries’ information on trade and markets in the two regions.
This was revealed by experts gathered in Nairobi last week (10-11 July) for a capacity building workshop where experts from ten countries were trained on how to organise and present data on trade in online portals that can be accessed by people such as farmers and businesspersons.
The database, termed as an innovation to reducing barriers to free trade in Africa, will have data from 26 countries that make the tripartite free trade area of the Common Market for East and Southern Africa (COMESA), the East African Community (EAC) and the Southern African Development Community (SADC).
It will use the non-tariff barrier (NTB) mechanism that involves online and short message reporting information and communications technology tools supported by national and regional bodies that represent the public and private sectors.
“We are here to help nations on how to develop information portals and a database on trade,” says Vonesai Hove, NTBs component manager of the Tripartite Capacity Building Programme.
Hove says that under the programme, member states will receive financial and technical support to develop database that will contain information on countries’ prerequisites for trade. Such information, she says, will help traders adhere to health and environmental care standards, for example, as required by countries.
The training involved ten countries: Botswana, Egypt, Kenya, Malawi, Rwanda, South Africa, Tanzania, Uganda, Zambia and Zimbabwe. The initiative is funded by The African Development Bank contributing US$7.5 million grant whereas the United Nation’s Conference on Trade and Development is providing technical assistance to the member states in COMESA, EAC and SADC regions for the project.
According to Mukayi Musarurwa, standards quality assurance consultant from COMESA’s secretariat, the region has accessible trade data thus hindering easier flow of goods and services between countries.
Musarurwa cites livestock products such as milk that go to waste because businesspersons have inadequate information on the requirements for importing and exporting the product.
“We want to ensure critical information on trade is easily accessible to the business community,” Musarurwa tells SciDev.Net, adding that, the database will contain information on the requirements businesspersons to export and import goods and services. For instance, such requirements, he says, includes packaging and labelling requirements for particular countries. The database is currently being developed is expected to be available as soon as it is completed, according to COMESA secretariat.
Japheth Mutinda, a Kenya-based farmer and agribusiness man, says that using modern technology to build such a database would help increase trade and spur agricultural productivity, especially for farmers.
“I harvest a lot of vegetables, onions and watermelons but they usually go to waste because of a limited local market,” says Mutinda, explaining that access to information on requirements of countries will help him and other farmers find and sell to an increased market, and thus increase productivity, which could create jobs and improve livelihoods.
This piece was produced by SciDev.Net’s Sub-Saharan Africa English desk.
This article was originally published on SciDev.Net. Read the original article.
Related News
Cross-border women traders call for friendly operating environment
Cross-border women traders have called on the government to support them and also improve the trading environment. The women traders operating between Rusizi-Bukavu and Rubavu-Goma border posts say corruption, sexual harassment and inadequate operating capital are affecting businesses.
Janet Mukamunana, a member of Icyerekezo Cyiza Cooperative that sells tomatoes and onions, said these challenges have affected business growth and their earnings. As a result, we cannot compete with traders from the DR Congo who deal in similar products, she said during a recent tour of the cooperative by the Rusizi District leaders.
According to their cooperatives, small-and-medium enterprise (SME) owners doing cross-border trade also face sexual harassment and lack facilities like early childhood development centres to support them while doing their businesses. Corruption and harassment are reportedly experienced while in the DRC.
The over 200 traders working under the Tushiriki Wote project initiated by International Alert and Reseau de Femmes, a non-profit that supports women traders, say they cannot access finance as they don’t have collateral.
Most of the women cross-border traders operate small businesses, like selling fish, tomatoes, milk, and other types of fruits.
the Tushiriki Wote project is helping the cross-border women traders to overcome some of these challenges, and also build their capacity through training programmes in business management and entrepreneurship so that they can be able to manage their enterprises properly.
Betty Mutesi, the International Alert country director, said it is important to empower cross-border women traders, noting that this helps reduce dependency on their husbands and improves their welfare. Mutesi added that small businesses also contribute significantly to national development.
Mutesi said in an interview that the organisation is working closely with the DRC authorities to ensure that the traders are protected while carrying out their businesses in the neighbouring country.
“In addition, we want to collaborate with some microfinance institutions so that they can provide more funding to cross-border women traders.
Under the Tushiriki Wote project, the women are also encouraged to embrace the savings culture. “They were grouped into cooperatives for easy trade and development,” she said. To tackle the challenges the districts are constructing markets that will also have children’s centres.
The Ministry of Trade, Industry and East African Affairs and Ministry of Gender and Family Promotion are working closely to enable women run their business efficiently, according to the officials.
Frederic Harerimana, the mayor of Rusizi District, said the district, in collaboration with Food and Agriculture Organisation (FAO), will support small businesses. “We are planning to construct a market to enable women run their business successfully. World Vision has also committed to give them soft loans,” he added.
Rwanda’s informal cross-border exports with neighbouring countries, increased by 21.4 per cent, amounting to $121.93 million in 2016, up from $100.45 million in 2015, according to central bank. Exports to the Democratic
Republic of Congo (DRC) represented a biggest share of 74.7 per cent of the total informal cross-border exports. Informal cross-border imports rose by 41.2 per cent, from $21.62 million in 2015 to $30.52 million in 2016. Informal imports from the DRC were 9 per cent during the reporting period.
Related News
Madagascar signs Tripartite Free Trade Agreement
The Republic of Madagascar has become the 20th country to sign the Tripartite Free Trade Agreement.
The agreement brings together three regional economic communities – COMESA, EAC and SADC – into a single free trade area. The Tripartite Free Trade Area (TFTA) constitutes 57% of Africa’s population with a combined GDP of US$1.3 trillion as of 2015, making it one of the largest free trade areas in the world.
The Tripartite Agreement was signed on Thursday 13th July 2017 by His Excellency Mahafaly Solonandrasana Olivier, Prime Minister of the Republic of Madagascar, on behalf of the Government, in Antananarivo, Madagascar.
The signing ceremony was witnessed by Mr. Sindiso Ngwenya, the Secretary General of COMESA, who represented the Secretary General of the East African Community and the current Chairperson of the Tripartite Task Force, Amb. Liberat Mfumukeko, and the Secretary General of SADC, Dr. Stergomena. Tax.
In attendance also was Hon. Nourdine Chabany, Minister of Industry and Private Sector representing the Minister of Trade and Consumption of the Republic of Madagascar; the Counsel to the Community, Hon. Dr. Kafumbe Mukasa; senior Government Officials; representatives of the Private Sector; Their Excellencies the Ambassadors of Mauritius and South Africa; as well as the Ambassador designate of the Republic of Madagascar to the African Union.
The European Union was represented by Mr. Lothar Jaschke, Head of of Sector, Political, Press and Information from the EU Delegation in Madagascar.
The Republic of South Africa became the 19th country to sign the Tripartite Free Trade Agreement during the 6th meeting of the Tripartite Sectoral Ministerial Committee of on Trade, Customs, Finance, Economic Matters and Home/Internal Affairs (TSMC) held on 7 July 2017 in Kampala, Uganda.
At the 6th meeting of the Tripartite Sectoral Ministerial Committee, the Secretary General of the East African Community, Amb. Liberat Mfumukeko reported that 18 Member/Partner States had signed the Agreement and that Egypt was the only country to have ratified it. A total of 14 ratifications are required for the Agreement to enter force.
Amb. Liberat Mfumukeko informed the meeting that South Africa and Madagascar were ready to sign the Agreement and encouraged the remaining countries to follow suit. South Africa subsequently signed the Agreement in Kampala.
At that Kampala meeting, the Secretary General reported progress on the legal scrubbing of Annexes II, IV and X, negotiations on tariff offers and the signature and ratification of the Agreement.
Amb. Mfumukeko indicated that there had been limited progress on Phase II negotiations and the Agreement on the Movement of Business Persons. However, studies on Phase II issues had been undertaken and disseminated and that TTF was in the process of mobilizing resources to facilitate the necessary consultative meetings.
At the 6th meeting of the Tripartite Sectoral Ministerial Committee, Uganda’s Minister of Trade, Industry and Cooperatives, Hon. Amelia Kyambadde, stated that the intra-Tripartite trade was only 19% of the continent’s $930 billion total trade and this could be attributed to low industrialization, restricted movement of labour, poor infrastructure and high dependency on the export of unprocessed commodities.
The Minister observed that the Tripartite provided the opportunities to unlock the enormous trade and investment potential of the bloc. In this regard, the business community was waiting anxiously towards the opening up of the market of over 600 million people. She further observed that almost all the Annexes had been finalized save for the built in agenda.
At the same meeting, South Africa’s Minister of Trade and Industry, Hon. Dr. Rob Davies observed that the outstanding Annexes had been concluded and highlighted the need to have a functional FTA that would benefit the business community. He noted that the TFTA was a building block for the Continental FTA, hence the need to make more progress in the TFTA negotiations.
The Kampala meeting was attended by delegates from Angola, Botswana, Burundi, D.R. Congo, Egypt, Kenya, Malawi, Mauritius, Namibia, Rwanda, Seychelles, South Africa, South Sudan, Sudan, Swaziland, Tanzania, Uganda, Zambia and Zimbabwe.
Background
At the 1st Tripartite Summit of Heads of State and Government held in Kampala in October 2008, leaders of 26 African countries met and took a bold step to establish the largest trading arrangement in Africa.
The 3rd Tripartite Summit of Heads of State and Government signed the Tripartite Free Trade Area (FTA) Agreement on 10th June, 2015 at Sharm el Sheikh, Egypt. The Agreement was expected to come into force 30 days after 14 Tripartite Member/Partner States deposit instruments of ratification. The Tripartite Summit also signed the Sharm el Sheikh Declaration launching the Tripartite FTA and commencement of Phase II of the Tripartite negotiations and adopted a Tripartite FTA Post Signature Implementation Roadmap.
Find out more about the TFTA negotiations here.
Related News
IMF Executive Board 2017 Article IV Consultation with Madagascar
On June 28, 2017, the Executive Board of the International Monetary Fund (IMF) completed the first review of Madagascar’s economic performance under a program supported by an Extended Credit Facility (ECF) arrangement. It also approved the authorities’ request to augment access under the program for SDR 30.55 million (about US$42.39 million) or 12.5 percent of the country’s quota.
Madagascar is a fragile low-income country striving to recover from political instability. Madagascar has a long history of weak economic growth – barely keeping up with rapid population growth – and social welfare indicators have deteriorated. Recurrent political crises and natural disasters have aggravated these challenges. As a result, Madagascar has become one of the poorest countries in the world, and some of its education, health, and nutrition indicators rank among the lowest in the world. The government is aiming to break a cycle of low growth and investment by accelerating public investment and structural reforms under its 2014 National Development Plan.
Economic developments were encouraging in 2016. Driven by public investment, increasing textile exports, and accelerating activity in agroindustry, economic growth reached 4.2 percent in 2016 – the highest level since 2008. The execution of the 2016 budget was in line with the government’s objectives. Fiscal spending was under control, even though the financial performance of the public utility, JIRAMA, weakened toward the end of the year. Reforms continued in revenue administration, and fiscal revenue exceeded targets. Inflation was contained at 7.0 percent at end-2016. The external position strengthened significantly, benefitting from a positive shock to vanilla export prices and strong growth in manufacturing exports.
Budget execution has encountered challenges in 2017 however. In late 2016 and early 2017, Madagascar suffered a serious drought and a major cyclone – the worst in 13 years. The cyclone imposed total economic costs (damage plus lost production) estimated at about $400 million (4 percent of GDP). The drought reduced the supply of cheap hydropower for electricity generation, thereby increasing JIRAMA’s needs for government transfers. In addition, the launch of a planned strategic partnership for Air Madagascar, will require a costly one-off recapitalization to offset past losses while it is expected to strengthen operations over the medium term.
In spite of current challenges, the medium term outlook is favorable. Growth is projected to accelerate, driven by the investment scaling up, tourism, garments and other light manufacturing, mining, and productivity gains in agriculture. Partly because of the recent disasters, average inflation is forecast to rise temporarily to about 8.5 percent in 2017, and then to fall back gradually to around 5 percent over the medium-term. Imports should increase with the scaling up of public investment and reconstruction efforts, although rising current account deficits are expected to be financed in a sustainable manner thanks to concessional official sector loans and foreign direct investment.
Staff Report
Context: A strategy for investment scaling up and improved governance
Madagascar has a long history of weak economic growth amid recurrent political instability. Successive political crises and weak governance have held back revenue collection, public investment, social spending, external donor support, and private investment, especially FDI. As a result, growth has suffered – at best barely keeping up with rapid population growth – and social welfare indicators have deteriorated. Madagascar’s development has also suffered from its high vulnerability to natural disasters. Madagascar has become one of the poorest countries in the world, with over 80 percent of the population living on less than $1.90 a day.
The government aims to break the cycle of low growth and political instability by accelerating public investment and structural reforms under its 2014 National Development Plan (NDP). During the political crisis following the military coup (2009-13), tax collections declined from 12 percent of GDP in 2008 to 9 per cent in 2013, while donor support fell as low as 2 percent of GDP in 2012 (from 14 percent of GDP in 2006). To help finance scaling up investment and social spending, Madagascar’s development partners made pledges estimated at $6.4 billion (over 60 percent of GDP) at the donor conference in December 2016.
In the face of deteriorating governance indicators, the government has revived the fight against corruption. During the five-year crisis period, Madagascar’s governance indicators regressed, while other countries in Sub-Saharan Africa (SSA) advanced. Under the National Strategy to Fight Corruption adopted in 2015, the government aims to reverse this adverse trend, starting with bringing the legal framework into compliance with international standards. At the same time, reforms are underway to boost fiscal transparency and controls.
Recent economic developments, outlook, and risks
The economic recovery following the political crisis gained speed in 2016, although it took longer than expected to emerge. Investment, the anticipated driver of the economy, remained subdued in 2015, and growth was estimated at only 3.1 percent. Public investment grew faster in 2016, which supported construction activity; together with increasing textile exports and accelerating activity in agroindustry, it helped boost growth to 4.2 percent. Inflation remained under control at 7.0 percent at end-2016.
The execution of the 2016 budget was in line with program objectives. Gross revenue collections over-performed program targets by 0.2 percent of GDP in 2016, reaching the highest tax-to-GDP ratio since 2009. Reforms continued in revenue administration, including: better riskbased and ex-post auditing, the establishment of a unique tax identification number (TIN), clearer litigation rules for tax disputes, and performance-based contracts at customs. Lower-priority transfers remained within budgeted amounts, even though the financial performance of the public utility, JIRAMA, weakened toward the end of the year. The escrow account for VAT reimbursements operated smoothly at both customs and taxes, and the ambitious plans for arrears repayment in 2016 (1.2 percent of GDP) were implemented successfully.
In late 2016 and early 2017, Madagascar suffered a serious drought and a major cyclone, the worst in 13 years. Preceding the cyclone, a serious drought afflicted the central plateau region, which includes the capital and is the economy’s heartland. The cyclone, which hit in March, imposed economic costs (damage plus lost production) estimated at about $400 million (4 percent of GDP), of which approximately one-third fell on the public sector and two-thirds on households and the private sector. Public spending needs for relief and reconstruction are estimated in the range of $100 million for 2017-18. These two shocks also hit agricultural production and the balance of payments, with an estimated impact in 2017 of $225 million.
The medium-term macroeconomic outlook is favorable but challenges remain. Notwithstanding the negative effects of the natural disasters, growth is expected to remain steady at 4.3 percent in 2017, supported by growing public and private investment, textile exports, tourism, and agroindustry. An expected recovery in private sector credit (9.9 percent growth in real terms) will buoy the expansion in 2017. Driven by the planned scaling up, growth is forecast to peak at 5.9 percent in 2019 and stabilize around 5 percent a year over the long term. In addition to public investment, the main drivers of medium-term growth are expected to be tourism, garments and other light manufacturing, mining, and productivity gains in agriculture, especially the shift from subsistence to export-oriented agribusiness (for example vanilla and cloves). Madagascar’s growth is expected to exceed the average for Sub-Saharan African countries over the next few years. Partly because of the recent disasters, inflation is forecast to peak around 8 percent in 2017 before falling gradually to around 5 percent over the medium-term, as the vanilla and natural disaster shocks unwind and monetary policy responds with restrained money growth.
Policy Discussions
Realizing the full potential of scaling up investment and accelerating structural reform will depend critically on also strengthening institutions, governance, and financial sector development. Policy discussions focused on four key objectives and the policy priorities to pursue them: (i) promoting inclusive and sustainable growth, especially through scaling up public investment; (ii) creating more fiscal space, enhancing revenue and containing lower priority spending; (iii) enhancing economic governance, especially fighting corruption; and (iv) strengthening financial sector development and stability.
Promoting Inclusive and Sustainable Growth
Only sustained and inclusive growth can reduce poverty and improve living standards in Madagascar. Economic growth strategies must therefore be sustainable and provide broadly distributed benefits. The NDP launched in 2015 emphasizes the need to: (i) increase economic growth by improving infrastructure, strengthening public-private dialogue, and enhancing the legal framework for good governance; (ii) make growth inclusive by devoting more resources for education, health, and social protection; and (iii) ensure sustained growth by managing Madagascar’s rich natural resources in a sustainable manner with broad benefits. The Economic Development Document published by the authorities in connection with the ECF arrangement highlights the NDP’s efforts for poverty reduction, including progress toward the Sustainable Development Goals.
The elements of the development strategy will also help enhance the inclusiveness of growth, reduce inequality, and promote financial inclusion. While poverty is very high, income inequality – with a Gini coefficient of 42.7 in 2012 – is close to the average of Sub-Saharan African countries and fell slightly over 2001-12.
Madagascar has a severe infrastructure shortfall relative to other countries. For example, of 138 countries surveyed for the World Economic Forum’s Global Competitiveness Index in 2016, Madagascar was ranked 138th on road quality, 135th on mobile phone penetration, and 130th on quality of electricity supply.
To meet these infrastructure needs, the government has developed plans for prioritized investments and enhancements to its investment management capacity.
-
Over the medium-term (2017-22), the plan assumes total public investment of about 9½ percent of GDP a year, peaking at 10½ percent of GDP in 2019.5 Nearly all the external financing (about 7 percent of GDP a year) was identified following the donor conference in December 2016. Madagascar received external financing commitments that were larger and on better terms than assumed in the original program, which enabled the authorities to increase planned investment spending by a cumulative 6½ percentage points (2017-2020) while maintaining a moderate risk of debt distress.
-
The prioritized investment plans – developed in consultation with development partners and representatives outside government – focuses on transportation, energy, agriculture, and social spending.
-
The ambitious plans pose numerous challenges, including most immediately for implementation capacity but also for preserving macroeconomic stability. To help monitor and manage these risks, the authorities established an investment coordination unit at the Presidency in February 2017. The unit will closely monitor absorption capacity, which will be reinforced by refining national and sectoral strategies, including an update of the NDP implementation plan. Ongoing efforts to improve medium-term budget planning and execution will support these efforts (with TA from the IMF, World Bank, and US Treasury).
-
The authorities are also developing a medium-term strategy to enhance the public investment management capacity (end-December 2017 structural benchmark). The strategy, accompanied by an interim action plan, addresses priorities identified in the Public Investment Management Assessment (PIMA) conducted in 2016, as well as in recent IMF TA: (i) strengthening the institutional framework for public investment management; (ii) improving project selection and evaluation; (iii) enhancing the supervision of investment; and (iv) improving donor coordination.
With agriculture helping support 80 percent of the population, enhancing productivity in the sector is also central to reducing poverty. Efforts to expand land tenure security, improve infrastructure, and develop skills in modern farming play a central role. Only about 8 percent of household heads hold formal title to their land, which prevents the use of land as collateral and inhibits investment in productivity-enhancing improvements like irrigation and terracing. Inadequate infrastructure increases transport costs and reduces profits from investment in agriculture. The authorities’ sectoral policy and investment plans, developed with development partners, address these challenges, including through the shift toward export-oriented agribusiness and more weather-resilient practices in vulnerable regions. Discussions between the authorities and staff also addressed the challenges of improving the coordination of policies for rural development across sectors and increasing the low levels of fertilizer use in a cost-effective and affordable manner.
The authorities and staff agree that the growth impact of scaling up public investment depends in part on promoting private investment, including FDI. The main impediments to private sector-led growth are weak governance, poor infrastructure (especially transport and electricity), and a shallow financial system with limited access to financial services. The authorities are focused on “quick win” reforms for improving the business climate, while still advancing on fundamental reforms. With support from the Word Bank, the Economic Development Board of Madagascar has a program to improve the country’s score in the Doing Business Indicators (it ranked 167th out of 190 countries in 2017, compared to the Sub-Saharan Africa average of 143rd). Already, there were improvements in the 2017 survey in opening a business and ease of international trade. Broader reforms to address key structural weaknesses, such as infrastructure (including roads, ports, and airports), electricity, and access to financing, are also vital but will take longer to yield fruit, despite the ambitious efforts underway. Moreover, the authorities are reviewing and revising commercial law. In March 2017, the decrees implementing the new Public Private Partnerships (PPP) law were adopted, which creates new opportunities with appropriate safeguards for public finances. The authorities are also drafting new or revised laws intended to promote activity related to mining, petroleum, special economic zones, and industrial development
Enhancing resilience to natural disasters is also central to sustained and inclusive growth. Madagascar is highly vulnerable to natural disasters, given its geographical location, low income levels, weak institutional capacity, and heavy reliance on rain-fed agriculture (Annex III). During the period 1990-2014, Madagascar was hit by 55 natural disasters that killed at least 3,561 people and left 10 million people with an urgent need for aid (EM-DAT database). Madagascar also has high average recorded economic damage compared to peers. Staff research shows that frequent disasters hold back growth and poverty alleviation, so enhancing resilience needs to be a priority element of the inclusive growth strategy. Madagascar has made progress in integrating disaster resilience into development plans. The priorities are to implement plans for more resilient physical infrastructure and land planning (especially in the capital), develop smallscale rural investment in resilience (e.g., better water management and more drought-resistant agriculture), and institutional infrastructure for social protection (such as registration for social assistance and access to primary health care for relief efforts).
Annex I. External Balance Assessment
Staff assesses the 2016 external balance to be stronger than values consistent with fundamentals and desirable policy settings. Improvements in the terms of trade, most importantly due to higher vanilla prices have contributed to a significant strengthening of the external position. However, the expected reversal of vanilla prices to more normal levels and especially increasing reconstruction- and investment-related imports are projected to bring the current account closer to its norm. International reserves are adequate but in the lower end of the target range.
The trade balance has improved in recent years. Large mining projects, which boosted imports and created huge trade deficits between 2007 and 2010, are now generating significant export earnings. In addition, the terms of trade have improved, particularly as vanilla prices more than tripled in 2016, resulting in the first current account surplus since 2001. The positive transfer balance has generally been slightly higher than the deficit in the income balance. Staff assess the current account to be about 2.7 percent of GDP stronger than values implied by fundamentals and the desirable policy setting. While the actual 2016 current account reported a surplus of 0.8 percent of GDP, Madagascar benefited significantly from a temporary spike in vanilla prices. If the price of vanilla in 2016 had been identical to the average price over 2004-16, then Madagascar’s export earnings from vanilla would have been about $300 million (3.0 percent of GDP) lower. After adjustment for vanilla prices, the adjusted current account therefore reported a deficit of 2.3 percent of GDP. At the same time, the EBA-lite current account model estimates Madagascar’s fitted current account to a deficit of 3.5 percent of GDP. Deviations from desirable policies – a constrained fiscal stance (1.0 percent of GDP), limited private credit disbursements (0.3 percent of GDP), and relatively rapid reserve accumulation (0.2 percent of GDP) – added up to a policy gap of 1.4 percent of GDP. After adjustment for the policy gap, the current account norm for Madagascar corresponded to a deficit of 5.0 percent of GDP. Consequently, the adjusted current account (a deficit of 2.3 percent of GDP) was 2.7 percent of GDP stronger than its norm in 2016. The high deficit for the current account norm reflects the long-term development needs of the country, which explain the high external financing needs.
The current account is expected to adjust to its norm as terms of trade return to historical levels and especially as public investment scales up. Based on historical evidence, the vanilla price boom will probably be short lived. In addition, given Madagascar’s current level of development, investment needs will remain significant for the foreseeable future. Imports are likely to increase because of the ongoing scaling up of investment and reconstruction work following the cyclone Enawo. Growing current accounts deficits will be offset by related surpluses in the capital and financial accounts from public sector grants and loans and foreign direct investment. The existing constraints to external borrowing should decrease with increasing political stability and implementation of policies supported by an IMF arrangement that reinforce Madagascar’s relations with its development partners. At the same time, improvements in the business climate would make Madagascar more attractive to foreign investors. In this context, to maintain debt sustainability and macro-economic stability, the authorities need to scale up investment gradually (as planned), ensure that investment projects are well targeted, and rely on resources with the most attractive financing conditions.
Madagascar has a floating exchange rate regime. The central bank intervenes in the interbank market to smooth large exchange rate fluctuations and meet foreign reserve targets. In 2015, the central bank intervened heavily in the foreign exchange market with so-called buyback operations. The interventions maintained the published official exchange rate at a more appreciated artificial level until the buyback operations were completely abolished in September 2015. Madagascar has restrictions on exports and imports of domestic currency and certain goods (e.g. gold, rose wood), requirements to repatriate export proceeds from goods and services, and some controls on capital transactions. The international reserves are adequate but in the lower half of the target range. By end-2016, reserves are estimated to have covered 3.9 months of current import compared to 2.9 months at end 2015. This import coverage is in the lower half of the target range given an assumed cost of holding reserves of 6 percent, the heavy reliance on mining exports, and the challenging international environment. The accumulation of central bank reserves exceeded projections in 2016. Because of the spike in vanilla export prices, un-banked small vanilla producers received large cash payments. Currency in circulation expanded and drained bank liquidity. In response, the central banks started buying substantial amounts of foreign exchange, which increased bank liquidity and satiated the demand for local currency. The reserve accumulation is expected to level off in 2017. The above normal amounts of currency in circulation are expected to return to the banking system when (as is likely) vanilla prices retreat to more typical levels. At that time, the central bank may sell some foreign exchange to avoid excess liquidity and keep the inflationary pressure under control. Following a projected rapid increase in imports, the import coverage of reserves is likely to fall in 2017. The reserve accumulation is projected to continue at a gradual pace over the medium term.
Selected Issues paper
Governance and Corruption
Madagascar’s governance indicators weakened significantly during the transition period 2009-13. Governance indicators that generally were on par with middle-income countries in Sub-Saharan Africa (SSA) ten years ago have regressed and converged to the average of fragile SSA countries. It is likely that this deterioration in governance is currently reducing Madagascar’s economic growth by about ½ percent a year (or possibly more) and the tax revenue-to-GDP ratio by 3 percent or more. More generally, corruption is associated with less macroeconomic and political stability, potentially creating a vicious circle. After the return of constitutional order in 2014, the government has started to address corruption, mainly through the introduction of new laws so far. More emphasis is needed on effective implementation and raising sufficient resources to fight corruption. This paper summarizes the current situation, surveys the economic costs of corruption, and provides a few ideas on how to advance anticorruption reforms.
Weaknesses in governance manifest themselves economically in various forms, with the weak institutional environment enabling corruption to thrive. Rose wood and precious stone traffic, smuggling of rare and protected species, corruption among customs and tax officials, the rigging of public procurement markets, drug smuggling, and kidnapping are some of the symptoms of generalized corruption. Because of the weakening of institutions, activities such as money laundering through real estate purchases and trafficking in precious stones, to cite just some examples, are spreading and cannot easily be punished by the legal system. At the same time, lack of information (e.g. inadequate property registry), imperfect tax and bank records, and limited international cooperation are obstructing the use of domestic and foreign information to tackle financial crime. Since 2004, only four cases of suspected money laundering have been tried and this resulted in two convictions.
Costs of Corruption
Most of the theoretical literature, as well as case studies and micro evidence, suggest that corruption severely impedes economic performance. Corruption reduces social welfare through several channels, including by diverting resources for private gain; weakening institutions, reducing government legitimacy, and increasing the risk of conflict; eroding the business climate and lowering the quantity and quality of investment; and by increasing fiscal instability. By its very nature, corruption is not done in the open, so it is inherently difficult to quantify these costs. Lower economic growth and macroeconomic instability
Business climate and investment
Corruption reduces private-sector investment because it acts as a tax on capital and raises the hurdle rate of return. Payments of bribes, delays, distortions etc. increase the cost of investment. Entrepreneurs opening new businesses need permits and licenses, putting them at the mercy of corrupt public officials. Corruption also creates an uneven playing field and stifle genuine competition with the result that more human capital will be allocated to rent seeking instead of productive activities that promote business development.
Corruption is a challenge for the private sector in Madagascar. The private sector is concerned by the lack of fair competition in many sectors because of the presence of business groups with close ties to politicians. The 2016 Doing Business Survey ranked Madagascar 164 (out of 189 countries) on ease of doing business and several indicators of corruption are well above the SSA average. Market restrictions that require permits and licenses facilitate rent seeking. For exporters, many products require documentation linked to regulatory controls and this process can require a significant amount of time, costs, and possibly bribes. Exporting firms that use imported inputs suffer twice, because of demanding import and export procedures. Companies that could otherwise participate in international value chains by specializing on specific parts or tasks become less competitive.
Challenges from corruption and the lack of competition are exacerbated by doubts about the impartiality of the judicial system. People in the private sector believe that the justice system is biased and laws are enforced unfairly. Compared with other SSA countries, Madagascar is ranked as having one of the least independent judicial systems according to the World Economic Forum Global Competitiveness Index. Existing laws give the President of Madagascar extensive power over the judiciary. The Supreme Council of the Judiciary (Conseil Supérieur de la Magistrature, CSM) manages the career of the judges, with the President as the chairman and the Minister of Justice as the vice chairman. The Constitutional High Court (Haute Cour Constitutionnelle, HCC) also has limited independence from the executive power. HCC has nine members, of which the President directly nominates three, including the HCC President, and the CSM nominates another three members. Against this background, judges can be extremely cautious and often anxious to avoid contradicting powerful decision makers. The judiciary is also vulnerable to manipulation because of a lack of financial and human resources. A variety of cases has illustrated the widespread impunity for officeholders who break the law, especially with regard to the trafficking of natural resources.
Studies analyzing the growth impact of corruption probably underestimate the extent to which corruption and distortions reduce productive private sector investment. Money-laundering diverts resources to less productive investment and thereby reduces growth. For example, receipts from rose-wood traffic are often used for “sterile” investment like real estate and as a result, real estate prices increase, causing general overpayment for real estate and crowding out of more productive investments. Another corruption effect is the transformation of productive companies into sterile investments because they are operated solely for money laundering. Corruption is also likely to increase imports. To help launder money, corruption money is occasionally used to import goods that are then dumped on the domestic market with a negative impact on the private sector.
While corruption is clearly negative for private-sector investment, the effect on public investment is more complex. On one hand, corruption shrinks tax collections and reduces funds available for fiscal spending and investment. On the other hand, corrupt officials have an incentive to increase public spending in favor of large projects with the potential for large private gains for the policy maker himself (for example, large defense contracts) regardless of the quality of investment. There is empirical data supporting a generally positive correlation between public expenditure and corruption. That said, corruption reduces the quality and efficiency of public investment. Moreover, in a highly resource-constrained environment like Madagascar, corruption is more likely to cost more in foregone resources for investment than is gained in incentives.
Strategies to Reduce Corruption
Reducing corruption will be challenging if there is doubt about the political commitment to fight corruption. Strong support from the country leadership – the President, the political parties, and the military (topics beyond the scope of this paper) – is essential in the combat against corruption. In several countries that have been successful in reducing corruption (e.g. Georgia, Philippines), the determination of the leadership to combat corruption was crucial.
The current government has taken steps against corruption. While the “National Strategy against Corruption, 2004-2014” established the basis for the current anti-corruption framework, the impact was limited due to the 2009-13 crisis and weaknesses in the institutional framework. The government elected in 2014 has elaborated a new “National Strategy to Fight Corruption, 2015- 2025” with the vision to put in place an effective rule of law by strengthening state capacities, sanctioning corruption, and reducing risks and opportunities for corruption. The strategy includes: (i) strengthening anti-corruption legislation; (ii) increasing the independence and resources of the public anti-corruption agencies; (iii) developing an information system to track all legal anticorruption cases; (iv) improving the integrity of the judicial system; and (v) making the Council of Budget and Financial Discipline (CDBF) fully operational.
Corruption is a multi-dimensional problem, requiring reforms in several areas simultaneously. An effective strategy requires a prioritized and sequenced approach. Corruption is a symptom of a poorly functioning government, and addressing it requires change on many different levels. Legislative reform is key, but must be accompanied by strong and independent institutions, capacity building, transparency, an empowered civil society, and increasing economic governance while fighting corruption would improve the chances of seeing lasting and sustainable program results in terms of socio-economic performance.
Mindful of limited resources, the anti-corruption strategy should be both meaningful and realistic. Legislative reforms are only credible if enforced by effective institutions, which requires a transformation of behaviors and values. This takes time and expectations should be managed. From an enforcement perspective, such a strategy could initially focus on actions facilitating investigations and recovery of proceeds of corruption laundered by Malagasy officials abroad, while encouraging domestic capacity building in the medium term.
Macroeconomic implications of scaling up public investment in Madagascar
Introduction: The Case for Scaling Up
Infrastructure is recognized as a key precondition and determinant of increased productivity and sustained economic growth, although it is difficult to quantify This conclusion has been shown to have particular relevance for low-income countries where, under the right conditions, the payoff to additional infrastructure appears to be greater. In the short term, provided the economy is not at full employment, public infrastructure investment boosts aggregate demand, crowds in private investment, and leads to an expansion of output. More importantly, over the longer term, the improved stock of infrastructure would be expected to generate supply effects to boost output over a long time horizon. However, the magnitude of these impacts will depend crucially on the efficiency of investment, a determining factor that highlights the importance of improved project selection, procurement, and implementation. Additionally, the evidence seems to suggest that such payoffs can be seriously negated if competition and institutions are so weak as to allow excessive corruption and rent seeking.
The political and institutional structure of Madagascar has so far not been conducive to long-term economic development. Promising beginnings in the 1960s – when institutions and per capita income levels were high relative to the rest of Sub-Saharan Africa (SSA) – were cut short by successive periods of political uncertainty and institutional decline. From the 1970s to 1995, a period that included a socialist experiment, annual growth averaged less than ½ percent, leading to serious declines in per capita income levels as the rate of population increase remained high at just under 3 percent per annum. Following a political crisis in 2002 – where GDP fell by over 12 percent – a reformist period up to 2008 produced strong growth and significant poverty reduction.
However, this recovery was cut short by the 2009-13 period of political uncertainty where annual growth again averaged only ½ percent, and governance and international competitiveness indicators underwent an additional decline.
Infrastructure development has been one of the main casualties of this economic history, leaving Madagascar with a significant shortfall in productive capital. The magnitude of the shortfall was quantified in 2010 by the Africa Infrastructure Country Diagnostic (AICD), a large study overseen by an international steering committee and implemented by the World Bank covering ultimately 40 countries in SSA. The AICD identified annual infrastructure spending needs for SSA – for new investment and maintenance of the existing stock – of US$93 billion over the period 2006-15, equivalent to about 15 percent of regional GDP. However, the estimate for Madagascar, given its existing deficiencies, was significantly higher at about 40 percent of GDP, or about US$2-3 billion per annum.
The infrastructure shortfall is also large relative to other countries. With the exception of the 2003-08 period, infrastructure provision and maintenance failed to appreciably close the existing gap with regional peers, particularly in the transportation and energy sectors. Of 138 countries surveyed for the World Economic Forum’s Global Competitiveness Index (GCI) in 2016, Madagascar ranked 133rd overall. It placed last in road infrastructure, and very close to the bottom with respect to mobile phone penetration and quality of electricity supply. Although businesses’ opinion of railroad and port facilities were somewhat better, scores were nonetheless low in all infrastructure subsectors. Madagascar scored lower for infrastructure than in any of the other 11 indicators making up its composite GCI.
A similar story emerges from the annual rankings provided by the African Development Bank (AfDB) in its African Infrastructure Development Index (AIDI). The AIDI – an annual monitoring exercise that grew out of the original AICD – ranked Madagascar’s infrastructure as 43rd out of 50 Sub-Saharan African countries in its 2016 study, ahead only of Eritrea, Democratic Republic of Congo, Ethiopia, Chad, Niger South Sudan and Somalia. It is noteworthy that comparison with the rankings from 16 years ago show little relative improvement, as in 2000 Madagascar was placed 45th of 49 countries.
The need to scale up investment has also been strongly endorsed by the international community. The IMF Executive Board stressed the role of infrastructure development when approving the 40-month Extended Credit Facility Arrangement for Madagascar in July 2016, and at Madagascar’s donor conference in December 2016, the authorities announced pledges of a total of US$6.4 billion (63 percent of GDP) from development partners, and a further US$3.5 billion in planned private sector investments. The funding will allow a significant scaling up of infrastructure expenditure although the pace will depend on absorptive capacity. Financing the bulk of funding externally, especially from multilateral sources like the AfDB and World Bank, will help provide analytical and procedural support for the efficiency of investment management, while debt sustainability concerns will be carefully evaluated and periodically updated in consultations with the IMF and World Bank.
Related News
tralac’s Daily News Selection
From last week’s Kenya National Trade Week: the six trade policy documents
(i) The National Trade Policy: Transforming Kenya into a competitive export-led and efficient domestic economy
Balance of Trade Deficit: The Policy is cognizant of the prevailing situation in the trade sector, where overall trade performance, as measured by the Balance of Trade, has been poor and recording a deteriorating trend that is characterized by huge balance of trade deficits. In addition, the policy is developed in the context of the already documented fact about Kenya’s share in the regional and global market, which remains low, with huge potential already having been identified in sectors that Kenya has both comparative and competitive advantage. The fundamentals behind this situation are traced to a narrow export base, which is characterized by the predominance of primary products and dependence on limited traditional destination markets. Limited value addition in the manufacturing sector and the relatively underdeveloped intermediate and capital goods industries also explain the dismal trade performance.
Trade in Services: The Policy recognizes the important role that trade in services is poised to play in overall development of the economy. The service sector which comprises tourism; transport and communications; trade and related services; and financial and business services, accounts for 60 percent of GDP. Within the service sector, there are emerging trends of growth in domestic trade brought about by the liberalization of the capital markets and the privatization program. In addition, there are new developments of the domestic oriented Business Processing Outsourcing (BPO) and Information Technology Enabled Services which has created trade opportunities for MSMEs to provide Business Development Services. The Trade Policy will therefore facilitate improvements in the enabling of the environment for increased trade in stock and shares and outsourced services.
(ii) National Export Development Strategy 2017-2022 (pdf)
Over the last 15 years, Kenya has pursued an export-led growth strategy. However, Kenya’s exports have seen mixed results in various markets and the overall performance of the Export sector continues to lag behind the Vision2030 targets. The NEDPS will be a five-year sector development plan with defined actions on issues that affect export development. It is expected to specifically; induce synergies for higher production in specific export sectors to enable better export performance; enhance market access and sustained performance; identify and align constraints in the export sector and propose mitigation measures; allocate resources based on prioritised objectives and streamline the export sector management by defining and allocating responsibilities to specific institutions with best capacities, including implementation, monitoring and evaluation functions.
(iii) Buy Kenya Build Kenya Strategy (pdf)
The Buy Kenya-Build Kenya initiative is expected to enhance competitiveness of local firms; stimulate local production; and promote industrialization, a key priority area in Vision 2030. In addition, the strategy shall contribute towards mitigating the impacts of the trade deficits. Five key result areas and diverse deliberate interventions have been proposed for the successful implementation of this strategy. The key result areas have been broadly categorized into legal and regulatory framework to guide public procurement; provision of an enabling business environment; enhancing market access of locally produced goods and services; and, advocacy and institutional framework for sustainability related activities. Several strategies are proposed for each key result area whose implementation requires a well coordinated approach between state actors and private stakeholders. [(iv) The National Trade Facilitation Committee and its thematic working groups; (v) pdf Study on the Kenya Retail Trade Sector – Prompt Payments (1.16 MB) ; (vi) Guidelines for Kenya’s Trade and Investment Missions]
Rwanda: Coordinating public and private action for export manufacturing (ODI)
Rwanda is – along with Ethiopia – exceptional in Africa in that it has in place a nation-building project centred on the aim of economic transformation. Features of its political economy also mean Rwanda lends itself easily to comparison with the best-documented experiences in Asia. This paper (pdf) explores the ways in which international experience of success in manufacturing-based economic transformation can provide valuable insight for Rwanda, in the areas of government coordination, engagement with and representation of the private sector, and the experimental learning process. [The authors: David Booth, Linda Calabrese, Frederick Golooba-Mutebi]
Rwanda: Kanimba calls on Africa to renew efforts to protect its agriculture sector (New Times)
It is high time African countries embarked on special safeguard measures to protect the continent’s agriculture sector, François Kanimba, Rwanda’s Minister for Trade, Industry and East African Community Affairs, said Monday. Kanimba made the call at the opening of a week-long regional advanced trade negotiation simulation skills course for 32 English speaking African countries, in Kigali, at which participants discuss the impact of mega-regional deals on WTO processes. Kanimba said the agriculture sector, being the backbone of the continent, African countries should have placed it at the centre of negotiations. Kanimba said agriculture distorting subsidies are still unaddressed and “expose our small-scale farmers to unfair competition” from subsidised imports from rich countries. [Related: No breach of farm subsidy limits, India tells WTO; Farm subsidies: EU, Brazil join forces for global level-playing field]
Tanzania: China investments soar, still trails India (Daily News)
Chinese investments to Tanzania have soared in recent years, reaching $2.5bn (about 5.6tri/) as of May 2017, ten times the 2011’s $282m (over 620bn/-). According to Finance and Planning Minister, Dr Philip Mpango, China is Tanzania’s second major source of investments after India. The minister assured that more investors are coming, especially in the fields of mineral exploration, agriculture, industry and trade. Speaking at the sixth ESRF Annual National Conference in Dar es Salaam yesterday, Dr Mpango said estimates show that Chinese companies are executing over 70% of construction projects in the country.
Cape Town, Wesgro promote trade and investment opportunities in Ethiopia (CoCT)
‘The mission [this week] is a follow-up to Wesgro’s previous successful visits taken to Ethiopia and a reciprocal mission by the Addis Ababa Chamber of Commerce to Cape Town in October 2016. These missions are in accordance with the partnership agreement between Wesgro and the Addis Ababa Chamber of Business to facilitate reciprocal trade missions. Together with the Addis Ababa Chamber of Commerce and the Ethiopian Investment Commission, we are planning to increase the number of outward and inward missions to enable a substantial increase of business with the country in the next few years,’ said Wesgro’s Chief Business Officer, Yaw Peprah.
WCO welcomes 2017 G20’s recognition of its work on illicit financial flows
The 2016 G20 Hangzhou Meeting had welcomed the “communication and coordination with the World Customs Organization for a study report” to address “cross-border financial flows derived from illicit activities, including deliberate misinvoicing, which hampers the mobilization of domestic resources for development.” Following this mandate, and after Member’s deliberation, the WCO produced an Action Plan (pdf) to capture the strategy to counter IFFs and same has been communicated to the German G20 Presidency and the G20 Heads of Customs. The Action Plan will bring special attention to the question of trade misinvoicing and also touch on other methods such as transfer mispricing, tax evasion and avoidance, cash smuggling, and informal funds transfer systems. [Various downloads available]
Tourism: The untapped underdog of Aid for Trade (ITC, UNWTO, EIF)
Tourism is estimated to represent 10% of global GDP and generates directly or indirectly one in ten jobs globally. It is a resilient sector, which despite all challenges continues to see international tourist arrivals grow at an annual rate of over 4% since 2009. Generating 7% of all international trade, the sector is also of increasing importance to the trade community. It is important to recall that tourism is a form of services trade and that tourism accounts for 30% of the world’s trade in services. Tourism is of particular value for LDCs, where it represents 7% of total exports of goods and services, a figure that stands at 10% for non-oil LDC exporters. Tourism is also the major economic earner in many small island developing states. In view of the above, and as shown in this report (pdf), tourism has been recognized as a key sector for trade-related technical assistance in LDCs. Forty-five out of 48 Diagnostic Trade Integration Studies – an important coordination instrument for trade-related technical assistance – analysed for this report feature tourism as a key sector for trade development. Accordingly, the Enhanced Integrated Framework has become increasingly active in this sector. Close to 10% of its so-called Tier 2 project portfolio is currently dedicated to tourism. This stands in stark contrast with the less than 1% allocated in total Aid for Trade to tourism. [Related: Namibia records regional tourist boom]
Africa’s rise poses threat to Bangladesh’s apparel export (Daily Star)
The upward trend of garment exports from Africa, thanks in part to Bangladeshi investors, poses a threat to Bangladesh’s second position in the global apparel trade. In recent years, nearly a dozen Bangladeshi garment makers have invested either in joint ventures or individually in different African countries, especially Ethiopia and Kenya. The impact of the upward trend of exports from the AGOA nations has already started to show on Bangladesh’s apparel exports: for the first time in 15 years, the growth was not even in single digit in 2016-17. Apparel export growth last fiscal year was just 0.20%. In contrast, growth was more than 13% in the last 10 years. The receipt of $28.14bn is way below the target of $30.37bn. The AGOA nations are faring well in basic garments – a market segment where Bangladesh also has huge concentration. Lower-end products account for 75% of the country’s apparel exports.
Quick Links: Nigeria: Manufacturers need regular engagement with govt for economic growth Kenya’s tea export volumes to top markets drops 35% Mauritius: Exporting to Africa workshop Trade between Angola and India reached $3bn in 2016 Zambia’s potential IMF deal may face further delays - Fitch Nigeria: National Assembly, ACBF sign $1.3m capacity building deal for legislators AfDB: Mauritania Country Strategy Paper 2016-2020 (pdf) Kenya’s Industrial and Commercial Development Corporation: the early financing that helped propel Kenya’s industrialisation UN High-Level Political Forum on Sustainable Development: summary of first day’s debate, report links |