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Kenya National Trade Policy: Transforming Kenya into a competitive export-led and efficient domestic economy
Preface by the Cabinet Secretary
The National Trade Policy is being launched* at a time when the global trade landscape is facing emerging challenges. Over 70 percent of global trade is made up of manufactured goods. Intra-Africa trade averages about 12 percent whilst Kenya’s share of both the global pie as well as in Africa has been facing serious bottlenecks leading to a huge balance of trade deficit with most of our trading partners.
The Trade Policy adds impetus to the robust trade policy reforms that the country has pursued under regional and multilateral trade arrangements. It translates to Kenya’s commitments at regional and multilateral level to solidify policy measures and create opportunity for their domestication through the various instruments that are proposed. This will contribute to strengthening of regional integration and will in turn anchor our country as a dependable and predictable trading partner.
This Policy spells out complementarity with other sectors and provides a framework for these sectors to adopt policies that complement rather than compete with each other. This trade policy in particular introduces a trade agenda in several sectors such as agriculture, industry, infrastructure and ICT.
It creates opportunities for trade-led sector policy formulation to achieve sector specific trade targets. For instance, agricultural and industry policies must be geared towards responding to the national trade agenda of product and destination market diversification. Similarly, energy and infrastructure policies must contribute towards promoting competitiveness of Kenya’s trade sector. ICT, on the other hand must drive trade, in keeping with the global experience, where e-commerce is overtaking traditional commerce because of the savings associated with low cost of trading under e-commerce.
Effective implementation of the National Trade Policy is expected to transform Kenya to a most competitive and prosperous trading nation. Prospects for this transformative impact lie in opportunities in the domestic market as well as in the regional and global markets, where Kenya has immense unexploited trade potential.
The structure and content of the policy portends itself to immediate implementation. I therefore call upon the full commitment and cooperation of all stakeholders to ensure successful implementation of this policy and thus enable it to contribute in a substantial way to Kenya’s national development.
Cabinet Secretary, Ministry of Industry, Trade and Cooperatives
Executive Summary
The Policy Framework
This National Trade Policy has been formulated within the framework of the national long term policy blueprint; the Kenya Vision 2030 which is the basis of the country’s entire policy formulation and implementation for all sectors in the country. The policy formulation has been further guided by the provisions of the Kenya Constitution (2010) which recognizes the concurrent jurisdiction of the national and county governments in relation to trade matters. The policy is also underpinned within the Constitution’s provisions on the Bill of Rights, particularly the freedom of expression, freedom of the media, freedom of association, freedom of movement and residence, protection of right of property, labour relations as well as consumer rights and the Fourth Schedule. In addition, the critical International development aspirations and commitments such as the Sustainable Development Goals (SDGs) as well as regional and international trade agreements to which Kenya is a signatory have guided the formulation; notably: The World Trade Organization (WTO) agreements, the East African Community (EAC) and Common Market for Eastern and Southern Africa (COMESA) Treaties, EAC-EU Economic Partnership Agreement and the African Caribbean Pacific Cotonou Agreement.
The Focus on Trade Policy
The policy aspires to articulate the government’s aspiration towards poverty eradication and sustainable economic development through providing opportunity for expanded markets, income generation and distribution, increased employment and competitiveness. The policy advances the course for poverty reduction by mainstreaming Micro, Small and Medium Enterprises (MSMEs) in the global trade, in view of their critical role in job creation, poverty reduction and the furtherance of export diversification and economic development. Moreover, the Policy builds on the momentum of trade policy reforms that have been ongoing since the mid-1980s, when the country shifted its trade policy from import substitution to export oriented policies. The key features of this reform include the significant reduction in tariff levels as well as the reduced licensing requirements and the elimination of price controls.
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 (ITES) which has created trade opportunities for MSMEs to provide Business Development Services (BDS). The Trade Policy will therefore facilitate improvements in the enabling of the environment for increased trade in stock and shares and outsourced services.
Unleashing Kenya’s Potential in International Trade
The National Trade Policy seeks to unleash Kenya’s potential targeting domestic, regional and global market. The multilateral, regional integration and bilateral trade arrangements that currently define the space that Kenya’s international trade enjoys present an immense opportunity for pursuit of this policy objective. The task ahead is to address the main constraints and challenges to international trade, which include;
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Limited capacity for diversification and low value addition in production;
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Increased use of non-tariff barriers in export markets;
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Lack of competitiveness due to inefficient trade facilitation infrastructure;
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Lack of medium and long term finance for SMEs;
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Limited availability of affordable trade finance;
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Limited negotiation capacity and uncoordinated negotiation processes; and,
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Preference erosion, among others.
Finding Sustainable Solutions
The drive in pursuit of solutions to these constraints and challenges is the central role that trade plays in the country’s growth and development as well as poverty eradication. This is through its linkages with all the sectors of the economy where trade creates markets through which goods and services get to the consumers. Trade also plays a critical role in poverty reduction through employment creation in informal, retail, and wholesale trade and provides MSMEs with opportunities of accessing more favourable prices in regional as well as international markets thereby ensuring equitable income distribution.
Complementarity
The National Trade Policy complements other existing sectoral policies and strategies that touch on trade issues including the agriculture and rural development policy, industrial policy, livestock policy, fisheries policy, among others. The National Trade Policy aims at providing a broad and overarching policy framework for other key policies, strategies and official documents affecting trade which include the following:
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The Kenya Constitution (2010);
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Agricultural Sector Development Strategy;
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National Livestock Policies;
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National Industrial Policy;
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Competition Policy;
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Investment Policy;
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Intellectual Property Policy and Strategy; and,
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Other Sectoral Policies and Strategies.
In sum, the National Trade Policy establishes coherence with all these other documents and where possible, the policy and its implementation plan incorporates elements of these other strategies, policies and plans in order to ensure as much coherence as possible. The trade policy also becomes a point of reference for sectoral policies and strategies that will be developed in the future, to ensure that such policies and strategies are in harmony with the overall trade policy.
* The National Trade Policy was launched during the National Trade Week, hosted by the State Department on Trade from 10-12 July 2017 at the Kenyatta International Conference Centre. The National Trade Week was held to bring together stakeholders from the public and private sector in Kenya to discuss the current state of play of Trade in Kenya, review progress on key initiatives currently under implementation and to develop a consensus on the path forward towards developing Kenya as an export led economy supported by robust domestic trade.
During the course of the week, other key documents and programs that are important to the private sector were launched, including the following (download below):
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Kanimba calls on Africa to renew efforts to protect its agric sector
It is high time African countries embarked on special safeguard measures (SSMs) to protect the continent’s agriculture sector, François Kanimba, the Minister for Trade, Industry and East African Community Affairs, said Monday.
Put in place by the World Trade Organisation (WTO) that regulates international trade, the SSM is a protection measure allowed for developing countries to take contingency restrictions against agricultural imports that hurt domestic farmers.
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.
Rich countries spend billions of dollars subsidising their farmers, leading to chronic overproduction and dumping surpluses on global markets, a trade practice that reportedly impoverishes farmers in most African countries.
Regarding market access, Kanimba said, while most African countries enjoy duty-free quota, technical barriers to trade are being imposed by partners to products when trying to export to their markets.
African countries, he said, need to continue advocating for elimination of harmful subsidies in order to achieve promised reforms in the agriculture sector and push for defence measures and easy access to markets for their products.
Many African countries, including Rwanda, he said, have recently faced cheap imports of rice from some Asian countries.
“It is, therefore, important to reemphasise that public stockholdings for the purpose of food security are important but there is a need for fair disciplines to ensure that they are not used for exports which may result in dumping in other markets.”
Dickson Yeboah, head of intensive trade negotiations skills unit at the WTO institute for training and technical cooperation, said there is need for effective global rules on issues that matter to both developing and developed countries.
Yeboah said free trade could serve as the largest economic stimulus package to revive the global economy and fight poverty.
One of the trainees, Jesse Mathies, the assistant director for international trade in Liberia’s ministry of commerce, told The New Times that he expects to take home skills that will help improve his understanding of global trade issues both at continental and sub-regional levels.
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Coordinating public and private action for export manufacturing: issues for Rwanda
One of the keys to economic transformation across Africa today is a greater role for employment-intensive, export-oriented manufacturing.
After taking due account of differences in contexts and time periods, international experience – especially in Asia but also in Africa-region leaders such as Mauritius – points to employment-intensive manufacturing as a crucial and indispensable step in the transition from poverty to development.
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 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.
Executive summary
Along with accelerated agricultural progress, an expanding role for employment-intensive, export-oriented manufacturing is increasingly recognised as a critical next step in the economic transformation of Africa. This poses substantial challenges of various kinds, not least in small, landlocked countries like Rwanda. The challenges include creating institutional arrangements that are effective in coordinating public and private action around well-chosen policy goals.
In the comparative literature on industrial policy and development, six institutional requirements emerge as particularly needing to be satisfied for success in export manufacturing. Using these as a template, this report examines the status and prospects of arrangements for public–private coordination in Rwanda. Our findings draw on extensive interviews with public and private sector actors in Rwanda carried out at intervals over the past decade and ongoing under the Overseas Development Institute’s Supporting Economic Transformation (SET) programme.
The first requirement for success suggested by East Asian and other recent international experience is the establishment of economic transformation as a nation-building project, with shared commitments among key actors extending well beyond a single political cycle. Rwanda stands out in sub-Saharan Africa as a rare example of a country whose underlying political settlement gives a central place to national development goals and protects policy-making from the usual effects of political competition of the patron-client type. The settlement also includes a relatively strong commitment to private sector development. This provides a favourable starting point for building other needed elements of the institutional architecture for public-private collaboration.
Other requirements identified in the literature include the creation of a public agency with sufficient autonomy, budgetary resources and political authorisation to override inter-departmental coordination problems and engage in a practical way with credible private sector organisations. The report discusses this under three headings: coordination in government, engagement with the private sector and the credibility of private sector representation.
Coordination in government: Policy for economic transformation, including export manufacturing, is comparatively well ‘joined up’ in Rwanda, thanks to the fact that under the political settlement the relevant ministries and agencies are not to any degree political fiefdoms. An impressive-looking formal apparatus for policy coordination has also been created, on conventional civil service lines. However, the Rwanda Development Board (RDB) – the organisation that might have been expected to play the forceful coordination role associated with Asian ‘super-ministries’ – has not been given a sufficiently focused mandate or the necessary resources. Although its chief executive has cabinet rank, its mandate is limited to implementing policy and providing a broad range of services. This problem is not unique to Rwanda; similar issues have been raised about Ethiopia’s architecture for investment and export promotion.
Engagement with the private sector: The services provided by the RDB include investment facilitation and investor ‘aftercare’. However, the best Asian models, and experiences at the sector level in some African economies, include a prominent role for public sector departments that are highly knowledgeable about and even socially ‘embedded’ in the private business sectors they deal with. Lack of experience and an insufficiently focused mandate combine to deny the RDB this crucial quality. In managing relations with investors, the RDB also must contend with a wider civil service culture that is good at following rules but has been rather inflexible in terms of addressing snags in the regulatory regime in response to private sector complaints. In addressing these deficiencies, consideration should be given to the pros and cons of reforming the RDB – politically possible but organisationally challenging – or creating something largely new, for example as an adjunct to the president’s Strategic Policy Unit.
We add two important qualifications to this widely shared assessment of the limitations of the current pattern of public–private engagement in Rwanda. One is that, since 2016, the responsible ministry (now Trade, Industry and East African Community Affairs) and the RDB have significantly upgraded their engagement with firms in export sectors, including manufacturing. A series of high-level meetings have resulted in the signing of some 18 bilateral memoranda of understanding (MoUs) in which firms identify export targets and the government commits to addressing the barriers identified by the firms. This is a potential game-changer, but only if the government side can provide the concentrated, specialised capability that Asian experience shows is needed and can be offered even in an inexperienced public sector environment.
The other qualification arises from ongoing SET research showing that Rwanda’s own experience of constructive, mutually accountable engagement across the public–private divide is more diverse and interesting than it appears at first sight. As well as continuing to see a role for state, party-owned and military-linked companies, the government has actively supported medium and small domestic businesses moving into sectors, or a scale of operations, in which they previously lacked experience. These efforts, undertaken without fanfare and without central involvement of the RDB or ministries, have not yet steered significant resources into employment-intensive export manufacturing. However, they provide a sound model for doing so, which will be important in ensuring foreign anchor firms in new manufacturing sectors are quickly supported by domestic private investment in related production and infrastructure. They are also of interest in connection with the future character of Rwandan society and politics, since to a striking degree they involve business people from across the spectrum of Rwandan social backgrounds.
Credibility of private sector representation: The international literature is clear about the importance of this issue and about the difficulties it entails in the early stages of economic transformation. Using relevant comparators and historical experience, we find Rwanda’s progress in this regard to be satisfactory. The active role of government in setting up and supporting the Private Sector Federation has been consistent with global experience on the role of the state in enabling effective private sector representation. Legislation to reserve more benefits to association members should be considered as a next step.
The international evidence on economic transformation places increasing emphasis on technically justified selective support to sectors and firms, as a necessary complement to improving the broadly enabling conditions for investment. This support needs, however, to be backed by mutually enforceable performance standards, including export targets. Rwanda’s most recent experience with firm-by-firm MoUs foreshadows the kind of system that will be needed in the near future for identifying investment partners, agreeing conditional support and regulating the overall ‘deals environment’. We identify two major challenges in taking this forward. One is the lack of priority currently being given to the technical basis for investment project appraisal, as distinct from defining strategic priorities – particularly important when alarming balance-of-trade data create incentives to ‘do something’ in a hurry. The other is to get domestic firms into the emerging performance-linked support system sooner rather than later, given that in Asia this approach has paid off more with domestic than with foreign investors.
The history of industrial policy lends strong support, finally, to the importance of ‘discovery’ by both firms and their public sector regulators. Gains are maximised in this respect where there is an explicit governmental commitment to experimentation, rapid feedback and timely corrections. Rwandan policies have reflected an exceptional commitment to learning by doing over many years, and President Kagame has emphasised this in economic policy contexts in several recent speeches. However, general adoption of this way of working is in tension with rigorous rule enforcement, which remains a necessary condition of the country’s exceptionally corruption-free business environment. The suggested solution is to draw on the central lesson of Asian experience once again by concentrating available capacity to think and work in an adaptive, problem-driven way in an organisation or organisations with a tightly focused mandate.
In summary, Rwanda’s political settlement provides an unusually favourable platform for emulating the most successful experiences in other parts of the world in making the breakthrough into employment intensive, export-oriented manufacturing. However, a platform is no more than a platform, and urgent attention is needed to several of the other five requirements for success the international literature suggests. Principally lacking at this point is an adequate concentration of capability, including private sector experience and the ability to use economic appraisal techniques, in a sufficiently empowered public agency. Steps currently being taken to improve public-private coordination are important and serve to reinforce this conclusion.
» Download: Coordinating public and private action for export manufacturing: international experience and issues for Rwanda (PDF)
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WCO welcomes 2017 G20’s recognition of its work on Illicit Financial Flows
The G20 leaders recognize the work of the World Customs Organization (WCO) in combatting Illicit Financial Flows (IFFs) in documents agreed following the 2017 G20 Hamburg Summit. The Secretary General of the WCO, Dr. Kunio Mikuriya, welcomes this recognition and invites WCO Members to pursue efforts to tackle this issue and to actively participate in the activities undertaken by the WCO on this topic.
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 mis-invoicing, which hampers the mobilization of domestic resources for development.” Following this mandate, and after Member’s deliberation, the WCO produced an Action Plan 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 mis-invoicing and also touch on other methods such as transfer mispricing, tax evasion and avoidance, cash smuggling, and informal funds transfer systems. WCO Secretary General Kunio Mikuriya stated that “WCO will continue its action plan to combat IFFs and further enhance its coordination with the G20”, adding that “the WCO Council has, during its 129th/130th Sessions, identified IFFs as one of the six main priorities for Customs Community, along with Trade Facilitation, Security, E-commerce, Customs-Tax Cooperation and Performance Measurement.”
Customs and the Fight Against Illicit Financial Flows World Customs Organization Action Plan
It has been well-recognized that Illicit Financial Flows (IFFs) hamper sustainable development and present a direct threat to global political and economic security. The loss of capital from corruption, organized crime, illegal exploitation of natural resources, fraud in international trade and tax evasion, deprives countries of vital revenue that could be used to develop infrastructure, provide basic social services and invest in projects to create jobs.
By undermining development efforts, IFFs contribute to persistent poverty and to the perception of corruption and poor governance that can lead to political instability. While, on the one hand, IFFs impede government efforts to mobilize domestic resources, on the other hand they can serve to finance criminal or terrorist activities.
As the first line of defence at the borders, Customs has an important role to play in combating illicit financial flows while facilitating legitimate trade. The misuse of trade for the movement of illicit funds, as well as the physical cross-border movement of money, are areas that relate directly to Customs’ competence and expertise and are subject to strong enforcement measures.
Background
The G20 Leaders’ Communiqué from the Summit held in Hangzhou, China, in September 2016 highlighted, among other things, the importance of addressing cross-border IFFs derived from illicit activities. More specifically, paragraph 36 of the Communiqué welcomed communication and coordination with the World Customs Organization (WCO) to address cross-border financial flows derived from illicit activities, including deliberate trade mis-invoicing.
The WCO welcomed this opportunity to contribute to the work of the G20 and has been proactively considering ways to work with the G20 on the development of a study on cross-border financial flows coming from illicit trade, including deliberating on this issue at its Policy Commission held in December 2016.
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tralac’s Daily News Selection
Today, in Dar es Salaam: Development cooperation between China and Tanzania: trade and investment (ESRF, China Agricultural University). Twitter updates: #TanzaniaChinaConf
Starting today, in Geneva: Brazil’s Trade Policy Review
Diarise: Second Japan-Africa Business Forum (25-26 July, Tokyo)
Africa Regional Integration Index 2018: update (UNECA)
David Luke, Coordinator of the ATPC, said two issues of critical interests ahead of the publication of the Index in 2018 were how far the ARII 2018 Report captures the drivers of regional integration in Africa. Also important, he said, was for the experts to discuss to what extent the inclusion of social variables, such us the Gender Index, could promote social-sensitive integration policies on the continent. The ARII Report will have a ranking of countries not only within their respective RECs, as was the case with the first version of the Index, but also a continental ranking. [Africa Regional Integration Index: 2016 Report]
David Luke: The African trade revolution quietly afoot (African Arguments)
The CFTA negotiations are complex. The 55 participating countries span a diversity of economic and geographic configurations. 15 are landlocked, while six are Small Island Developing States. The biggest (Nigeria) has a GDP of $568bn, while the smallest (Sao Tome & Principe) a GDP of just $337m. The CFTA must likewise be crafted as a win-win agreement that leaves no one behind. Here, the UNECA has undertaken a human rights impact assessment of the initiative and advocated for a number of supporting measures. This includes strategies to protect small-holder farmers and help them integrate into regional agricultural value chains. It calls for improving border controls to help informal cross-border traders, many of whom are women and major players in intra-African trade. It also demands an approach that benefits Africa’s diversity of countries, including those which are small, island economies, landlocked or fragile states. One way to achieve this is by supporting initiatives for regional value chains and connectivity that have proven successful in Africa’s regional economic communities. [CFTA negotiations moving in the right direction]
(i) USTR announces 2018 eligibility review process, timelines (pdf): This notice announces the initiation of the annual review of the eligibility of the sub-Saharan African countries to receive the benefits of the African Growth and Opportunity Act. The AGOA Implementation Subcommittee of the Trade Policy Staff Committee is developing recommendations for the President on AGOA country eligibility for calendar year 2018. Key dates: 4 August: Deadline for filing requests to appear at the August 23, 2017 public hearing, and for filing pre-hearing briefs, statements, or comments on sub-Saharan African countries’ AGOA eligibility. 23 August: AGOA Implementation Subcommittee of the TPSC will convene a public hearing on AGOA country eligibility. 30 August: Deadline for filing post-hearing briefs, statements, or comments on this matter.
(ii) EAC officials oppose US bid to review AGOA trade deal over mitumba ban. Looming over the three-hour session before a standing-room-only audience was the Trump administration’s “America First” policy. The hearing chaired by Constance Hamilton of the US Trade Representative’s office was contentious at times. She and other US officials challenged the East Africans’ insistence that the agreed-upon three-year phase-out of used clothing imports did not amount to a “ban”. A member of Uganda’s delegation at the hearing also insisted that Tanzania’s and Uganda’s doubling of levies on used-clothing imports — from $0.20 to $0.40 per kilogramme — was not a “tariff increase” but rather a “realignment.”
(iii) CSOs back ban of secondhand clothes. “It’s against this background that as the trade working group comprising of members of civil society and manufacturers, we fully support the decision taken by the heads of states to progressively phase out second hand clothes,” they said. “It’s critical that the EAC policy space for development is not constrained.” George Magimbi, policy officer of Uganda Manufacturers Association, stressed the importance of progressively eliminating the importation of secondhand clothes so as to fulfill the four SDGs which talk of ending poverty in all its forms and supporting the industrial sector. [SEATINI: statement]
(iv) August’s AGOA Togo forum. Representatives from the private sector, civil society, and the US-sponsored African Women’s Entrepreneurship Program will participate in Forum activities 8-9 August. The Ministerial plenaries will follow on 9-10 August, bringing together senior government officials from the United States and the 38 African beneficiary countries. US Trade Representative Ambassador Robert Lighthizer will lead the US delegation, which will include senior officials from the Departments of State, Agriculture, Commerce, Labor, Transportation, Treasury, USAID, the US Trade and Development Agency, as well as the Millennium Challenge Corporation, the Overseas Private Investment Corporation, and the US African Development Fund. Members of Congress and their staff from both parties are also invited to attend the Forum.
Kenya falls short of India pulses export quota deal (Business Daily)
Kenya has failed to meet the Indian market demand for pulses two years after the signing of a memorandum of understanding for the supply of beans, peas and green grams. In the MoU signed in 2015, India had given Kenya a quota of four million metric tonnes. However, Kenya is only supplying 20 per cent of the 800,000 metric tonnes annual production. Programmes coordinator at East African Grain Council Janet Ngombalu says low production has been occasioned by a lack of awareness by farmers on certified seeds. The growers have also not understood the advantage of pulses compared to other crops such as maize they prefer to grow.
Morocco’s Sub-Saharan trade increased 9.1% in 2016 (World News)
Trade between the two sides has grown at an average annual rate of 9.1% since 2008, reaching nearly MAD 20bn in 2016. The share of these exchanges is 3% of the total in 2016, against 2% in 2008. These flows generate a surplus trade balance in favor of Morocco of MAD 11.9bn in 2016 compared of 1.3bn in 2008. West Africa remains Morocco’s largest trading partner in the region with a total of MAD 11.2bn surplus trade balance. Senegal remains the main customer of Morocco in West Africa. East Africa is the second largest trading partner of the Kingdom in sub-Saharan Africa (a 15.5% share). In addition, the study shows that Moroccan direct investment in sub-Saharan Africa is growing at an average annual rate of 4.4% to nearly MAD 3bn in 2015. These investments account for 40% of total foreign direct investment by Moroccans living abroad and 97.2% of those residing in Africa. [OCP Policy Center: Relations between Morocco and sub-Saharan Africa: what is the potential for trade and foreign direct investment?], [Rwandan firms sign trade deals with Moroccan companies]
Rwanda: Investment strategy to foster structural transformation (pdf, IMF)
Stimulating private investment in Rwanda is difficult because of the size of the economy and its land-locked status but the government is trying to address this through regional integration. The EAC trade block can help diminish the drawback of being landlocked by lowering the cost of imports and improving connectivity in terms of transportation. It has been successful in lowering non-tariff barriers and Rwanda is in the process of establishing a dry port in Kigali to ease in traffic transit through Kigali to the DRC. Realistically, Rwanda needs to look west as a destination for its exports because, up to now at least, it has been unable to compete with countries closer to the sea. Over the past 15 years, while Rwanda goods imports from Uganda have risen by almost 15 percentage points to 18% of the total, it has been unable to penetrate Uganda with its exports.
On the other hand, it has been successful in exporting to Congo. The share of Rwanda exports to Congo (mainly re-exports) has doubled over the past 5 years and now represents 26% of the total ($172m). Many of these are low value-added products because only limited transformation occurs in Rwanda (petroleum and used vehicles originating from outside of the continent). A typical product exported to Congo with some value addition is wheat flour but currently the wheat required to be converted into flour is imported from overseas because of the competitive price and quality of the import. Infrastructure is being developed at the DRC border to speed up the movement of goods. A one stop border post is being finalized in Rubavu that will require only one inspection of goods between Rwanda and DRC. Moreover, development partners have helped finance a program to support traders at the border and bilateral trade meetings between the Rwanda and DRC presidents have started. This strategy has strong potential because the north Kivu region has population base of over 14 million within 100 miles of the Rwandan border. [Rwanda: 2017 Article IV Consultation]
Angola’s ghost railway: the Caminho de Ferro de Benguela line (Business Day)
It was meant to be a game changer for the region, an artery for exporting minerals from the DRC through Lobito, the closest port to Europe and Asia. But there’s very little to show for all the money spent on it.
China and the East Africa railways: beyond full industry chain export (Brookings)
Both railways are examples of whole industry chain export, rather than the export of single, individual service contract under the railway project. From project designs to equipment procurement, from construction to financing, from supervision to the operation and maintenance of the railways after their completion, Chinese companies and banks monopolized the complete chain. This situation does not only offer the Chinese players a unique and exclusive opportunity to promote Chinese products, services, technologies, and management models, but also significantly expanded the scope of spinoff economic projects not indirectly related to the railway projects. [The author: Yun Sun]
Kenya: 400 Chinese workers sign deal to run SGR operations (Business Daily)
About 400 Chinese operators have signed a deal with China Road and Bridge Cooperation (CRBC) to be part of the daily operators of Madaraka Express train. The team comprises experienced engineers, security personnel and staff of rail operations from China who will be in Kenya for the next 10 years until the railway operation is handed over to the Kenyan team, according to Kenya Railways Managing Director Atanas Maina. Mr Maina said there are currently 300 local trained personnel manning the train. “We intend to add a few more going forward. This will depend on the volume of business and the skill sets required.”
Outcome of India’s trade deals focus of Nirmala Sitharaman’s first Geneva visit (Mint)
On her first visit to Geneva as India’s trade and commerce minister Nirmala Sitharaman is expected to underline the need to deliver development outcomes of trade deals that would address the asymmetries in the global trading system that deny equitable results to developing and poorest countries, according to people familiar with the visit. Sitharaman, who will be on a two-day visit to Geneva beginning on 18 July, will meet the WTO and UNCTAD chiefs and hold a series of meetings with trade envoys. During these meetings which will last until 19 July, Sitharaman will assess the state of play in the ongoing negotiations on a range of unresolved issues of the Doha Development Agenda as well as controversial new issues being pushed by major industrialized countries along with some developing countries, said a person familiar with her programme. [India’s trade deficit narrows to $13bn in June]
Aid for Trade Global Review 2017: profiled case stories
A total of 145 case stories were received, which included capacity building programmes in trade facilitation, experiences in building trade-related infrastructure, and improving ICT in developing countries. (i) Swedish MFA: Services trade, industrial development and the African Continental Free Trade Area (ii) TMEA: Busia One Stop Border Post, (iii) USAID: Women in informal cross border trade in Southern Africa, (iv) TMEA: Elimination of non-tariff barriers to trade in East Africa
Quick Links: Nigeria: ‘N7tn spent on importation of consumables in 2015’ Uganda: World Bank urged to fund warehousing and logistics system WTO Members reaffirm commitment to Aid for Trade and to development support Klaus Schade: Applaud SADC for progress in regional integration Giture Mwaura: One cannot fault the EAC cost-benefit analysis Sekou Toure Otondi: Regional integration has taken back seat in Kenya’s election. Why does it matter? Ben Murray Bruce: Africa’s future lies in trade, not in aid! |
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The African trade revolution quietly afoot
In a tumultuous year for the global trading landscape, negotiations for a huge Africa-wide free trade area are progressing rapidly.
Across the developed world, longstanding advocates of free trade are in retreat. America has withdrawn from the Trans-Pacific Partnership trade agreement and stepped back from the World Trade Organisation. Meanwhile, a crisis is brewing at the heart of the European single market.
Recognition has grown that the inequalities generated by trade are not being sufficiently addressed. And this has fuelled an anti-trade populism.
Noting these tumultuous trends, international institutions from the OECD to the International Monetary Fund and G20 have sought to reaffirm the benefits of trade and argued against protectionism.
A quiet revolution
Set against this uproar, an African trade revolution is also quietly afoot. The innovation is the Continental Free Trade Area (CFTA). A boldly ambitious endeavour, the CFTA seeks to combine the economies of 55 African states under a pan-African free trade area comprising 1.2 billion people in a market with a combined GDP of $2.19 trillion.
Announced in 2012 by the African Union (AU) heads of state and government, the CFTA is the first flagship initiative of the AU’s Agenda 2063. It will reduce tariffs between African countries, introduce mechanisms to address the often more substantial non-tariff barriers, liberalise service sectors, and facilitate cross-border trade. This will also help rationalise the overlapping free trade areas that already exist within Africa.
The CFTA negotiations are complex. The 55 participating countries span a diversity of economic and geographic configurations. 15 are landlocked, while 6 are Small Island Developing States (SIDS). The biggest (Nigeria) has a GDP of $568 billion, while the smallest (Sao Tome & Principe) a GDP of just $337 million.
Rapid progress
Many outside observers have been quick to cast pessimism upon the project. This is not just because of the challenging world trade environment and complexity of negotiations, but Africa’s history of trade negotiations.
In particular, the Economic Partnership Agreements (EPAs) between the European Union and African regional economic communities have proved an infamous failure. Despite 14 years of negotiations, only one EPA – that with Southern Africa – has been concluded.
With expectations low, the rapid progress in the CFTA negotiations is therefore all the more remarkable. The first negotiating forum was launched in February 2016. Since then, five more negotiating rounds have been concluded.
The most recent, held in Niger, determined modalities for trade in goods and services. It also pronounced a level of ambition to liberalise 90% of tariff lines – substantially more than aspired to in the EPAs – and establish a review mechanism to gradually lift this further.
The remainder of 2017 will see technical working group meetings and two more negotiating rounds to refine market access offers and the legal text of the agreement. The intention is to finish negotiations by the end of this year.
One African chief negotiator commenting at the last negotiating round remarked that he had “never seen negotiations move so rapidly”.
Boosting intra-African trade
These impressive achievements are being realised by political commitment at the highest level and a pan-African resolve to cooperate and compromise. Pan-Africanist forefathers like Kwame Nkrumah would be proud.
Success also derives from a shared belief in the project. Studies by the UN Economic Commission for Africa and UNCTAD identify the potential for the CFTA to boost intra-African trade. This would help diversify Africa’s exports away from a dependence on commodities that is little changed since colonial times.
Intra-African trade is substantially more diversified than Africa’s trade with the outside world. It comprises a greater share of value-added and industrial products such as textiles, cement, soap, pharmaceuticals, and even automobiles from South Africa as well as primary and processed food items. Services such as banking, telecoms, energy and transport are also being traded across borders. The CFTA forms part of an African strategy for industrialising through trade.
Source: CEPI-BACI Trade Dataset, three year average (2012-14).
It could also help piece together Africa’s small fragmented markets to realise economies of scale necessary for industrial investment and growth. Niger’s President Issoufou Mahamadou, the African Union Champion for the CFTA, recently lamented looking upon a map of Africa as a “broken mirror”. The CFTA can help to fix this.
Making it a win-win
The CFTA, however, is no panacea. It must be accompanied by investments in infrastructure, energy and trade facilitation.
This is critical if sufficient jobs are to be created for Africa’s youth. 60% of Africa’s population is 24 or below and about to enter the workforce. Yet a shortage of opportunities contributes to high youth unemployment, poverty rates approaching 70%, and pressures to migrate.
It is also important not to overlook the origins of populist sentiment against free trade elsewhere in the world. Trade produces both winners and losers. The problem is that while gains can compensate losses in theory, that is not happening in practice.
Recognition of this has fuelled rethinking of trade policy across the world. For instance, the Canada-European Union trade agreement (CETA) was reworked following the election of the Trudeau administration to better reflect a new “progressive trade policy”.
The CFTA must likewise be crafted as a win-win agreement that leaves no one behind. Here, the UN Economic Commission for Africa has undertaken a human rights impact assessment of the initiative and advocated for a number of supporting measures.
This includes strategies to protect small-holder farmers and help them integrate into regional agricultural value chains. It calls for improving border controls to help informal cross-border traders, many of whom are women and major players in intra-African trade.
It also demands an approach that benefits Africa’s diversity of countries, including those which are small, island economies, landlocked or fragile states. One way to achieve this is by supporting initiatives for regional value chains and connectivity that have proven successful in Africa’s regional economic communities.
Light at the end of the tunnel
Light shines at the end of the tunnel for the CFTA, but obstacles remain. Implementation is a key but persistent challenge on the continent. To quote Nkosazana Dlamini-Zuma, former Chairperson of the AU Commission, “I don’t think Africa is short of policies. We have to implement. That is where the problem is”.
The commitment and belief shown in the CFTA by African leaders must be seen through for the benefits of the CFTA to be realised.
The reward would appear to be worth it. Africa’s consumer market is the fastest growing in the world. In just over 30 years from now, by 2050, it will comprise a population larger than that of India and China combined. This is the right time to seize the opportunities generated by such a large market.
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EAC officials oppose US bid to review Agoa trade deal over mitumba ban
Senior officials from Rwanda, Tanzania and Uganda argued in Washington on Thursday that their collective phase-out of used clothing (mitumba) imports should not result in any loss of benefits from a US preferential trade programme.
The representatives of the three East African Community (EAC) countries spoke in opposition to an effort by a US business association to restrict their eligibility for the trade initiative known as the African Growth and Opportunity Act (Agoa).
The Secondary Materials and Recycled Textiles Association (Smart) filed a petition with US trade authorities in March urging that the three countries, along with fellow EAC member Kenya, be deemed ineligible for Agoa’s allowance of duty-free textile and apparel exports to the US market.
Lawrence Bogard, an attorney representing Smart, warned at Thursday’s US government inquiry that the association’s member companies would suffer major losses in jobs and revenues if the EAC ban on used-clothing imports is fully implemented.
Partial loss
Mr Bogard also argued that Kenya should be included among the EAC countries facing partial loss of their Agoa benefits.
The top US trade agency had announced last month that Kenya would be excused from the group of countries potentially subject to review of their Agoa eligibility.
That decision was said to be based on “recent actions Kenya has taken, including reversing tariff increases, effective July 1, 2017, and committing not to ban imports of used clothing through policy measures that are more trade-restrictive than necessary to protect human health.”
But the Smart representative suggested on Thursday that Kenya ought to be included in the Agoa eligibility review until officials in Nairobi clarify their commitments.
Smart specifically seeks confirmation that Kenya’s reported imposition of minimum tariffs on containers of used goods “will not be implemented in a manner that negates the July 1 roll-back of Kenya’s tariff increases,” Mr Bogard said.
Kenya would have far more to lose from suspension of its duty-free textile export privileges under Agoa than would any of the other EAC countries.
Kenya sold $394 million worth of textiles and clothing on the US market last year, compared to the total $43 million sum of Agoa trade for Rwanda, Tanzania and Uganda.
The Kenyan embassy in Washington says that 66,000 jobs in Kenya are linked to Agoa’s textile-export provisions.
The opposing parties presented their comments to a panel of representatives of six US government agencies: the departments of Commerce, Labour, Treasury and State, as well as the US Agency for International Development and the Office of the US Trade Representative.
Kenya was not represented at the hearing.
‘America First’ policy
Looming over the three-hour session before a standing-room-only audience was the Trump administration’s “America First” policy.
The US president has vowed to oppose any trade initiative that he deems injurious to American interests.
And Smart sought on Thursday to depict the EAC ban on used-clothing imports as a threat to thousands of US jobs.
The hearing chaired by Constance Hamilton of the US Trade Representative’s office was contentious at times.
She and other US officials challenged the East Africans’ insistence that the agreed-upon three-year phase-out of used clothing imports did not amount to a “ban.”
A member of Uganda’s delegation at the hearing also insisted that Tanzania’s and Uganda’s doubling of levies on used-clothing imports – from $0.20 to $0.40 per kilogramme – was not a “tariff increase” but rather a “realignment.”
Ms Hamilton also pointedly asked how Rwanda’s increase from $0.20 to $2.50 per kilo could be seen as consistent with the rules of the World Trade Organisation.
A Rwandan representative replied that the increase would be in effect for only one year.
Washington-based trade consultant Stephen Lande asserted that the hearing should not have been convened at all.
Taking the side of the East African representatives, Mr Lande told the panel that the US Congress intended that such official inquiries should be held only when “all other possibilities have been exhausted.”
Consultations failed
Ms Hamilton responded that prior consultations had failed to resolve the issue at hand.
She added that “Smart has the right” to petition for punitive action against countries alleged to be violating Agoa rules.
Some of the statistics presented by Smart also differed markedly from those offered by EAC representatives.
Mr Bogard put the total annual value of US used-clothing exports to the EAC countries at $124 million. A Ugandan official said the total is about $30 million.
EAC countries’ representatives also disputed Smart’s contention that the used-clothing action violates two of Agoa’s eligibility criteria.
The 17-year-old programme requires participant countries to have achieved “elimination of barriers to US trade” or be making progress in that direction.
Agoa also stipulates that benefit-recipient countries should be moving toward a “market-based economy.”
‘Market forces’
Ms Hamilton asked at one point why the EAC countries don’t let “market forces” determine consumers’ clothing choices.
A Ugandan official replied that market forces should be determinants but should also be “guided” when necessary.
The EAC countries decided to adopt the used clothing import phase-out as a means of encouraging development of their own textile manufacturing sectors, said Uganda Trade Minister Amelia Kayambadde, who spoke in her capacity as chair of the EAC’s Council of Ministers.
“Industrialisation is a strategic pillar of EAC integration,” Ms Kayambadde said.
“The heads of state decided that textiles and footwear manufacturing is a priority.”
Growth of those sectors will likely create many more jobs in East Africa than will be lost through the shutdown of local businesses involved in the used-clothing trade, the EAC representatives argued.
Apparel manufacturing involves “a long value chain,” Ms Kayambadde noted.
She suggested that jobs would be produced all along it in the form of cotton growing, ginning, weaving, garment manufacturing, leather tanning, shoe making and retail businesses.
Asked by US panel members to provide studies showing such an outcome, EAC representatives said such analyses are being undertaken.
They meanwhile offered anecdotal responses.
‘New clothing’
A Ugandan official said “Kenya has found a big, big appetite for new clothing and goods produced within the region.”
Ms Kayambadde concurred that throughout the EAC “the demand is now for new clothing.”
East Africans, she said, “want a new life. People are able to afford to buy new things.”
Mr Bogard argued on Smart’s behalf that the ban on used clothing imports will be more likely to benefit Asian producers of low-cost garments than East African entrepreneurs seeking opportunities as textile manufacturers.
Loss of Agoa textile-export benefits would harm not only the EAC countries themselves but also US clothing manufacturers operating in East Africa, said Jeremy Lott, president of San Mar Corporation.
His firm based in the western US employs 4,000 Americans and hundreds of Tanzanians, Mr Lott told the panel.
San Mar manufactured more than 10 million shirts at its Tanzanian facilities last year that were subsequently exported to the US, he noted.
“An abrupt end of Agoa eligibility for Tanzania would force us to move production to China,” Mr Lott warned.
He said that members of San Mar’s mostly female workforce in Tanzania are paid at rates five times the national average income.
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Uganda and the EAC should stand firm on the decision to progressively phase out second hand clothes
Civil society organizations under their umbrella “Working Group on Trade & Development” have requested the government of the republic of Uganda and the East African Community (EAC) in general to completely phase out the importation of second hand clothes into the region. The request was echoed through a press conference held at the SEATINI-Uganda offices in Bukooto on 13 July 2017.
They brought out facts that the heads of state on 20th February 2015 directed the council of ministers to study modalities for the promotion of textile and leather industries in the region. The decision arose out of the need for the EAC to advance a market driven towards integration by boosting manufacturing and industrialization.
It is on this note that Amb. Nathan Irumba, the executive director SEATINI Uganda, requested the government to seriously support both financially and policy wise the growth of the cotton textile and apparel sector.
Susan Nanduddu, the Executive director ACTADE believes that by phasing out these second hand clothes, the realization and achievement of the president’s vision of 2040 will come true. “I believe that the parliament of Uganda shall bring that bill back to table and push for a complete ban on second hand clothes said Nanduddu. Our administrators should consider the citizens dignity of not wearing under garments (underwear) which have already been worn by Americans”.
In addition she stated that women in Uganda play a big role in the agriculture and textile industry, i.e. knitting which comes as an added advantage and therefore a need to revive these sectors.
“It should be noted that a couple of years back in Uganda, citizens used to have “Jinja clothes” not because of the brand “Jinja” but as a result of being locally manufactured in Jinja,” said George Magimbi, a policy officer at Uganda Manufacturing Association.
He emphasized that government should support the cotton and textile industry since these sectors can greatly curb unemployment levels especially among the youths & women as well as producing sustainable and decent economic growth in the country. Therefore to achieve the vision 2040, there is need to promote local industries through the “Buy Uganda Build Uganda (BUBU)” campaign and therefore a need to ban second hand clothes.
AGOA should not be used as a dumping mode to Africa but rather a channel for development. With the increased purchase of second hands in Uganda, the question that needs to be addressed is whether Ugandans will afford the locally produced clothes. However if we are to move forward, we need to insist on standards.
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The UK’s Repeal Bill: Exiting the EU with certainty
The Repeal Bill is designed to ensure that the UK exits the EU with maximum certainty, continuity and control.
The Government on 13 July 2017 took the next step in returning power from Brussels to the UK by introducing the European Union (Withdrawal) Bill.
Known as the Repeal Bill, it is designed to ensure that the UK exits the EU with maximum certainty, continuity and control. As far as possible, the same rules and laws will apply on the day after exit as on the day before.
This will allow the UK to leave the EU while ensuring that our future laws will be made in London, Edinburgh, Belfast and Cardiff.
For businesses, workers and consumers across the UK that means they can have confidence that they will not be subject to unexpected changes on the day we leave the EU. It also delivers on our promise to end the supremacy of EU law in the UK.
The Secretary of State for Exiting the European Union, David Davis, said:
“This Bill means that we will be able to exit the European Union with maximum certainty, continuity and control. That is what the British people voted for and it is exactly what we will do – ensure that the decisions that affect our lives are taken here in the UK.
“It is one of the most significant pieces of legislation that has ever passed through Parliament and is a major milestone in the process of our withdrawal from the European Union.
“By working together, in the national interest, we can ensure we have a fully functioning legal system on the day we leave the European Union.
“The eyes of the country are on us and I will work with anyone to achieve this goal and shape a new future for our country.”
The Repeal Bill is a mechanism to achieve three simple aims:
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Repeal the European Communities Act, remove supremacy of EU law and return control to the UK.
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Convert EU law into UK law where appropriate, giving businesses continuity to operate in the knowledge that nothing has changed overnight, and providing certainty that rights and obligations will not be subject to sudden change.
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Create the necessary temporary powers to correct the laws that no longer operate appropriately so that our legal system continues to function outside the EU.
The Bill sets out how we will prepare our statute book for exit but will not make major changes to policy or legislation beyond what is necessary to ensure the law continues to work properly on day one.
As we exit the EU we want to ensure power sits closer to the people of the UKthan ever before. The Bill will ensure that nothing changes for Scotland, Wales and Northern Ireland – they will not lose any of their current decision-making powers.
The Government expects there will be a significant increase in the decision-making power of each devolved administration.
As powers are repatriated from the EU, the Government will ensure they are exercised within the UK in a way that ensures no new barriers to living and doing business within the UK are created. This will protect the UK internal market, ensuring we have the ability to strike the best trade deals around the world, protect our common resources, and fulfil our international obligations.
The Government has already made clear that as the Bill affects the powers of the devolved administrations and legislates in devolved areas, we will seek the consent of the devolved legislatures for the Bill. We would like all parts of the UK to come together in support of this legislation, which is crucial to delivering the outcome of the referendum.
The Bill will also provide the Government with a limited power to implement elements of the withdrawal agreement we expect to reach with the EU before we exit.
We are clear we want a smooth and orderly exit and the Bill is integral to that approach.
To ensure we are prepared for the process of withdrawal from the EU, the Government will also introduce a number of Bills over the course of the next two years including a Customs Bill and an Immigration Bill.
The Repeal Bill means we can make corrections to EU law so that it functions as UK law – this could involve changing a reference to a particular piece of EU law or transferring important functions from EU institutions to UK institutions, depending on the outcome of the negotiations. Allowing corrections to be made quickly will provide certainty for business.
Position papers published ahead of July negotiation
Position papers outlining how the UK will negotiate on important issues related to Brexit – and take steps towards fostering a new deep and special partnership with the EU after we leave – have been published.
Ahead of the second round of negotiations next week, the documents lay out the UK’s approach to issues related to our withdrawal from the EU on:
Each of the papers will be presented to the Commission for discussion next week.
Secretary of State for Exiting the European Union David Davis said:
“These position papers mark the fair and transparent way that the UK is approaching Brexit negotiations ahead of the second round of talks next week – and demonstrate how deciding the shape of our future partnership with the EU is inextricably linked with our withdrawal talks.
“While we’re leaving the EU we are not leaving Europe, and we want to continue cooperating with our friends and neighbours on issues of mutual importance including nuclear safeguards.
“By ending the jurisdiction of the Court of Justice of the European Union, UK courts will be supreme once more. Our sensible approach to pending cases means there would be a smooth and orderly transition to when the court no longer has jurisdiction in the UK.”
The papers can be viewed on our Article 50 and negotiations with the EU microsite here.
» Plan for the UK leaving the EU: Prime Minister’s letter to Donald Tusk triggering Article 50
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Aid for Trade Global Review 2017: Sample case stories
Ahead of the Aid for Trade Global Review 2017, a monitoring and evaluation exercise was conducted to survey Aid-for-Trade results and priorities. The monitoring exercise invited the public and private sectors to submit case stories about Aid-for-Trade projects under the theme of “Promoting trade inclusiveness and connectivity for sustainable development”.
A total of 145 case stories were received before the cut-off date, which included capacity building programmes in trade facilitation, experiences in building trade-related infrastructure, and improving information and communications technologies (ICT) in developing countries. A sample of these case stories is provided below. The full collection of submitted case stories is available here.
While the WTO does not deliver the development assistance itself, the organization instead has a mandate to promote coherence between trade and development. As such, the WTO works to encourage additional flows of Aid for Trade, advocates for the integration of trade into national and regional development strategies, and monitors the impact of the financing of various donors on the ground.
Services Trade, Industrial Development and the African Continental Free Trade Area
Ministry for Foreign Affairs, Sweden
The Swedish Government has engaged with tralac – a capacity-building organisation developing trade-related capacity in Africa – since 2010 in order to promote, inter alia, regional economic integration. The African Continental Free Trade Area (CFTA) negotiations were launched in July 2015 and early on, tralac identified the need to engage proactively with the CFTA process to increase services trade capacity and to advance thinking about services trade for industrial development. Through numerous policy relevant studies and workshops, tralac have directed resources towards capacity development and thought leadership on trade in services. Key components have been the production of high-quality and timely research, interactions with many of the key stakeholders and presentation of the data in a non-technical manner. There has been a clear demand pull for further work and it is likely to contribute to an integration of CFTA provisions on services with strategies of investment generation, industrial development and regional integration.
Objective of tralac’s Work on CFTA, Services and Industrial Development
To increase services trade capacity and to advance thinking on the continent about services trade, since the launch of negotiations, the aim of tralac has been to direct further efforts and resources towards capacity development and thought leadership on trade in services. Combined with the centre’s existing work on industrial development and trade, this has enabled them to develop a strong base for several initiatives. A particular ambition of the analysis has been to present the data in a non-technical manner to be accessible to non-services experts.
Activities and Key Messages
tralac supports the concurrent negotiation of trade in goods and services, and have undertaken studies and communicated these through various fora in order to inform the development of several key messages for trade policy makers, negotiators and other trade policy stakeholders on the continent.
First of all, following the decision by the African Union Assembly in January 2012 to expeditiously establish a Continental Free Trade Area (CFTA), tralac contacted the African Union Commission (AUC) and organized a one-day open discussion on the implications of this decision. This workshop took place in Addis, Ethiopia in April 2014. Subsequently, a series of papers were produced on aspects of the CFTA for Africa; these were distributed directly to the AUC in addition to the tralac network of subscribers across African countries and further afield, as well as more than 1500 twitter followers. Members of the AUC have been invited to the tralac Annual Conference since 2014. Requests for 3 further analysis, focusing on legal and institutional matters, on options for trade in services negotiations modalities followed in 2015, as did requests for tralac staff to contribute to training programmes on services and legal issues. Since then tralac participated in the preparation of a draft CFTA Agreement through workshops in May and September 2016.
Outputs and Key Messages
Firstly, a very comprehensive study of trade in services for African countries was done (available here). Other efforts include:
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Quantitative work on the economic impact of services trade restrictions
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Analytical work on services negotiations modalities
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Analytical work on specific services sectors including transport, tourism and financial services
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Analytical work on movement of persons
In summary, the key messages have been:
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New approaches, in line with current international practice, that are more cost-effective and efficient in terms of negotiating effort and more integration enhancing in terms of potential outcomes should be considered, in light of the appropriateness (or not) of approaches and modalities adopted by the WTO and the regional economic communities for the negotiation of trade in services agreements in this day and age on the continent.
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Private sector interests associated with international production networks increasingly require a new approach to trade negotiations away from the traditional focus on market access to measures affecting production behind the border, with emphasis on regulatory issues.
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Global value chains and digital connectivity mean that services cannot be considered alone – services must be considered with goods, and domestic regulation must be considered with services. Movement of people is also an essential consideration.
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It is through effective implementation of the market integration agenda that regional industrial development can be promoted particularly through better functioning of regional value chains.
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In the 21st century support services are an essential component of modern industrialisation; it is not possible to be competitive in manufacturing without competitive services inputs.
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Industrialisation in the 21st century is about complex economic linkages and relationships that transcend traditional policy, industry/sectoral and geo-political boundaries. African industrial development is occurring in a globalised environment and the inputs into that development will not be found solely inside the borders of any one country or continent.
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Africa’s infrastructure development programme (Programme for Industrial Development of Africa – PIDA) has to be complemented and supported by a trade in services agenda that emphasises regulatory reform/harmonisation/cooperation; after all it is the services associated with infrastructure such as road/rail/fibre networks that are inputs to production processes, to support industrial development and diversification.
tralac have engaged two expert volunteers on financial services and information communication and technology to deepen our capacity for both our training and our research. This has enabled tralac to refine our messages particularly on the importance of the regulation to trade and the development of core support services for industrial development.
For example, in the case of IT services, our observations and experiences indicate that Africa is facing significant challenges in providing ICT services and universal, affordable access. A unified approach towards a “digital single market” will not only assist in increased trade within Africa, but also strengthen Africa’s position in global trade. How have these messages been delivered?
tralac have built capacity and refined and shared the policy conclusions through the delivery of various workshops and presentations on services trade policy and industrialisation in the 21st century in the context of the CFTA.
tralac have presented to a wide range of public and private forums, including in discussions with:
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Lesotho’s Departments of Trade and Finance
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Namibia’s Departments of Trade, Finance and ICT
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Regional economic communities including SADC and COMESA
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African Union Commission, UNCTAD, UNECA
In other words, tralac has early on and throughout the CFTA process identified a both economically and politically relevant research agenda. This engagement will continue as negotiations intensify.
Outcomes and impact
tralac proactively got involved in the policy agenda and early on made sure to ensure have an impact on the CFTA negotiation process by engaging with key stakeholders and delivering messages in a timely as well as non-technical manner. It is clear that the demand for high-quality, policy-relevant and accessible research led to a continuous interest in tralac’s work, likely to contribute to well-formulated CFTA provisions on services that work with countries’ strategies of investment generation, industrial development and regional integration.
The data demonstrated the important forward and backward linkages of services in value chains, linking the debate to the fundamental challenges of Africa’s industrialisation.
Negotiations for the CFTA are ongoing, so one is not yet able to gauge how the messages have influenced the negotiating agenda. However, it is safe to say that tralac have generated debate, stimulated further engagement and given workshop participants the tools and knowledge to engage with a 21st century services trade and industrial policy agenda.
Busia One Stop Border Post (OSBP)
TradeMark East Africa
Busia is a busy border post connecting Eastern Uganda and Western Kenya, with a daily average of 210 trucks crossing to Uganda and 30 crossing to Kenya in 2013. This project aimed to reduce the time taken to cross the border by combining border clearance activities in a single location, simplifying clearance procedures, increasing coordination of controls and sharing data. A survey conducted in June 2016 showed that the average time it took to cross from Busia Uganda to Busia Kenya was reduced by 80% from 2011 while crossing in the reverse direction took 79% less time than in 2011. The World Bank’s East African Trade and Transport Facilitation Project supported the Government of Uganda and tapped the help of TradeMark East Africa. Funding was also provided by the United Kingdom, USAID and Canada according to the case story submission.
Efforts to stimulate intra-regional trade in Africa have traditionally focused on improvement of transportation infrastructure such as construction of roads, rails, ports, power and ICT. Of equal importance to complement these initiatives is the extent to which the flow of goods and movement of people along the regional trade routes is facilitated.
OSBPs enable the EAC region to improve cross border procedures leading to creation of new possibilities for economic growth and people mobility across borders. In East Africa, most border points, are a hall mark of mostly small buildings scattered across any given area, catalysed by long queues, lengthy and duplicate processes. This consequently leads to longer transit times at the borders by both people and cargo. OSBPs have made it possible to bring under one roof, various government agencies from neighbouring countries. OSBPs enable border agencies from neighbouring countries to perform joint controls that result in benefits to security, trade facilitation and human mobility. OSBPs facilitate mobility of persons and, by reducing time loss, can also reduce the cost of transport for shippers and goods to final markets accruing economic benefits across the national economic spectrum.
Uganda is keen on increasing the ease of inland transit of goods, people across borders as that is paramount to improving its competitiveness and increasing its trade to the region. World Bank’s East African Trade and Transport Facilitation Project, supported the Government of Uganda with UGX 18.5 million spread over a 4-year period, to implement the Busia OSBP. World Bank later transferred the project to TradeMark East Africa, which has overseen the completion and operationalisation of the Busia OSBP with a target of reducing the average border crossing time by 30%.
Results
Border Crossing Time Reduction: A TMEA Time and Traffic Survey, conducted in June 2016 shows significant results have been achieved due to operationalization of the Busia Uganda OSBP. The average time it takes to cross from Busia Uganda to Busia Kenya has reduced by 80% as a result of the operationalization (seventeen minutes for trucks, against a baseline of one hour, twenty six minutes in 2011) while the average time to cross from Busia Kenya to Busia Uganda has recorded a 79% reduction (two hours fifty seven minutes against a baseline of fourteen hours twenty minutes in 2011). Customs processing time for Busia Kenya reduced by 98% and for Busia Uganda by 69%.
Revenue inflows enhanced: The URA officer in charge of the Busia station, Mr. Ssozi Geoffrey indicated that since April 2016, there has been a UGShs 20Bn increase in revenue collected (from an average of UGShs 50Bn to UGShshs.70bn).Importers have benefited from faster clearance processes through taking advantage of increased round trips and increased storage space, among others.
Increased cooperation and coordination of controls: Border agencies are now more efficient as they are able to share resources such as office space and related equipment which has made them more efficient. The Ministry of Agriculture and Animal Industry had for instance never before had a computer in their offices at the border, which the TMEA support facilitated them with. Collaborating agencies as well as the business community like Uganda Clearing Industry and Forwarding Association (UCIFA) are all housed in one centre which has other amenities including restaurants that are leased out and generate income to run the facility in the future.
The border agencies have also been trained to manage the border processes, and now jointly examine imports and exports. They have developed a common risk targeting profile to deal with any deviations.
Dedicated clearance process for Cross Border traders: Through increased engagement and collaboration with small cross border traders during the planning and implementation process, an introduced dedicated clearance process has improved their clearance processes and times. The Small Traders association has offices which coordinate their activities within the premises, providing services that include the provision of trade information to members and assistance in supporting traders to clear goods.
Regional Integration Centre created: Working with the Ministry of East African Community Affairs (MEAC), TMEA has facilitated the development of a Regional Integration Centre which has facilitated the dissemination of information on regional integration including information on Rules of Origin and the Common Market Protocol.
Improved facilities: The OSBP has warehousing facilities for small cross border traders to temporarily store merchandise as they wait to clear taxes. Through their association, they are now able to consolidate goods and hire one truck to a particular destination, thereby saving on transport costs.
The provision of housing for staff working at the border has enhanced security and increased staff motivation. The improved working conditions are a great boost to worker productivity. Mr. Simon Tumwesigye, Customs Supervisor Busia said “…the improved conditions are not only in terms of improved living conditions but their installation of other systems like ASYCUDA World which has allowed for real time client interaction with URA and the incentives for some companies to be on Authorized Economic Operator listing, as well as the privilege to serve more satisfied and happier clients will even be better.”
Detention centres that are gender disaggregated were built as well as public toilets. The improved facilities cater for the physically challenged, and women with children.
Elimination of non-tariff barriers to trade in East Africa
TradeMark East Africa
NTBs present a serious challenge to trade with an EAC wide cost estimate (2010) being approximately US$ 490 million. This case study highlights progress of TMEA’s NTB projects in reducing the time taken and costs involved in trading along the key corridors in East Africa. Results indicate a significant number of NTBs have been identified (112) and removed (87) (EAC Time Bound Programme on the elimination). There have been reductions in both the time taken, and costs involved, in trading across borders in the EAC in recent years. TMEA’s support in NTBs elimination, among other initiatives in the region such as the establishment of One Stop Border Posts, port capacity improvement, and transport logistics improvements have contributed to the results.
Work with NMCs
EAC Partner States established the NTB Monitoring Mechanism in 2007, in an effort to strengthen the efforts to monitor the occurrence of NTBs, as envisaged in the EAC Treaty and the Customs Union Protocol. The mechanism provided for the establishment of National Monitoring Committees (NMCs) on NTBs, with the responsibility of identifying, monitoring and facilitating the elimination of NTBs. TMEA’s elimination of NTBs programme supported the NMCs at the national and regional level to monitor the occurrence and resolution of NTBs. This stemmed from the fact that previously (pre-2010), the NMCs were not effective and efficient in leading the NTB elimination process due to various constraints.
The NMCs were launched in 2007 and 2008 in all Partner States. NMCs have membership across the private and public sectors. They are usually chaired by a representative from the ministry responsible for trade or EAC Affairs, and the vice chair is usually from a private sector business member organization (BMO). This ensures that the private sector has a channel to table the NTBs they come across while conducting business across the region. Later, they developed the Time-Bound Programme for elimination of NTBs, which was approved by the Council of Ministers in September 2009. All NMCs meet quarterly, in what is referred to as the Regional Forum, to update the Time-Bound Programme on the elimination of NTBs. In this forum, the private sector reports NTBs, and timelines are set for their elimination.
Previously, NMCs were not vibrant, and could not meet frequently enough, thereby denying the private sector the opportunity to report NTBs encountered.
Bilateral channels: In addition to supporting regular regional meetings for the NMCs, TMEA has supported the use of bilateral channels by NMCs have been used for the resolution of NTBs. Partner States have been engaged a number of formal and informal bilateral negotiations which have led to the resolution of NTBs, and this illustrates a different, successful way of resolving NTBs.
Online NTB reporting at the regional level: TMEA also provided financial support to the EAC Secretariat by hosting the Tripartite online and SMS reporting system. This is a COMESA-SADC-EAC website where NTBs are reported in real time, and an administrator follows up with national focal points for resolution. This is a faster way to report and resolve NTBs as members do not need to wait for the quarterly forum to report NTBs. The system is currently being supported by the African Development Bank, but TMEA continues to have close partnerships with the administrator.
SMS NTBs reporting at the national level: At the national level, TMEA has supported three countries in the EAC namely Rwanda, Tanzania, and Uganda, to implement SMS NTB reporting systems. Tanzania has an award winning electronic NTB reporting system. It was designed and implemented by the Tanzania Chamber of Commerce, Industry and Agriculture (TCCIA) and has been operational since 2014. TCCIA spearheaded the system, with existing staff designing it and operating it. The electronic NTB reporting system enables the private sector to report, monitor and use information as evidence to advocate for the removal of NTBs and allows the public sector to analyse and understand the extent and scope of NTBs encountered. Complainants access the system via SMS by dialling a given number, through which the can also get a status update on their case. It provides a “real-time”, efficient and cost effective means of reporting and monitoring NTBs, allowing traders to track progress on a reported case. There were 181 NTB entries in 2014/15.
Awareness Raising and Sensitisation: Over 400 stakeholders have participated in awareness raising and training sessions, ranging from traders at border crossings, to officials of the Uganda Revenue Authority and apex lorry drivers associations. In Tanzania, at least 245 freight forwarders, transporters and traders have been exposed to NTB awareness raising, with an average about 35% of participants at events being women.
Increase in identifying and resolving NTBs
There has been significant progress in identifying NTBs with approximately 47 identified in 2010 (at the onset of the TMEA programmes) and 112 identified by 2015. Out of the 112 identified NTBs, 87 have been resolved to-date. Removal of NTBs is the explicit objective of the NTB projects and this has been achieved through a combination of work by the EAC Secretariat and NMCs; as well as bilateral negotiations between countries.
The World Trade Organisation categories of NTBs include, government participation in trade and restrictive practices tolerated by the government, customs and administrative entry procedures, technical barriers to trade, sanitary and phytosanitary measures, specific limitations, charges on imports and other (procedural problems). Looking at the matrix, 45% of the resolved and 28% of the unresolved NTBs in the EAC are associated with customs and trade facilitation measures.
An assessment of the latest version of the EAC Time Bound Programme on Elimination of identified NTBs reveals the following indicative trends:
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Resolved NTBs – Work is in progress in Tanzania to install modern weighbridges supported by weigh-in-motion technology at Vigwaza, Manyoni and Nyakahura, which would further reduce the number of weighbridges along the Central Corridor to 3. On the Northern Corridor there are currently 8 weighbridges of which 4 are located in Uganda (Mbarara, Lukaya, Magamaga and Busitema) and 4 in Kenya (Webuye, Gilgil, Mlolongo/Athi River and Mariakani). This follows a successful reduction from 6 to 4 in Kenya (removing weighbridges at Eldoret and Mai Mahiu). In both Kenya and Uganda, permanent police road blocks have been largely eliminated.
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Unresolved NTBs – the countries that reported the most NTBs in the EAC Time Bound Programme on Elimination of Identified NTBs which remain unresolved are Rwanda and Kenya. Some of the unresolved NTBs relate to existing laws that require legal reforms and so require protracted change processes. A minority of unresolved NTBs have remained unresolved for a long period.
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New NTBs – during the 21st EAC Regional Forum on Elimination of NTBs held in June 2016, the EAC Secretariat reported 6 new NTBs. New NTBs continue to be an issue as Partner States formulate and implement new laws and regulations that aim to achieve legitimate public policy objectives. As mentioned, there is an urgent need to discourage Partner States from introducing new NTBs – through compliance mechanisms in the NTB Act. A number of resolved NTBs t re-emerge as existing and so need to be resolved again. This could be addressed through stringent enforcement mechanisms.
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Regional – There has been significant progress in the number of NTBs that have been identified (112) and resolved (87) through the EAC Time Bound Programme on Elimination of Identified NTBs supported by TMEA – in a large part due to work undertaken by the NMCs and EAC Secretariat since the onset of TMEA support from 2011.
Harmonization of road tolls: The Rwanda NTB project supported development of diagnostic studies including the “Rwanda Road Freight Industry Competitiveness Study 2014” which was commissioned by the Ministry of Trade and Industry. A key finding was that high road tolls in neighbouring countries, especially Tanzania, were causing a decline in Rwanda’s share of the road freight market. For example, a Rwanda registered truck entering Tanzania was charged US$500 while a Tanzania registered truck entering Rwanda charged only US$152. Policy makers used these finding to broker an agreement with the Government of Tanzania, This process then resulted into harmonisation of road tolls at US$152 saving an estimated US$800,000 for Rwandan transporters. A costs and benefits analysis of the Rwanda NTB project indicates that this activity saved an equivalent of 44% of the total budget of the Rwanda 5-year NTB project and is a saving that may continue into the future.
Women in Informal Cross Border Trade in Southern Africa
Banyan Global / USAID
As a part of the Southern Africa Trade Hub project, USAID conducted a gender assessment on informal crossborder traders (ICBTs) in southern Africa. The assessment included a literature and policy review, as well as field research carried out in two border areas: the Mwanza border in Malawi and the Kazungula border in Botswana. The final report from the assessment entitled, “Women Informal Cross-Border Traders in Southern Africa: Contributions, Constraints, and Opportunities,” examines the constraints, challenges and opportunities experienced by women ICBTs in doing business and interacting with officials at border crossings. The report highlights that women comprise 70-80 percent of informal cross border traders in the southern Africa region and that ICBT contributes to women’s livelihoods – both at the individual and household level – as well as food security and national and regional economic growth and trade.
Case story
The regional USAID-funded Southern Africa Trade and Investment Hub worked to improve international competitiveness, intra-regional trade, and food security throughout Southern Africa. Recent experiences in trade liberalization and their impacts on gender equality made a strong case for the need to incorporate gender perspectives into overall trade facilitation policy, design and implementation. The inclusion of gender perspectives was an essential element of the project with the potential to address social, cultural, and economic aspects that have influence on gender inequality and marginalization of women.
As a part of the Trade Hub’s gender integration strategy and its efforts to improve trade facilitation, USAID conducted an assessment on women ICBTs in Southern Africa, a group whose valuable contribution to trade in sub-Saharan Africa remains largely unrecognized and often ignored. The main research objective was to learn about existing constraints and challenges experienced by women in informal cross border trade, especially at border posts and make recommendations and identify possible opportunities to reduce and/or address identified constraints. This would include examining women traders’ knowledge of current regulations on trade, immigration and customs policies and regulations that are relevant for their businesses. The assessment was designed to provide a better understanding of the profiles of women ICBTs, including education levels, age, fertility rates and marital status. The report would also illustrate the various economic benefits of cross border trade for women, and the contributions ICBT makes in lives of women traders to national economies, to regional food security, and peace and security.
The assessment includes a literature and policy review, as well as field research carried out in Malawi and Botswana using a rapid-appraisal methodology. For field research, the team visited six borders for field research: two between Malawi and Mozambique and four between Botswana and its neighbors, Zambia, Zimbabwe and Namibia. The rapid appraisal included interviews with 36 ICBTs. Of these, 26 (72 percent) were women (including 24 in focus groups and two in special case studies), and 10 (28 percent) were men. In addition, 15 key informant interviews were carried out with members of trade associations and border agents and officers.
The final report examined women’s role in informal cross border trade across Southern Africa and the gender constraints experienced by women ICBTs. The report found that these constraints include higher transaction costs; lack of access to information on procedures, rights, and processes; and limited access to transportation. The report also illustrates how the lack of physical security at border crossings increases the vulnerability of women ICBTs to harassment and different forms of gender-based violence (GBV), including sexual coercion, exploitation, and harassment often by border agents, while staying overnight at borders, or in transit to/from borders.
Key findings include:
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Trade facilitation: ICBT is incredibly fluid and efficient when compared with formal trade in Africa. In the region average custom delays can be up to 12.1 days – the longest in the world. In contrast, when the research team observed a line of ICBTs in Malawi and Botswana, customs officials stated that all would make it through in several hours on average.
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The Profile of Women ICBTs: From the literature review, the research team found that sources estimate women comprise 70-80 percent of ICBTs. The assessment found that contrary to stereotypes, women ICBTs are not undereducated. For example, 82 percent of Malawi women ICBTs have at least secondary or higher education. Many of the women included in the field research were heads of their households (HoH), either because they were not married, they were widowed, divorced, or separated, or their husbands had jobs in other locations – de-facto HoH. For many, being ICBT was not their only job – many had other formal or informal jobs, including working as retailers. These ICBTs would sell the goods they bring back directly – in shops, in formal and informal markets, from their homes, or through their other jobs.
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Contributions: The research team found that women traders, regardless of marital status, control their own businesses and are generally able to exercise decision-making control over incomes derived from ICBT. The assessment found that ICBTs work contributes to increased decision-making and that most women used funds from ICBT to pay for school fees. In addition, women’s incomes make significant contributions to family health, nutrition, food security, and housing. Moreover, ICBT contributes substantially to economies in Southern Africa. The assessment highlights that ICBT can contribute between 30 to 40 percent of intra Southern Africa Development Community trade and ICBT in Southern Africa is valued at $20 billion a year. Women ICBT’s role in food security is crucial as traders typically trade from areas of surplus to shortage, and fluidity and exchange across borders and among populations and groups can also promote peacebuilding and conflict mitigation.
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Constraints: The assessment found several key constraints for women ICBTs. While free trade area has helped ease border taxes in Common Market for Eastern and Southern Africa region, there are still a range of taxes and charges, many which are quite costly for traders. Additionally, inadequate access to finance and financial resources is a chronic problem for women ICBTs; 80 percent of ICBTs obtain capital from informal sources and rotating savings clubs are highly popular. A key finding from field research is the enormous information gap between ICBTs and border agents. Many Malawi revenue authorities (MRA) insisted that customs rules are clear, but ICBTs disagree and expressed concerns about being harassed, cheated and overcharged by MRA. Many ICBT’s also complained of high rates of GBV to, from, and at borders.
Lessons learnt
The report successfully examined constraints, challenges and opportunities experienced by women involved in ICBT, especially at border posts. The report found that women ICBTs face a number of obstacles, including sexual harassment or coercion in some countries or borders (including Malawi’s Mwanza border with Mozambique), and sometimes unique risks, such as using wild animal corridors to avoid certain borders (e.g., in Northern Botswana). In addition to these constraints, the study also found that many women ICBTs have developed cooperative mechanisms that help them professionally – and which also help the flow of Southern Africa trade. For example, they will look out for each other’s safety on the road, and typically they belong to one or more “savings clubs” they have created to provide access to short-term working capital.
The principal constraint was limited time in the field. This research was carried out at in the final months of the Trade Hub project, and this limited the scope of the research, in addition to both the number of countries included and the amount of time allotted for fieldwork and analysis. It is hoped that a number of proposed recommendations can be taken up by the follow-on USAID-funded Southern Africa Trade and Investment Project and other key regional, international, and national stakeholders working on trade issues in Southern Africa.
Another constraint for the research team was not being able to interview “front-line” border officials from Customs, Immigration, and Police. In both Malawi and Botswana, the chief customs officer facilitated access to high-ranking officials of these services, but did not offer to set up interviews with the lower-ranking “front-line” officials who interact with border crossers – perhaps because the subject matter is sensitive. This limitation of the present research should be remedied in subsequent research on ICBTs in general and women ICBTs in particular.
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WTO Members reaffirm commitment to Aid for Trade and to development support
WTO members reaffirmed their commitment to the Aid for Trade initiative and to the development dimension of the organization at the closing session of the Aid for Trade Global Review 2017 on 13 July. They underscored, in particular, the important role this exercise plays in helping developing and least developed countries (LDCs) improve their capacities to connect to global markets and lower trade costs.
“There has been a great sense of energy around the Global Review – and this is reflected in the numbers,” WTO Director-General Roberto Azevêdo said at the closing session of the three-day event. “Over these 3 days we have seen over 1,500 attendees, 55 sessions and hundreds of pages of analysis. We have had a lively and informed debate, looking at the importance of Aid for Trade, and the direction of the initiative in the coming years. This high level of interest underlines the significance of this work.”
Dedicated to the theme of “Promoting Trade, Inclusiveness and Connectivity for Sustainable Development”, the Global Review provided a platform for high-level discussions on the Aid for Trade initiative, which has made a significant impact in its decade-long existence:
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almost 300 billion dollars has been disbursed in Aid for Trade support since 2006;
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the latest data available from 2015 shows disbursements reached 39.8 billion dollars that year – the highest amount for a single year so far;
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146 developing countries have benefitted from this support to date – mainly in Africa and Asia - with 27% of the total going to LDCs.
In his closing remarks, DG Azevêdo stressed the importance of reflecting on what has been achieved so far and asked for the progress to be analysed to make sure that the programme remains relevant to members' needs.
“I see a close synergy and correlation between Aid for Trade and the Sustainable Development Goals (SDGs),” he said. “Achieving economic growth is a key objective for both initiatives. In fact, the SDGs call for an increase in Aid for Trade support for developing countries, particularly LDCs. So we must ensure that Aid for Trade continues to deliver more and better – and that we improve our coordination across the international community.”
DG Azevêdo called upon members to look more closely at the range of specific needs of LDCs and to ensure those needs are being met, while considering the possibility of directing help in specific sectors, such as tourism – only 1% of Aid for Trade support goes directly to that sector, but for many LDCs tourism represents over 10% of GDP.
Looking forward, DG Azevêdo echoed the calls from many members and institutions to mainstream gender issues into the Aid for Trade work.
“I think we should ensure that future work goes further in taking gender perspectives into account,” he said. “We need to keep momentum in this area.”
Members acknowledged that, in light of the negative narrative surrounding trade, Aid for Trade should be used to tell the positive story about how trade can help countries escape poverty and connect to global value chains. Members also agreed that digital and physical connectivity clearly intertwine and that both are necessary to make countries reap the real benefits of trade.
“LDCs are yet to tap the full potential of international trade and international support is vitally important for them,” Fekitamoeloa Katoa 'Utoikamanu, UN Under-Secretary and High Representative for the LDCs, Landlocked Developing Countries and Small Island Developing States, said in an earlier plenary session on enhancing connectivity and advancing the SDGs.
Globally, 3.9 billion people, constituting more than half the world’s population, are still offline. Mobile cellular penetration has reached over 70% in LDCs, but mobile broadband penetration stands at just below 20% compared to close to 50% globally and 90% in developed countries.
More resources are needed in the promotion of connectivity and infrastructure, both digital and physical, which are the “real game changers”, according to the Indian Ambassador to the WTO, J. S. Deepak.
Frans Lammersen, Principal Administrator in the Development Co-operation Directorate of the Organisation for Economic Co-operation and Development (OECD), underlined that countries and donors need to be aware of the multi-faceted reality of Aid for Trade.
Matthias Heible, Senior Economist of the Asian Development Bank Institute, underlined that the adjustment to trade opening is not yet very well understood and warned of a further globalisation backlash.
“The adjustment process can be very difficult and painful,” he said. “Even in Asia, where globalisation has been widely embraced, there is a real risk of seeing some kind of backlash if we do not get this adjustment right.”
Paulo Salesi Kautoke, Head of Trade of the Commonwealth Secretariat, identified supply-side capacity as another immediate priority to address in order to counteract the continuous weakness of the export performance of small states and LDCs.
“This week has provided a lot of food for thought,” DG Azevêdo concluded. “Enough for a feast! So let’s work together to ensure that the Aid for Trade initiative continues to go from strength to strength.”
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Information and communication technologies heralded by UN chiefs as critical to fast-forward achievement of Sustainable Development Goals
Information & communication technologies (ICTs) now form the backbone of today’s economies – providing individuals with access to such vitally important resources as employment opportunities, online banking and healthcare. As such, United Nations leaders have turned to ICTs to fast-forward efforts to achieve the United Nations Sustainable Development Goals (SDGs).
In the new publication, Fast-forward progress: Leveraging tech to achieve the Global Goals, more than 20 UN heads share their perspectives on how and why “ICTs for SDGs” is critical.
The launch of the publication coincides with the meeting of the United Nations’ High-Level Political Forum on Sustainable Development (HLPF), taking place in New York City, 10-19 July 2017 – which is the voluntary review process of the 2030 Agenda, including the SDGs.
With the theme “Eradicating poverty and promoting prosperity in a changing world,” the 2017 HLPF is reviewing progress on six of the SDGs, including SDG9, which seeks to build resilient infrastructure, promote inclusive and sustainable industrialization and foster innovation. While ICTs link most closely to this SDG, as the new publication highlights, ICTs are playing a critical role in achievement of all 17 SDGs.
United Nations Secretary-General António Guterres says in his inspiring foreword to the publication: “The impact and implications of the digital revolution are becoming more evident with each passing hour. The 2030 Agenda for Sustainable Development recognizes the great potential of global connectivity to spur human progress. This report presents evidence of how UN agencies are adopting – and adapting – ICTs to maximize their impact and help communities and people in need. We see concerted efforts to extend telecommunication networks and ICTs into remote areas; train and equip workers with new digital skills; and ensure that schools, hospitals, clinics and whole cities are smarter, more energy efficient and safer.”
There are five key take-aways from the publication:
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Leave no one offline – Half of the world’s population, 3.9 billion people, are still offline and cut-off from the vast resources available on the Internet.
A central promise of the 2030 Agenda is to leave no one behind. At ITU, we are committed to leave no one offline. It is our responsibility to bring the power of ICTs to all nations, peoples and communities.
Gender equality is a perfect example of where we need to focus our efforts. Men continue to outnumber women in terms of access to mobile phones and Internet usage in all regions of the world.
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ICTs are an accelerator for innovation and change – A number of contributors to this report cite the impact of big data, sensor networks, autonomous robots, machine learning and artificial intelligence. The technological revolution is now rapidly extending beyond people to objects. It’s changing how we communicate, and it’s an accelerator for innovation and change.
Farmers use satellite imagery to monitor land use, water scarcity and shifting climate patterns. ICTs improve capabilities to gather, analyse, manage and exchange information in all areas of health, from research on molecular genetics to large-scale humanitarian interventions. All these changes have one thing in common: big data. Its potential for the public good is enormous.
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Put people first – The need to put people first, be it children, workers or refugees, is a main concern for many of the humanitarian leaders featured in this report.
Sometimes it’s hard to fully comprehend the scope of a human crisis unfolding before our very eyes. War, violence and persecution continue to uproot millions of men, women and children around the world each year. On average, 20 people were driven from their homes every minute last year, or one every three seconds – less than the time it takes to read this sentence.
For many refugees Internet and mobile connectivity have a similar level of importance as basic needs such as water, food and energy. Why? Because digital connectivity can mean finding a job and having an income or reuniting with loved ones.
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There is no room for complacency – Tech innovation is transforming nearly every aspect of how we live. Cyber-physical systems now enable customized products and industrial production in real-time across great distances. E-commerce has reduced trade costs, expanded market access, increased consumer benefits – and offers new opportunities for employment, training and skill improvement.
Contributors to this report, though, cite the importance of being vigilant – and never complacent – in identifying ways to leverage ICTs. While connectivity and access to ICTs are critical, complementary actions to increase confidence and trust are necessary for people to access greater opportunities and reap tangible benefits. ICTs can reduce learning gaps in unprecedented ways, especially for low-income countries but if access to ICT-enabled services is limited to privileged groups, gaps could increase and hold back the disadvantaged from access to well-paid jobs.
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Create new innovative partnerships – One of the main lessons of this report is that strong partnerships are crucial to realize the SDGs. The international community has a responsibility to promote more effective collaboration, to avoid widening the divides between those positioned to reap the rewards of technological change and those that risk being left behind.
The private sector also has a critical role to play. Now more than ever, we need fresh investment and collaboration models to unlock the power of ICT connectivity and fast-forward progress to achieve the SDGs.
“As the UN’s specialized agency for ICTs, ITU has a crucial and unique role to play in the achievement of SDG9 – and in connecting the world’s 3.9 billion unconnected,” said ITU Secretary-General Houlin Zhao. “But, as UN leaders have identified in Fast-forward progress: Leveraging tech to achieve the Global Goals, ICTs must be leveraged to advance achievement of all 17 of the SDGs – and we at ITU look forward to partnering with other UN agencies to facilitate this.”
ITU has developed an online platform that outlines the opportunities for ICTs to be leveraged in support of the SDGs at: itu.int/ict4sdg. Here you can find all of the latest resources and information, and engage in the ICTs for SDGs efforts.
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IMF Executive Board 2017 Article IV Consultation with Rwanda
On July 12, 2017, the Executive Board of the International Monetary Fund (IMF) concluded the 2017 Article IV consultation with Rwanda and completed the seventh review of Rwanda’s performance under the Policy Support Instrument (PSI) and the second review of the arrangement under the Standby Credit Facility (SCF).
Following the Executive Board discussion, Mr. Tao Zhang, Deputy Managing Director and Acting Chair, made the following statement:
“Rwanda has made notable progress in the past two decades, anchored by its carefully-considered development strategy. This includes steady progress on structural transformation, high and inclusive growth, reduced poverty and gender inequality and attractive business environment. This has been reinforced by strong macroeconomic policy management, characterized by strategic public investment in growth-enhancing infrastructure, maintenance of low inflation, and measures to bolster domestic revenue mobilization.
“Responding to adverse global conditions, the authorities took decisive steps to address external imbalances, thereby safeguarding macroeconomic stability and growth over the longer term. Exchange rate flexibility has been the central tool of policy adjustment, with structural reforms to bolster domestic production. These policies have already made progress in reducing the deficit in goods and services trade, and should place external balances on a more sustainable path over the medium term. Performance under the SCF arrangement and PSI-supported program has been strong, with almost all program targets and structural measures set through end-March achieved.
“Growth slowed in 2016, due to an extended drought, completion of large investment projects, and adjustment policies. It is expected to recover over 2017-18, with balanced risks to the outlook. Inflation spiked in early 2017 due to a food supply shock, but is now abating.
“Despite the notable achievements, the Rwandan economy remains vulnerable to external shocks. It will be important to rebuild foreign exchange reserve buffers to enhance the country’s resilience. Similarly, to support continued growth-enhancing public investment, the government should ensure that recently-introduced tax incentives to boost domestic production are well-targeted and do not unduly weaken the tax base. To reach the goal of upper middle income status, it will be important to boost the role for the private sector to serve increasingly as the main engine for growth and investment in Rwanda.”
Staff Report
Context
Rwanda has implemented an ambitious development program over the past two decades. Its policies have resulted in high and inclusive growth, poverty reduction, improved living standards, and sharpened competitiveness. These policies were implemented in the context of a 20-year “Vision 2020” strategy that envisages the country moving to middleincome status by 2020. This has been implemented through 5-year policies under successive “Economic Development and Poverty Reduction Strategies”. Under these strategies, the government has channeled significant public investment into programs to improve social outcomes, increase agricultural productivity and transform the economy to higher value added activities, improve gender equality, and foster financial inclusion, among other things.
High and inclusive growth has increased incomes and reduced poverty. In the past decade, the sustained focus on high and inclusive growth, combined with maintenance of macroeconomic stability, has achieved tangible results: growth rates have averaged around 7½ percent per year, close to doubling per capita income. At the same time, concerted policies have reduced gender inequality to the lowest level in Sub-Saharan Africa (SSA), reduced poverty from around 60 percent to under 40 percent, and lowered income inequality, with the Gini coefficient dropping from 0.52 in 2005 to 0.45 in 2014.
At the same time, policies have been implemented to improve the business environment and competitiveness. The 2017 World Bank’s Doing Business survey ranks Rwanda ranks 56 out of 190 countries, #2 in Africa after Mauritius. For example, online business registration has reduced the time to start a new business down to 4 days, and an electronic case management system for judges and lawyers helped reduce the time for contract enforcement to 230 days, shorter than many more advanced economies. For competitiveness and productivity, the 2016/17 World Economic Forum’s Global Competitiveness Index ranks Rwanda as the fourth most improved country in Africa compared to two years earlier, garnering the highest scores for improving its institutional quality and labor market efficiency while diversifying the economy. Rwanda is currently ranked at 52 out of 138 countries, outperforming SSA averages in all pillars except for market size.
Rwanda has boosted domestic revenues to reduce donor reliance. Rwanda’s past achievements have relied substantially on official development assistance. However, faced with declining aid flows to finance its investment strategy, Rwanda has taken numerous tax policy and revenue administrative measures to boost domestic revenues, which increased some 6 percentage points of GDP from 2010 to 2016.
Box 2. Rwanda: Domestic Revenue Collection
Rwanda has made significant strides in raising tax revenues through better administration and tax policy measures. In the past decade, domestic revenue collection has grown by more than 6 percentage points of GDP. Increasing domestic revenues has been a key feature of the current PSI-supported program.
Gains in recent years have been primarily a result of improvements in revenue administration, including the collection of local taxes at the central level, improvements in auditing procedures, and closer scrutiny of large taxpayers. Tax policy measures have included VAT on mobile airtime, royalty taxes on mining, and taxes for special petroleum and infrastructure funds. Following the use of a Tax Administration Diagnostic Assessment Tool (TADAT) in 2015, the Rwandan Revenue Authority (RRA) is implementing a work program focused on strengthening taxpayer registries and electronic filing, and reducing outstanding stock of arrears more efficiently.
In recent years IMF technical assistance (TA) has focused mining and property taxation and analyzing the VAT gap. The authorities have used this advice to formulate royalty taxes and the long-awaited revised Fixed Asset Tax legislation, which provides for new rates and a property valuation system based on market prices. Both taxes provide an upside risk to revenue projections over the medium term. On VAT, amendments have been associated with narrowing various incentive schemes to strategic sectors e.g. exports, manufacturing, energy, ICT, financial services, construction, and agriculture.
Policy discussions
Discussions focused on key areas for sustaining high and inclusive growth, while maintaining macroeconomic stability and advancing EAC integration. Staff also prepared analytical work on structural transformation, gender inclusion, and macro-financial stability and development. Discussions included: redoubling efforts on revenue mobilization; improving fiscal transparency; and setting the path toward a price-based monetary policy framework, supported by a flexible exchange rate regime and vibrant interbank markets and central bank instruments. Informed by an updated external assessment and debt sustainability analysis, the authorities and staff also discussed fiscal and monetary policy stances for the remainder of 2017, within the context of various challenges to the ever-important agriculture sector. The authorities explained their “Made in Rwanda” campaign, originally intended to address external imbalances, but now expanded to promote more domestic production through strengthened supply chains and higher productivity. Finally, authorities and development partners worked together on preparation for Rwanda’s participation as one of the first five countries in the G-20 Compact with Africa.
External Sector – Rebuilding Reserve Buffers
External imbalances remain, but are falling. The deterioration of the current account deficit and reserve buffers since 2012 reflected temporary factors affecting the trade balance – including the commodity price shock and large investment projects – as well as a structural reduction in official development assistance. Adjustment policies undertaken since have begun to reverse external imbalances and stem the loss of official reserves. The pace of Rwandan franc depreciation has slowed in 2017, suggesting that the external position is more in line with fundamentals, as indicated by various external analysis metrics (Annex IIII). Accumulation of official reserves through end-2017 is expected to be slightly less than earlier projected, however, this is based on the authorities’ revised projections for foreign direct investment which reflect recent information on 2015 outcomes. Staff expressed the view that the authorities’ projections for FDI may be conservative: Foreign direct investment outturns in 2015 may have been depressed by temporary factors including the commodity price decline, and various initiatives are underway to stimulate private investment.
The authorities have gone beyond macroeconomic adjustment policies to address external imbalances. The “Made in Rwanda” campaign, launched in 2016, originally focused on strategic interventions for import substitution. However, the campaign has been expanded to promote domestic production more generally. While acknowledging the initiative, staff emphasized that continued exchange rate flexibility will be important both for sustainable external balances and for the transition to inflation-targeting.
Box 8. “Made in Rwanda” Campaign
To reduce structural trade deficits and stimulate growth, the government formulated a “Made in Rwanda” (MIR) initiative over the course of 2016. Initially the policy was intended to identify promising sectors for import substitution, e.g. cement, light manufacturing (garments), agriculture (sugar, rice). Targeted interventions already underway include investment in the publicly-owned cement company to expand production potential. The policy has since been expanded to provide incentives to deepen domestic supply chains and product quality, including through:
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A communication campaign to encourage purchase of domestically-produced goods;
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Public procurement laws which give preference to domestically-produced goods;
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Certification changes to increase quality of domestically-produced goods;
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New VAT exemptions on inputs for strategic sectors to reduce the cost of production;
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Sector-specific action plans for strategic sectors to strengthen domestic supply chains to boost the domestic content of products, including meat, sugar, steel, detergents, and pharmaceuticals.
As of July 1, 2016, the government also implemented an EAC policy to hike import tariffs on used clothing/shoes, primarily to stimulate domestic clothing production. From July 2016-March 2017, imports of used clothes/shoes declined by 86 percent, and domestic production has picked up sharply. Over the same period, inflation related to clothing/shoes has remained lower than other categories, suggesting there has not been an adverse welfare effect.
With the larger MIR initiative in its nascent stages, it is too early to assess its broader impact on domestic production, external balances, and consumer welfare.
Rebuilding reserve buffers remains important. Staff assess that, given the risks Rwanda faces, official foreign exchange reserves covering 4-5 months of prospective imports would be optimal. This is also in line with the need to reach and maintain reserve coverage ratio of at least 4.5 months of imports to meet the EAC convergence criteria. The current account position is expected to gradually improve as the trade deficit narrows because of adjustment policies, commodity price stabilization, and returns from public investment in tourism, which should also allow an opportunity to rebuild reserves over the medium term, but projections for FDI in 2017 have been revised downward based on a new survey for 2015. This implies that, despite faster-than-expected improvement in the current account balance, reserve levels will be rebuilt somewhat more gradually than foreseen in the original program. A sustainable external position and ample reserves are important considering the unique risks Rwanda faces, particularly, continued dependence on relatively large official development assistance, a still-narrow export base, large import needs, and expensive overland access to ports.
Box 9. Rwanda: G-20 Compact with Africa
The G-20, under German leadership established a “Compact with Africa (CWA)” in February 2017. The basic idea of the CWA is that progress can be achieved in fostering private investment in Africa by identifying specific obstacles and/or market failures in host and potential investor countries. The Compact focuses on: the macro environment and supporting public infrastructure; the business environment and the government’s capacity to handle public-private partnerships; and the financing environment, including the availability of risk mitigation instruments provided by multilateral and bilateral development partners, access to domestic debt instruments, and potential support from institutional investors in advanced markets.
Based on its strong track record of performance, the authorities expressed hope that the Compact could have good potential to leverage existing work to attract and increase private investment in strategic sectors of the economy. The Rwandan government has identified strategic areas for private investment, including agriculture, light manufacturing in industrial parks, affordable housing, information technology, and infrastructure. Working together with development partners, the government articulated the advantages of working in Rwanda, incentive schemes for investors, and potential obstacles to investment. The “Compact” will be presented to the G-20 and potential private investors at various high-level events in 2017.
Selected Issues paper
Investment strategy to foster structural transformation in Rwanda
Over the past 15 years, Rwanda has transformed its economy by moving workers out of agriculture into mostly services and some industry. This has been accomplished through strong public investment flows and efficient public investment management. Going forward, the challenge is whether the private sector can complement the infrastructure assets put in place by the public sector and maintain economic momentum. It will also require continued effort by the government in raising education standards, better matching qualifications offered to students to those most in demand by employers, and lowering electricity and transportation costs. If these challenges are met, Rwanda stands a good chance of maintaining its historically high growth rate and attain middle income status within 20 years.
State of Structural Transformation in Rwanda Sector Analysis
In SSA countries, over the 2000-10 decade, workers moved out of agriculture, where relative productivity levels are low, into the services and manufacturing sectors. This picture documented by Fox et al. (2013) reverses McMillan and Rodrik (2011) who analyzed developments in SSA during an earlier period (up to 2000) and found workers moving into lower-productivity sectors. The updated labor productivity calculations were based on combining sectoral output levels with corresponding trends in sectoral employment levels based on household survey data. Figure 1 plots average annual changes in employment shares over the 2000-10 period against relative productivity levels for agriculture, industry, and the services sector in 2000. During this decade of high growth, almost all SSA countries showed a pronounced shift in employment toward higher value added sectors. The only sub-Saharan African countries that did not, due to increases in the share of employment in agriculture, were Cote d’Ivoire and Mozambique.
For Rwanda, the shift of employment toward higher value-added sectors has been comparatively rapid. In a cross-country comparison, through 2010, Rwanda experienced a large shift in the share of employment from agriculture to services. Interestingly, over the most recent three-year period, 2011-14, while the annual decline in the share of employment in agriculture remained about 1 percent per annum, more of the jobs created over this period occurred in industry (0.66 percent) rather than services (0.33 percent). In Rwanda, as elsewhere, industry/manufacturing output has the highest value added.
Industry, and more particularly manufacturing, plays a smaller role in the Rwanda economy than elsewhere in Sub-Saharan Africa. Manufacturing is considerably below other East African countries although its importance is closing in on the average LIC. There is a general recognition of the difficulty in stimulating manufacturing in a landlocked country such as Rwanda which is why the focus of its investment strategy has been on agriculture and services.
Total Factor Productivity Analysis
An alternative way of looking at economic transformation is through “total factor productivity.” Looking at the whole economy, this analysis estimates the contribution to growth from increases in productivity (i.e. more output per input via, e.g. more sophisticated machines, use of information technology) vs. increases in inputs (e.g. more labor, machines). In the figures below the standard analysis is presented using the number of workers and combining the number of workers with a measure of educational attainment (average number of years of education) to give a quality-adjusted labor series.
In considering a few high-growth, non-resource-rich economies, the data suggests that growth has been largely dependent upon increases in inputs rather than increases in productivity, especially during the most recent five-year period. While growth has averaged between 5-7 percent over the 2010-14 period, growth in productivity was low in most cases. The exception is Kenya, which had higher productivity growth. This may relate to the size and greater sophistication of its economy, with mobile banking providing access to capital to a much wider population. For Rwanda, despite a relatively constant growth rate over the period, growth in productivity contributed far more in the earlier 2000-10 period than in the last five years. A challenge going forward will be to maintain the momentum for productivity growth.
Role of Investment in Rwanda to Foster Structural Transformation
Rwanda is a small landlocked country far from the sea, and it is extremely difficult to achieve economies of scale from the industrial sector. The country is therefore focusing on the development of services through establishing itself as a business tourism hub and improving agricultural productivity. Rwanda’s attractiveness is based on its cleanliness, security, good transportation and IT infrastructure and tourism opportunities. The authorities also recognize that some industry is needed to supplement export earnings and is focusing on light manufacturing (garments, shoes) and mining. It is also developing a policy of import substitution to conserve on foreign exchange needs and has identified cement, basic clothing, rice and sugar as products with the most potential of displacing imports.
Rwanda’s economic plan is contained in the most recent poverty reduction strategy plan (EDPRS2) covering the period 2013-18. True to the country’s comparative advantage, the plan focuses on improving agricultural productivity through increased irrigation, seed and fertilizer investment and promotion of services exports through large infrastructure investment. The plan aims to reduce poverty to 20 percent or below by 2020, and to increase foreign exchange earnings to place external balances on a sustainable basis, as external donor assistance is forecast to decline gradually in the future.
Macrofinancial dimensions in Rwanda: stability, inclusion, and development
Rwanda’s financial development may have been just as impressive as its economic growth plane over the past decade. But many experts and practitioners are skeptical about “financial growth success stories” in a low-income country context – more often than not have such episodes benefited only a narrow share of the population, while ending in tears for the country (and shattered public finances). Hence, did Rwanda’s financial growth coincide with actual improvements in the population’s access to financial services? Did financial stability suffer from the extraordinary growth of the past years? How can the public sector strike the appropriate balance between encouraging financial innovation and maintaining safeguards through proper regulation and supervision? These questions cannot be conclusively answered in this paper, but we wish to support their public discussion by providing a few facts and observations on Rwanda’s financial sector.
Financial Inclusion and Innovation in Rwanda
Sustained growth in microfinance and mobile financial services have contributed to more financial inclusion in Rwanda. Total assets of microfinance institutions almost doubled from end-2013 to 2016, while deposits increased by 65 percent over the same period. The rapid increase in microfinance activities, in particular through Umurenge SACCOs, has been one of the drivers of financial inclusion in Rwanda. The 2016 FINSCOPE survey indicates a significant overall increase in financial access of the adult population over the past four years, overwhelmingly on behalf of access to formal financial services (which includes microfinance).
There has also been a significant diffusion of mobile financial services in recent years, with Rwanda following a similar trend as its EAC peers. As of end 2016, more than 9.7 million users had subscribed to mobile payment systems, and nearly one million users had subscribed for mobile banking services, and the value of total e-payments rose to more than 30 percent of GDP within five years. Financial services innovation is an important driver of financial inclusion, and the rapid diffusion of money mobile transactions, pioneered by Kenya over the past decade, has caught on across the EAC.
The emergence of new alternative financing models could become the next frontier of financial innovation, with potential to further enhance financial inclusion in Rwanda. A recent report by the University of Cambridge has documented a doubling in the value of financial transactions through innovative online funding and lending platforms from 2013 to 2015. While the total amount raised in 2015 through such portals (US$4 million) is still only one thousandth of the overall financial system’s assets, the potential of the technology to reach projects and customers not served by traditional funding mechanisms is significant. Fast recent growth indicates that these new portals meet the needs of both suppliers and customers.
Rwanda is among the leaders in the region in creating an enabling regulatory environment for financial inclusion. The Economist Intelligence Unit’s 2016 Global Microscope rates Rwanda at the 8th position of all countries. Remarkably, Rwanda leapfrogged in the ranking by eight positions within one year, the third-highest observed relative improvement, mainly explained by significant capacity building in operating and supervising municipal savings and credit cooperatives. Compared to a total of thirteen surveyed SSA countries, Rwanda’s performance was bested only by Tanzania and Kenya, and it exceeded the regional average in seven out of twelve sub-indicators.
Rwanda also compares well with the EAC in the World Bank’s Financial Inclusion Index. For the first time, the 2014 FINDEX survey included access to microfinance and mobile financial services, and the remarkable progress compared to 2011 may reflect that. The results also confirm a picture of consistent and rapid improvements in financial inclusion. Interestingly, nearly all EAC countries exceed both the composite SSA and the frontier LICs inclusion index, and Kenya even exceeds the average index for emerging market economies.
Financial Development
When measured against the IMF’s financial development index, Rwanda’s performance appears less favorable than it probably is. The IMF has developed a database capturing financial development across depth, access, and efficiency, measured across institutions and markets. Within this framework, Rwanda’s performance is distinguished by the high quality of its financial institutions, but dragged down by its unsophisticated securities markets. However, recalling Rwanda’s recent advancements in financial access and inclusion, it seems likely that the country’s state of financial development is understated by the index, because it does not include data on microfinance or mobile financial services – the access parameters for institutions (number of mortar-and-brick branches; ATMs) may even be misleading in an innovative world that moves toward low-cost mobile payment and banking solutions.
The index suggests that Rwanda’s financial system has improved over the past decade, but is held back by size and scale limitations. Developments are much in line with regional peers, but the overall level of the index is lagging other EAC countries. It appears that this mainly reflects the limitations of a tiny national securities market: It is very difficult for smaller countries to score well on an index that measures market efficiency per absolute number of transactions. A long-term strategy for gradual regional integration of financial markets within the EAC may present the best available chances for overcoming these size and efficiency issues.
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Trade facilitation key to addressing needs of developing countries
Trade facilitation can be a key contributor to sustainable development as speedier border crossings for goods and services help address poverty alleviation and even humanitarian crises, speakers at various sessions said at the Aid for Trade Global Review on 11-13 July. A case study competition underlined the importance of the issue, with joint prize winners announced from Zambia and Jamaica.
The Chair of the WTO Trade Facilitation Committee, Ambassador Daniel Blockert (Sweden), opened a dedicated session on the topic on 12 July, highlighting the entry into force of the Trade Facilitation Agreement (TFA) last February.
“But the agreement is not worth anything if it is not implemented. It’s implementation, implementation, implementation,” Ambassador Blockert said. “We’ve seen trade facilitation as a priority not only for Aid for Trade but also for aid in general and it will require challenging reforms.”
The TFA contains provisions for expediting the movement, release and clearance of goods, including goods in transit. It also sets out measures for effective cooperation between customs and other appropriate authorities on trade facilitation and customs compliance issues. It further contains provisions for technical assistance and capacity building in this area. African countries and least developed countries (LDCs) are estimated in a recent WTO study to benefit the most from the TFA’s implementation.
Malawi, an LDC, formally accepted the TFA and submitted its country’s instrument of acceptance on 12 July while the Gambia – also an LDC – did so on 11 July.
Trade facilitation is particularly important as trade volumes dwarf total disbursements of government aid and thus can be an important conduit for poverty alleviation, said Lord Bates, Minister of State at the United Kingdom Department for International Development, at the session on 12 July.
“You have global assistance of up to $180 billion per annum and then you have global trade in goods alone which is at $15.5 trillion per annum. In the sustainable development goals, we have an ambition of eradicating poverty by 2020. If we ought to achieve those goals, there is no doubt that trade has to be the mechanism through which we do it,” he said. “We are huge supporters and remain deeply committed to the Trade Facilitation Agreement.”
Panellists at the session then discussed best practices for successfully implementing trade facilitation reforms. Coordination among customs authorities and other government agencies in a country is important as are partnerships with the private sector, speakers said.
“The difficult part is not necessarily technology. It’s the coordination between many government agencies so we can realize coordinated border management,” World Customs Organization Secretary-General Kunio Mikuriya said. “We emphasize coordination using the Trade Facilitation Agreement’s mechanism on National Trade Facilitation Committees.”
Sharing the private sector’s experience, Carlos Grau Tanner of the Global Express Association said: “One thing we have no control over is the border. The efficiency of the entire chain depends on the border… Here’s where the TFA is so crucial. We have seen the effects for our clients, for the countries we operate in when procedures are simplified and made more efficient.”
E-commerce has helped draw attention to border reforms as increased volumes of online traded goods put pressure at the border, added Gordon Wright, cargo border management head at the International Air Transport Association.
“We are seeing a real drive coming from e-commerce. It’s a real opportunity for us. Often you are looking for more predictability in delivery times and that is driving states to look more closely at how borders are organized,” he said.
The session also focused on the contribution of trade facilitation to responding effectively to humanitarian crises. Relief goods and services reach beneficiaries faster when border procedures are efficient, said Jemilah Mahmood, Under Secretary General of the International Federation of Red Cross and Red Crescent Societies.
“Just as goods cross the border, so do people and so do relief goods. The impact is so great and the need is for rapid relief goods. We need to think about the cross-border humanitarian issues as well,” she said. “Any delay in medicines, shelter will also have impact on people’s lives.”
Status of trade facilitation reforms
So far, transparency measures related to trade facilitation appear to be well on their way to being implemented around the world; however, much remains to be done for the electronic exchange of information according to preliminary findings of the second United Nations Regional Commissions’ Global Survey on Trade Facilitation and Paperless Trade Implementation.
The survey, which was presented in a separate session on 12 July, covered 120 countries and 38 trade facilitation measures, including measures under the TFA. The survey also looked at trade facilitation measures in agriculture, those aimed at helping small and medium sized enterprises (SMEs), and those aimed at empowering women in trade.
Full implementation of all the trade facilitation measures examined in the survey will reduce trade costs by 11% on average, said Andrey Vasilyev, Deputy Executive Secretary, United Nations Economic Commission for Europe.
In regards to the Asia-Pacific region, UN Economic and Social Commission for Asia and the Pacific’s Chief of the Trade Facilitation Unit Yann Duval said there were wide differences across the 44 countries surveyed (the Pacific islands are furthest behind) but that the region in general has been very proactive in implementing next-generation trade facilitation solutions.
For Africa, the average implementation rate for the surveyed measures is around 50% said David Luke, Coordinator of the African Trade Policy Centre, United Nations Economic Commission for Africa. He pointed out, however, that wide differences exist, with countries such as Benin, Cote d’Ivoire and the Democratic Republic of the Congo ranking high. He said the conclusion of the Continental Free Trade Area (CFTA) Agreement by the end of the year should boost implementation efforts, since trade facilitation is “very much part” of the CFTA with specific provisions and legal text very compatible with the TFA.
Maria Rosaria Ceccarelli, Chief of Trade Facilitation Section, Economic Commission for Europe, said that the survey showed implementation of measures was even possible among lower-income countries if a proper implementation road map is set out and governments are committed to implementation.
Meanwhile, the 21 countries surveyed in the Latin American and Caribbean region have a 69% average implementation rate, a slight improvement over the 67% average in the 2015 survey according to Tania Garcia-Millan, Economic Affairs Officer, United Nations Economic Commission for Latin America and the Caribbean.
Finally, Adel Al-Ghaberi, First Economic Affairs Officer of the United Nations Economic and Social Commission for Western Asia, said his region’s average implementation rate is 57%, better than the 48% average rate registered in 2015. However, much of this improvement was driven by a handful of the region’s countries, notably Qatar, with a 95% implementation rate, and the United Arab Emirates, with a 97% implementation rate. The measures most widely implemented are those related to transparency, border formalities, and institutional arrangements/co-operation, while the lowest implementation rates concern measures related to paperless trade and cross-border paperless trade.
Success stories
Several sessions at the Global Review highlighted successful examples of trade facilitation reforms.
A side event on 12 July featured a live video link-up with the Busia one-stop border post between Kenya and Uganda. Busia is a busy border post connecting Eastern Uganda and Western Kenya, with a daily average of 210 trucks crossing to Uganda and 30 crossing to Kenya in 2013. A project was established to reduce the time taken to cross the border. By June 2016, the streamlined procedures had resulted in an 80% reduction in border crossing times from Busia Uganda to Busia Kenya compared to 2011 according to a survey while crossing in the reverse direction took 79% less time. More on Busia and other case studies here.
“This initiative has definitely lifted people out of poverty,” Amelia Kyambadde, Uganda Minister of Trade, Industry and Cooperatives said, noting that many cross-border traders are women. “It has lifted women, people, and the small businesses of Uganda out of poverty.”
A case study competition also on 12 July featured more trade facilitation success stories. The WTO Trade Facilitation Agreement Facility conducted the competition in collaboration with the World Bank Group.
Two winners out of six finalists were selected: Kayula Siame, Permanent Secretary of the Zambia Ministry of Commerce, and Kanika Tomlinson from Jamaica’s Trade Board Ltd. Global Express Association (GEA), which represents three express delivery companies, supported the event. Mr. Tanner, GEA’s director-general, presented the certificates as a mock delivery of express packages.
Speaking about the reduction of goods inspections in Zambia thanks to the implementation of a risk-assessment mechanism, Ms Siame said: “What really drove us were private sector complaints. Their inventory were being kept at the border, they were tied up. With the new system of risk management principle, we did something different. We didn’t have to inspect 100% of goods and we were getting positive results and we were happy with that. Inspections were reduced from 100% to 18%.”
Ms. Tomlinson, meanwhile, emphasized the importance of partnerships in her case story titled “Trade Facilitation Task Force: Involving public and private sectors to improve competitiveness”:
“Many of you may have heard the phrase it takes two to tango. In Jamaica we say a bird cannot fly with one wing. This interdependent relationship between the private and public sectors is what formed the backbone of Jamaica’s taskforce for trade facilitation.”
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tralac’s Daily News Selection
Reminder: Today’s out-of-cycle hearing on AGOA eligibility for Rwanda, Uganda, Tanzania
Commentary by Fredrick Kamusiime: The Review of AGOA Eligibility Status for EAC Three Partner States: Lessons to Learn
Lowering trade costs through transparency: the importance of trade information portals (World Bank)
Because of the importance of transparency, supporting Trade Information Portals is increasingly common in our facilitation projects. From 29-31 May, the Trade & Competitiveness team in the Bank Group’s Singapore Hub hosted officials from 15 countries for a workshop to share experiences on improving the effectiveness of trade information portals. Some of the topics discussed included: [The authors: Marcus Bartley Johns, Bill Gain, Luc Pugliatti]
ITC launches Export Potential Map for more targeted trade
Export Potential Map pulls in data from a range of sources including import and export data, tariffs, gross domestic product, and geographic data. Based on this data, the tool can quickly carry out evaluations of a country’s potential to export: in specific sectors and to what markets. This represents a unique opportunity for developing countries to ramp up their exports. For example, LDCs on average export to four markets only. Export Potential Map suggests additional markets that offer good demand and tariff conditions for goods exported by LDCs. In addition, the tool helps identify options to diversify and expand the range of products LDCs export. The tool is available for 222 countries and territories at a very detailed product level. The web tool has a user-friendly interface and innovative visualizations that can be easily downloaded, shared on social media and embedded into reports or websites.
COMESA Adjustment Facility: call for submissions
The objective of the 8th Call for Submissions is to invite Member States already implementing RIIPs, approved under previous Calls for Submission, to submit their final Progress Monitoring Reports against performance of 2016 targets. The 8th Call for Submissions will allow for an overall evaluation to be undertaken in relation to the achievement of indicators under the Performance Assessment Framework. Member States are therefore urged to give clear status of implementation of all applicable indicators as at June 2017.
Mozambique: Aligning Mozambique’s National Quality Infrastructure with the WTO Technical Barriers to Trade Agreement (pdf, SPEED+)
Despite numerous attempts and support by many international donors to enhance the National Quality Infrastructure in Mozambique, a unified NQI is by and large still to be developed, including building standard-setting systems, accreditation, conformity assessment, product certification and testing capability, technical know-how and, finally, full WTO TBT compliance. While advances in these areas may be made independently, it is only through synergetic interaction that a truly modern infrastructure can be created and leveraged to support export competitiveness. Without a clear, result-oriented, and measurable set of activities it will be difficult for Mozambique to realize the holistic transformation that is needed to stimulate a dynamic and modern export infrastructure. INNOQ today has many of the NQI required capabilities in place, but not all; there are challenges to be overcome and building blocks to be established.
Mauritius-Africa Fund: update (GoM)
The Prime Minister recalled that under the new mandate, the Mauritius-Africa Fund has negotiated and signed four MoUs to develop Special Economic Zones in Senegal, Cote d’Ivoire, Ghana, and Madagascar. Senegal: the Fund has invested 51 million Franc CFA (Rs 3,733,200) for 51% of the shares in Société des Infrastructures d’Affaires Atlantic S.A., incorporated in Senegal. The Special Purpose Vehicle will manage 53 hectares of land near Dakar. Cote d’Ivoire: the Mauritius-Africa Fund has negotiated preferential access for Mauritian firms to invest in the construction of a Cyber Tower, twin administrative towers, a business hotel and an aqua park within the Technology Park in Grand Bassam. Ghana: the Fund will invest 1,194,000 Ghanaian Cedis (Rs 9.8 million) in the share capital of Ghana Smart City Ltd, a joint venture with the Government of Ghana. The project will consist of the construction of a Cyber Tower in Central Accra and the development of a Technology and Business Park in Dawa. Madagascar: the Malagasy Government has identified 80 hectares of land for the Mauritius-Africa Fund to develop a “Zone Economique Speciale” in Fort Dauphin.
South Africa and the TFTA: New African free trade deal set to boost exports from SA (Business Day)
Department of Trade and Industry deputy director-general of international trade and economic development Xolelwa Mlumbi-Peter notes that this preferential access will provide better terms of trade than are currently enjoyed. “It means that we will be able to increase our exports and advance a developmental integration agenda and the development of regional value chains, as it would be cheaper, for example, for SA to import inputs from African countries.” Bilateral tariff negotiations have also started with Egypt, which Mlumbi-Peter said was a critical market for SA and SACU. These would hopefully be concluded by the end of the year. She said care would be taken not to unravel the preferential trade agreements within SADC. The tripartite negotiations would be an add-on to the internal SADC, EAC and Comesa arrangements.
Economic Association of Namibia conference: Regional integration takes centre stage (The Namibian)
Prerequisites for successful regional integration on the African continent include peace and stability, a rules-based approach, macroeconomic stability, maintaining meaningful growth as well as prospects for a fair and equitable economy. This is according to Calle Schlettwein, Namibia’s minister of finance. tralac’s Trudi Hartzenberg: Although Africa does not lack ambition and interest to integrate, it has become increasingly important to take stock about whether or not regional initiatives and endeavours as well as agreements reflect the fundamental challenges and opportunities which form part of regional integration, she stressed. “Are they (the initiatives) addressing our fundamental developmental goals?” [Conferencebackground note (pdf)]
Development prospects for Ghana: Destiny or policy? Selected postings from the Institute of Economic Affairs conference. Get out of narrative that culture impedes growth - economist urges African states. Renowned economist, Dr. Ha-Joon Chang, argues that policies which promote rapid economic growth are not always the supposedly ‘good’ policies of free-market and free trade but also the ‘bad’ policies of protectionism, subsidies and state ownership as shown by the development history of today’s rich countries. He has, therefore, challenged Ghanaians, and for that matter African states, to critically examine best practices from 18th century Britain to Japan, South Korea and Taiwan in the late 20th century, to get out of the narrative that their culture, history and geography is rather impeding accelerated growth. According to Dr Chang, who is also the Director of the Centre of Development Studies, University of Cambridge, accelerated growth had little to do with culture, history and geography but much more was dependant on policy and right policies mainly. [Ha-Joon Chang:Developing countries must promote infant industries protection; Ghanaian businesses are not pragmatic: Dr Ha-Joon Chang; Africa lacks leadership that can build public sector: John Kufuor]
Uganda: 2017 Article IV Consultation (IMF)
(i) Box 2. Managing Oil Wealth. Uganda has approximately 1.7 billion barrels of recoverable oil reserves, the fourth largest in sub-Saharan Africa. The authorities aim to have oil production commence in 2020. Production would continue for over 40 years. During this period, the government expects to receive between 0.5-4% of GDP in oil-related revenue per year. A joint venture of three international companies and a government owned oil company will carry out upstream oil extraction. The international joint venture partners are expected to make final investment decisions by end-2017. Production could commence as early as 2020 and quickly rise to a peak of 200,000 barrels per day. The total investment cost of upstream extraction is approximately $8bn. The international oil companies will bring external financing, and the investment will be associated with increased imports. The government, through UNOC, has a carried interest share, and is fully involved in all commercial decisions. Additional blocks that could yield further proven reserves and thus additional revenues are set to be auctioned in the near future.
(ii) Selected Issues report. Meanwhile, Uganda’s exports have become more diversified by some measures. The share of total export to African countries has increased from about 20% in 2000 to more than 50% in 2015, while the share of exports to Europe has declined from over 50% to about 30% (Figure 11). Rising exports to EAC are also found to lead to more new products. Many indicators on export diversification and the composition of GDP still indicate scope for improvements. Despite progress in new export products and some diversification, overall export performance is below those of well-performing EAC peers.
Rwanda: IMF Executive Board Completes Seventh PSI Review (IMF)
Building on its successful ‘Vision 2020’ development strategy, the government is drafting a new ‘Vision 2050’ development strategy aimed at reaching upper middle-income status by 2035. Reforms should build on progress achieved, including:
CEMAC: Report on common policies in support of member countries reform programmes (IMF)
The World Bank Doing Business Indicators suggest that there is a large scope for improvement in the CEMAC countries. The weak business environment, reflected in the low scores of CEMAC countries relative to others, hampers private sector growth and job creation. Specifically: Looking at the overall doing business ranking, CEMAC countries lag behind peers in the West African Economic and Monetary Union region, and more broadly in sub-Saharan Africa, although they fared marginally better than SSA oil exporters. Progress in doing business ranking was uneven across CEMAC countries. Between 2005 and 2017, the rankings of Cameroon and Chad marginally improved, that of CAR and Equatorial Guinea stagnated, while Congo and Gabon’s fell noticeably (Figure 4).
Productivity in the non-oil sector in Nigeria: firm-level evidence (World Bank)
This paper examines the determinants of the productivity of Nigerian firms, using three waves of Enterprise Surveys from 2007, 2009, and 2014 and 7,670 firms. The paper uses three alternative measures of productivity, which are found to be highly correlated:
Policy framework and reform strategy for fisheries and aquaculture in Africa (Nepad)
The framework is structured around three main entities: a set of guiding and cross-cutting principles, seven main policy areas, objectives, and strategies against each of the objectives. The Policy Framework lays down the guiding principles for effecting appropriate reforms whilst the Reform Strategy suggests action steps that could be applied in the sector. The Policy Framework and Reform Strategy took into consideration: (i) regional specific priorities of common interest to all or most of the countries in each of the five regions of Africa, (ii) supporting and delivering mechanisms to assist and facilitate implementation of agreed strategies and (iii) suggesting indicators to measure success. [Note: Nepad has recently posted a wide range of related African Fisheries and Aquaculture sector documentation] [Aquaculture to play significant role in Africa’s food security]
Today’s Quick Links: AfDB EOI: Development of an automotive industrial policy framework in West Africa Ghana’s parliament ratifies treaty on establishment of Abidjan-Lagos corridor 4th IGAD Business Forum Bi-annual General Meeting: update Expanding the Russia-Nigeria trade partnership A Nigerian perspective: Whose gain is Morocco’s accession to ECOWAS? West African Capital Market integration project: stock brokers to trade across West Africa Patricia Rodrigues: Investors’ optimism wanes as President Magufuli proves unpredictable Chambi Chachage: What is Magufuli hiding about Acacia? UNU-WIDER: Choices for spending government revenue for new African oil, gas, and mining economies GREAT Insights: Mining for Development (pdf) BRIDGES: EU’s Trade Policy Review highlights trade negotiating agenda, WTO Ministerial prep |
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Countries urged to reap benefits of food trade by engaging in standards setting
FAO and WTO facilitate developing nations’ participation in fast-moving $1.7 trillion global food trade
Participation in the development of international food standards for trade is essential if countries are to reap the benefits of booming global trade and prepare for imminent technological changes, according to a joint publication issued by the UN’s Food and Agriculture Organization (FAO) and the World Trade Organization (WTO) on 12 July.
Developing countries, in particular, should invest in the capacity and skills to achieve effective engagement in institutions and multilateral bodies such as the WTO and Codex Alimentarius – the world’s primary international food standards setting body.
The publication Trade and Food Standards offers a concise explanation of how international food standards are set and applied. It advocates for deeper involvement by developing countries in both the harmonized food standard setting processes in Codex Alimentarius and the WTO’s Sanitary and Phytosanitary (SPS) and Technical Barriers to Trade (TBT) Committees.
“When food standards and international trade work hand-in-hand, they help to ensure food safety, as well as improved nutrition across the globe. This can help to promote growth and development, and to deliver on many of the new Sustainable Development Goals,” said WTO Director-General Roberto Azevêdo.
More effective engagement has also the potential to make the international $1.7 trillion market in agriculture products more inclusive, allowing small-scale food producers and processors to participate in large-scale value chains. To achieve this, governments must devote attention and muster national consensus on their food policy priorities.
Such an approach is increasingly imperative in a time of growing consumer concerns about microbes, pesticides, food additives and nutrition and of greatly increased technological abilities to control the quality, safety and origins of food products.
“Food safety and food standards are crucial to unlock the potential of an important tool to fight hunger, which is trade,” said FAO Director-General José Graziano da Silva. “Public and private sectors, operators from all parts of the food value chain, civil society organizations, academic and research organizations – all have essential roles in developing sound and credible systems of food safety management.”
Road map to engagement
The central body for food standards is Codex Alimentarius, jointly run by FAO and the World Health Organization (WHO). Codex, whose 188 Members represent 99 percent of the world’s population, has since its establishment in 1963 promulgated food standards, guidelines and codes of practice covering almost 200 food commodities and more than 300 food additives and defined almost 5 000 maximum pesticide residue limits.
The WTO’s SPS and TBT Agreements set out the basic rules on how governments can apply food safety and animal and plant health measures as well as technical regulations for policy objectives including human health and safety, environmental protection and consumer information. The SPS Agreement makes specific reference to standards developed by Codex for food safety, and WTO members frequently refer to these standards in discussions in the TBT Committee.
While emerging economies have recently begun to increase their participation in key Codex and WTO committees, levels of participation by many least-developed country members remain low.
One key message of the book is that countries will get most value from participating in such work if they bring together government officials and agriculture, health, industry and trade experts, as well as consumer and producer groups, to identify national food safety and quality priorities and identify possible means to address them.
Challenges ahead
The publication also illustrates some of the drivers of change in the area of food regulation – digitalization, new production and processing technologies, and e-commerce, as well as labelling trends, new trade deals and changing dietary and consumer preferences – that will all have an increasingly profound impact on the food trade and food safety landscape.
Traceability of food products is increasingly obligatory to allow for the rapid response to outbreaks of foodborne disease. Methods to measure radiation, pesticides and other chemical contaminants in food stuffs are increasingly sensitive and underline the growing importance for developing countries’ capacities to assess associated risks and to appropriately manage and communicate them.
Such developments pose formidable challenges to many developing countries, where food control, inspection and certification systems are often in their infancy and supply chains are often fragmented and not well developed. The WTO, FAO and others have created a partnership, The Standards and Trade Development Facility (STDF), to disseminate best practices and support projects to help developing countries enhance market access by complying with international standards.
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Aid for Trade: ITC launches Export Potential Map for more targeted trade
New online tool makes it easier for businesses in developing countries to identify and target market opportunities.
The International Trade Centre (ITC) on 12 July 2017 unveiled Export Potential Map, the latest addition to a series of online tools that makes it easier for businesses and countries to identify what goods and services to export and to where.
Presenting the Export Potential Map at the Aid for Trade Global Review, which takes place at the World Trade Organization (WTO) in Geneva on 11-13 July, ITC Executive Director Arancha González said: ‘Export Potential Map is an innovative tool that will enable developing countries and their companies to make better export decisions based on rigorous economic analysis. It will allow companies to target new markets and for policymakers to optimize their policies and support programmes for their exporters.’
To ensure that companies can target new markets it is important that they have evidence on trade costs and expected demand. This is also crucial to allow policymakers and trade support institutions to optimize the policy environment and support programmes for existing and would-be exporters.
Yet, figuring out a country’s export potential – and especially, which goods and markets would best contribute to sustained economic development – is as complicated as it is necessary.
Export Potential Maps helps companies, institutions and policymakers get answers to these questions, allowing them to rapidly understand their country’s export opportunities.
Building on ITC’s methodology for assessing trade potential, Export Potential Map translates complex economic analysis into practical information about new export markets and products.
Export Potential Map pulls in data from a range of sources including import and export data, tariffs, gross domestic product, and geographic data. Based on this data, the tool can quickly carry out evaluations of a country’s potential to export: in specific sectors and to what markets. This represents a unique opportunity for developing countries to ramp up their exports.
For example, least developed countries (LDCs) on average export to four markets only. Export Potential Map suggests additional markets that offer good demand and tariff conditions for goods exported by LDCs. In addition, the tool helps identify options to diversify and expand the range of products LDCs export.
Information on Export Potential Map is available for 222 countries and territories at a very detailed product level. The web tool has a user-friendly interface and innovative visualizations that can be easily downloaded, shared on social media and embedded into reports or websites.
Export Potential Map is free to use and can be accessed on http://exportpotential.intracen.org/.
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IMF Executive Board 2017 Article IV Consultation with Uganda
On July 7, 2017, the Executive Board of the International Monetary Fund (IMF) concluded the 2017 Article IV consultation with Uganda and completed the eighth review of Uganda’s economic performance under the Policy Support Instrument (PSI).
Uganda has made remarkable achievements over the past decades. Growth averaged 8 percent per annum during 1992-2010, tripling per capita GDP and more than halving poverty to 35 percent – one of the strongest performances in sub-Saharan Africa. The performance was underwritten by sound macroeconomic policies and institutions, and a reliance on the private sector as the engine of growth. The inflation targeting framework introduced in 2011 has served Uganda well. Uganda hosts over one million refugees in an integrative approach that has been praised as international best practice. The country’s challenge going forward is to rebuild momentum for continued high and inclusive growth.
The outlook is broadly favorable. With steadfast policy implementation and assuming improved weather conditions, growth could accelerate to 5 percent in FY17/18. Over the medium term, infrastructure and oil sector investments could yield growth rates of 6 to 6½ percent. Core inflation is projected to stay close to the 5 percent target. With the planned infrastructure investments, public debt would increase but remain manageable, assuming that the investments lead to higher growth and the government continues to increase its revenue collections. Reserves are projected to remain at comfortable levels. Risks to this outlook are tilted to the downside, in particular from weak implementation of public investments, adverse weather, and difficult regional developments.
Staff Report
Recent developments
Growth slowed during the first half of FY16/17, reflecting domestic factors and external headwinds. The drought in the Horn of Africa is likely to have reduced growth by about ½ percentage point, mainly in the agricultural sector and food processing industry, exposing some 11 million Ugandans to food insecurity. In addition, subdued credit growth was a significant drag, and the slow execution of externally-financed public investment and the impact of spillovers from regional conflict also had a negative impact on growth. The initial estimate from the Ugandan Bureau of Statistics has growth at 1.6 percent in H1-FY16/17. Leading indicators suggest a pickup in economic activity in the second half of FY16/17, following a resumption of normal weather patterns. Projections assume that the fall armyworm infestation can be controlled, and renewed momentum in the growth of services. With this, the authorities and staff estimate growth of 3.9 percent for the year (about ½ percent in per-capita terms), down from 4.7 percent in FY15/16. This assumes that the initial H1 estimate will be revised up.
Macro-financial linkages explain part of the growth slowdown. Non-performing loans (NPLs) have become elevated (6.3 percent at end-March), and banks have tightened lending standards in response. As a result, real private sector credit growth (adjusted for valuation effects) turned negative in late 2016, and is recovering only slowly. NPLs are concentrated in agriculture, construction, and trade and commerce. A BoU survey suggests that NPLs arose from government domestic arrears in FY15/16, diversion of borrowed funds and fraudulent activities, the effect of political instability in South Sudan, and the impact of the economic downturn and recent exchange rate and interest rate volatility.
Headline inflation has edged up, mainly reflecting the effects of the drought. Food price inflation rose from 5 percent year-on-year in September 2016 to 23.1 percent in May 2017. With this, headline inflation registered 7.2 percent year-on-year in May. Core inflation was 5.1 percent year-on-year in May, in line with the BoU’s 5 percent target.
The current account deficit narrowed. The deficit dropped to an estimated 2 percent of GDP in H1 FY16/17, driven mainly by lower investment-related imports. Financial inflows remained broadly stable. The overall balance of payments registered a surplus of 0.6 percent of GDP. The Ugandan shilling has stabilized against major currencies, while the real effective exchange rate depreciated by 2 percent since July 2016.
Implementation of the FY16/17 budget has been mixed. Revenue collection in nominal terms was slightly lower-than-projected through March, reflecting lower nominal growth than underlying the program. Policy and administration measures have performed well, yielding a near ½ percent of GDP increase in the revenue ratio. Recurrent expenditures were ¼ percent of GDP ahead of program projections at end-March – broadly corresponding to additional domestic arrears clearance – and the government had prepared two supplementary budgets to meet the additional needs, including for drought-related food relief. Domestically-financed development spending is on track, but there was significant under-execution of the foreign-financed development budget and construction of the two hydropower dams. Given the slow pace of public investment execution, the overall fiscal deficit for Q1-Q3 FY2016/17 was 3 percentage points of GDP lower than anticipated, and is projected at 3½ percent of GDP for the year, compared to 6 percent at the time of the seventh review.
With only a few weeks to go in the fiscal year, the authorities revised their financing strategy, relying again on BoU advances. The government decided to curtail domestic securities issuance compared to the program, given concerns over the pace of debt accumulation. They also decided against repaying the BoU advances taken in FY15/16, contrary to their original intentions of repaying in full. Instead, the government again took recourse to BoU advances as defined under the program, though in their interpretation it is a drawing down of government deposits at BoU. Given that BoU had already issued securities in line with the program, all June auctions were cancelled, entailing a large injection of liquidity that subsequently had to be mopped up with costly repo issuance.
Economic outlook and risks
With sound and steadfast policy implementation, Uganda’s economic outlook is broadly favorable. If weather conditions continue to improve, private sector credit recovers, and the public investment program is implemented as planned, growth could accelerate to 5 percent in FY17/18. Over the medium term, infrastructure and oil sector investments could yield growth rates of 6 to 6 ½ percent (Box 2). Such growth rates would require private sector credit to grow by 10-11 percent per annum in real terms. The authorities broadly agree with the outlook, while anticipating a somewhat higher growth dividend over the medium term from the planned infrastructure and oil sector investments.
The current account deficit will be driven by developments in the oil sector in the coming years. Initially, the deficit is projected to widen, driven by investment-related imports. Once oil exports start, the current account is projected to gradually improve and turn into a surplus. International reserves are projected to remain at around 4½ months of prospective imports.
Risks are tilted to the downside. Weak implementation of public investment and regional developments (conflicts, possible disruptions during upcoming elections), could undermine growth, as could a slowing of global trade. Renewed accumulation of government domestic arrears would aggravate banks’ NPL problem, and hit growth via the credit channel. Uncertainty persists over when oil production will commence and the phasing of investment in the sector. The agricultural sector remains exposed to climate conditions and pest infestations, with the spread of the fall armyworm posing an immediate danger. A large shilling depreciation could impact foreign investor holdings of government securities and contribute to rising NPLs. Tightening global financing conditions could hold back portfolio inflows and reduce offshore participation in Uganda’s Stock Exchange. Lastly, cuts in aid flows would undermine the sustainability of spending, particularly in the social sectors.
Box 2. Managing Oil Wealth
Uganda has approximately 1.7 billion barrels of recoverable oil reserves, the fourth largest in sub-Saharan Africa. The authorities aim to have oil production commence in 2020. Production would continue for over 40 years. During this period, the government expects to receive between 0.5-4 percent of GDP in oil-related revenue per year.
Oil Extraction: A joint venture of three international companies and a government owned oil company (Uganda National Oil Company, UNOC) will carry out upstream oil extraction. The international joint venture partners are expected to make final investment decisions by end-2017. Production could commence as early as 2020 and quickly rise to a peak of 200,000 barrels per day. The total investment cost of upstream extraction is approximately US$8 billion. The international oil companies will bring external financing, and the investment will be associated with increased imports. The government, through UNOC, has a carried interest share, and is fully involved in all commercial decisions. Additional blocks that could yield further proven reserves and thus additional revenues are set to be auctioned in the near future.
Pipeline and Refinery: There will be two outlets for extracted crude oil:
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A pipeline to be constructed by a joint venture of the above-mentioned international companies, a subsidiary of UNOC and the government of Tanzania (costing US$4-5 billion) will transport oil from Uganda to a sea port in Tanzania, allowing crude oil to be sold on international markets.
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A domestic oil refinery (with initial capacity of 30,000 barrels per day) will be constructed by a joint venture consisting of a UNOC subsidiary and other partners yet to be identified. Refined petroleum products are expected to be sold domestically and in the region at market prices.
Regulatory and Fiscal Regime: A Petroleum Regulatory Authority was established in 2015 to oversee the entire oil sector. The Public Financial Management (PFM) Act of 2015 requires all oil revenue to be deposited in a Petroleum Fund. Tax arrangements for upstream oil production are governed by Production Sharing Agreements (PSAs) between the government and joint venture partners that provide for: (i) royalties; (ii) distribution of ‘profit oil’ between the government and the joint venture partners according to the daily rate of production (where ‘profit oil’ is the surplus of oil over the amount needed to cover the royalty and other costs); (iii) corporate income tax (30 percent rate); and (iv) state participation, so that development costs owed by the government as a joint venture partner are initially covered by the private partners and then later repaid out of the government’s share of profits.
Outstanding Issues: Construction of the pipeline must be completed before oil production commences, and the authorities also aim to have the refinery operational in time. The tax regime for the pipeline is under negotiation between the governments of Uganda and Tanzania, while that for the refinery is also still to be determined. Public road infrastructure is required to allow access to oil fields and the government is seeking external financing to commence road construction as soon as possible. A policy on the use of oil revenue deposited in the Petroleum Fund needs to be developed, to ensure an appropriate balance between investment and saving. For now, withdrawals from the Petroleum Fund are limited to infrastructure spending. However, when the previous Oil Fund was closed, its resources were pooled in the Consolidated Fund, and the ringfencing of the saved oil revenue for infrastructure was dropped.
Policy Discussions
The 2017 Article IV consultation centered around the macroeconomic framework underpinning the authorities’ development strategy. Specifically, discussions focused on: (i) balancing infrastructure investment, social spending needs, and debt sustainability; (ii) macro-financial linkages and growth prospects; and (iii) other policies to foster inclusive growth. With fiscal policy mainly focused on the development strategy, monetary policy is the main instrument for counter-cyclical policy. In the near term, high NPLs impede credit and weigh on activity. Over the medium term, financial sector deepening is needed to promote sustained and inclusive growth.
Regional Integration
The authorities remain committed to the process of economic integration within the East African Community (EAC). EAC partner states announced that a Single Customs Territory (SCT) system will take effect on July 31. The SCT is intended to harmonize and electronically connect EAC countries’ customs clearance systems to reduce the number of customs checkpoints and clearance delays at borders, and thereby reduce the costs of doing business. The harmonization of customs systems under the SCT is likely to gradually reduce customs delays and operational disruption along transport routes, by facilitating the clearance of goods and the remittance of customs fees charged at the port of entry to the relevant country. Implementation of the SCT is also likely to reduce customs-related corruption risks, through the digitization of systems, simplified procedures, and enhanced transparency.
Work is also advancing to achieve regional harmonization objectives, in keeping with the East African Monetary Union Protocol objectives. This includes key fiscal priorities such as: harmonization of domestic taxes and the approach to international tax treaties and negotiations, to help ensure a level playing field in the EAC common market, and strengthen tax administration through efforts to reduce tax expenditures and broaden the tax base. Efforts are also ongoing to strengthen harmonization in other areas, including: regulatory and prudential frameworks, systemic risk analysis, and monetary policy implementation and operations. Also important is the adoption of common principles and rules for payments and settlements and eventual harmonization of payments and settlements systems and the harmonization of monetary and financial sector statistics, balance of payments, government finance statistics and price indices; and improved data quality. The IMF is providing extensive technical assistance in these areas.
Selected Issues paper
Uganda’s experience under the 2013 PSI
The current PSI was approved by the IMF’s Executive Board in June 2013 with an initial duration of three years. Following a one-year extension in 2016, it was set to expire in June 2017, before being extended again through end-July 2017. The overarching objective of the 2013 PSI was to support inclusive growth through macroeconomic stability and structural reforms. Specific priorities included (i) enhancing revenue through measures to broaden and deepen the tax base and improve tax administration; (ii) improving the effectiveness of PFM; (iii) preparing the economy for oil production and management of petroleum revenues; (iv) moving from inflation targeting ‘lite’ to full-fledged inflation targeting; and (v) improving the business environment, supporting the development of the financial sector, and continuing to maintain financial sector stability.7 In practice, a critical objective was to ensure that the scaling-up of infrastructure investment was properly implemented, while safeguarding the debt sustainability low risk of distress rating.
The external environment influenced Uganda significantly, as a small open economy with a freely-floating exchange rate. In FY2014/15, the Ugandan shilling declined by 27 percent vis-à-vis the US dollar year-on-year (with the depreciation reaching nearly 40 percent in August 2015), as the economy was affected by global liquidity concerns, negative shocks in neighboring countries and trading partners, and election-related nervousness. As a commodity importer, Ugandan imports benefited from the oil price shock, even if in the medium run it represents a risk which could have delayed investment decisions in the domestic oil sector. Uganda was however also negatively affected by the commodity price decline, including for coffee, Uganda’s largest export commodity. Security concerns in the region have also impacted sentiment, and more recently, the South Sudan crisis has led to a decline in Ugandan exports and remittances, and an exponential increase in refugee arrivals. Droughts have affected the economy and triggered a spike in food prices in 2013 and more recently in 2016-17. Reduced development partners’ aid budgets as the 2013 PSI started also spurred domestic borrowing requirements.
Rebasing led to an upwards revision in GDP in November 2014. Improved methodologies and coverage showed a FY2009/10 GDP that was 17 percent larger than previously believed. Thus, some indicators experienced significant change, including the debt-to-GDP ratio, (almost 4 percentage points lower, and the tax-to GDP ratio (about 1 percentage point lower).
Growth diagnostics
External factors have been largely supportive to growth. An analysis based on IMF (2017b) showed that external factors have positively supported Uganda’s per capita GDP growth in 2000-2014, when the trend slowdown started. Three main external factors are external demand, external financing conditions, and terms of trade changes. The external financial condition has had a positive and rising impact in the last decade. The estimated impact on Uganda’s per capita GDP growth was about ¾ percentage point (ppt) in 1995-99, increasing to about 1¼ ppts in 2010-14. Second, the external demand is also estimated to have had a positive impact. The estimate was 1½ ppts in 1995-99, declined to about 1 ppt in 2000-04, and remained at about 1¾ ppts throughout 2005-14. Third, the terms of trade have had a negative but marginal impact, and the size of the negative impact has become smaller in the last five years than in 2000-04. Thus, external factors cannot explain the trend growth decline in 2010-14. The following analyses further examine what other factors could explain the slowdown of the trend growth, starting from productivity growth and then continuing with factor contributions.
Productivity Trends
Uganda’s agricultural productivity has declined since the early 2000s, while that of fast-growing peer countries continued to rise. Agriculture employed about 70 percent of the labor force, and thus it has a significant impact on overall productivity and poverty reduction. Uganda’s agricultural output per worker recorded a steady rise between 1990s and early 2000s, but then started to decline. In contrast, the average agricultural output per worker in other major EAC countries has largely continued to rise. Uganda’s Ministry of Finance, Planning and Economic Development (MoFPED) (2014) find that the dominance of small-holder farms coupled with weak agricultural extension services likely contributed to the decline in agricultural productivity.
More recent survey data also indicate productivity decline in agriculture and manufacturing sectors. A recent Bank of Uganda (BoU) analysis finds that productivity in agriculture and manufacturing sectors declined by about 2 percentage points between 2002/03 and 2012/13 even though both sectors experienced positive employment growth. In addition, the MoFPED (2014) finds that sub-sectors that experienced employment growth were those with low productivity, such as retail trade and agriculture, while high productivity sectors (e.g., manufacturing, transport and communication) had lower employment growth. Such a pattern of higher employment growth in lower productivity sectors would further reduce the economy-wide productivity. The shift of more labor to less productive sectors also undermines structural transformation as documented in some African countries. In contrast, during the high growth period of the 1990s, about 90 percent of Uganda’s growth could be attributed to productivity growth, benefiting from the initial market-liberating reforms. Therefore, productivity decline is likely a major domestic contributor to the growth slowdown.
Structural Transformation and Diversification
Drawing on cross-country evidence, IMF (2014) find that such transformation and diversification boosts growth and reduces its volatility. The following analysis benchmarks Uganda’s performance with those of the EAC peers that continue to show a strong growth momentum.
Uganda has improved export performance, although primary products still dominate. World Bank (2015) finds that Uganda’s exports have included about 60 new products, while the traditional concentration in coffee and cotton exports has declined. The share of the top five products has declined from about 86 percent in the 1990s to about 55 percent in early 2010s. Several new exports (e.g., flowers, wood, and minerals) and some manufactured products (processed leather and construction materials) have emerged, although top export products continue to be primary goods. Meanwhile, Uganda’s exports have become more diversified by some measures. The share of total export to African countries has increased from about 20 percent in 2000 to more than 50 percent in 2015, while the share of exports to Europe has declined from over 50 percent to about 30 percent. Rising exports to EAC are also found to lead to more new products.
Many indicators on export diversification and the composition of GDP still indicate scope for improvements. Despite progress in new export products and some diversification, overall export performance is below those of well-performing EAC peers. Total export of goods of Uganda has remained at about 10 percent of GDP since the mid-1990s, although service export increased. In addition, country-level market diversification has declined, indicating rising export concentration in a few countries, while, for example, Kenya recorded a steady rise in market diversification in the same period. With limited market diversification, export performance is more vulnerable to changes in a few countries, as evidenced by the recent adverse impact from South Sudan and DRC. Furthermore, while the industrial sector increased from about 15 percent of GDP in mid-1990s to about 25 percent in FY2006/07-FY2007/08, this sector’s share has since declined and leveled off at about 20 percent of GDP over the last decade, indicating limited structural transformation and risk of premature de-industrialization.
Policy implications
Accelerating business environment reforms would support productivity growth of the private sector. Enhancing Uganda’s competitiveness requires faster progress in reforms to support business creation and growth, trading across borders, and more effective fight against corruption. Improving financial market infrastructure (e.g., credit bureau and collateral registry) and liberalizing financial market to support long-term finance would help enhance credit to the private sector. Meanwhile, some targeted government interventions in key sectors could help. For example, MoFPED (2014) finds that agricultural extension services are key to boost agricultural productivity, while supports to specific firms are largely ineffective. Hausmann and others (2015) and World Bank (2016b) find that government can more actively support core infrastructure, reduce regulatory barriers, and coordinate firm clusters in labor-intensive agro-industry that fully utilize Uganda’s comparative advantages, as well as manufacturing industries around transport corridors to capitalize on the improved infrastructure. Furthermore, a strong monitoring and evaluation system is critical to learn from experiences and improve the focus and efficiency of government interventions in supporting structural transformation. Finally, the authorities’ focus on fighting corruption would also ease the burden on private business while boosting investor confidence. Policy measures include increasing public contract and regulatory transparency and establishing mechanisms for independent public scrutiny, including direct monitoring by the public or via non-government organizations. The anti-corruption hotline introduced by the Uganda Investment Authority recently is a step in the right direction.
Advancing EAC integration could further support Uganda’s export diversification and structural transformation. EAC integration can provide land-locked Uganda with a much larger market, expand Uganda’s investment and job opportunities, and offer opportunities for pooling resources in regional infrastructure and financial sector development. These opportunities in turn can further boost exports and strengthen Uganda’s growth. Potential measures include educating farmers about export standards and accelerating inter-governmental agreements on regulatory harmonization.
Financial inclusion and development
A well-developed financial sector is important for economic growth. International evidence supports the existence of strong linkages between financial development and growth and reduced inequality. Financial development can help lift a country’s growth potential by mobilizing savings, promoting a more efficient allocation of capital, facilitating economic diversification and risk management, and can reduce income inequality by easing credit constraints on the poor. Enhanced financial development initially promotes financial stability and greater economic resilience, by strengthening financial buffers and broadening the range of instruments available for responding to adverse shocks.
The introduction of mobile money technologies has helped Uganda and its regional peers achieve the twin goals of developing their financial markets efficiently and expanding financial inclusion. New cost-saving financial products include mobile money products and transactions and banking services and technologies. Although Kenya has been at the forefront of this mobile money technology, Uganda, Tanzania and Rwanda have also been successful in using this technology, with over 80 percent of all mobile money transactions in 2011 reportedly processed in East Africa. While the range of mobile money financial products continues to grow, ensuring that the supervisory framework keeps pace with financial innovation in the sector will be important.
Uganda has achieved significant gains in expanding both the number and range of financial service providers and products. It achieved among the lowest share of the population excluded from access to financial services among the SSA countries reviewed by FINSCOPE, after accounting for nonbank formal and informal credit channels. The rapid growth in utilization rates achieved between 2010 and 2015 has established Uganda as an emerging industry leader, with over 21 million registered users and mobile money transactions valued at 44 percent of GDP.
Financial Gaps
Throughout the review period, actual financial development in Uganda was below potential. Financial gaps were computed for each of the indices and sub-indices – namely, the difference between the estimated values/benchmarks based on underlying fundamentals and actual financial development indices. The data show that Uganda’s financial development gaps were positive, meaning below potential, throughout the review period, and that the gaps increased throughout much of the review period.
Uganda’s financial development gaps also exceeded those of other EAC countries and many lower middle-income peer countries. Uganda’s gaps were largely attributable to underperformance in financial institutions efficiency and depth, and financial market access.
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UNCTAD’s Mukhisa Kituyi: The road to inclusive e-commerce in Africa
According to UNCTAD’s e-commerce index, Africa is trailing far behind in terms of readiness to engage in and benefit from e-commerce. The index is composed of four factors: (i) Internet use, (ii) credit card penetration, (iii) postal reliability, (iv) the number of secure, encrypted internet servers per capita. The average score for developed countries is 71, for Africa it is 24. And even in comparison to other developing regions, Africa is at the bottom in all four areas. On top of this, Africa’s inadequate regulatory framework is not conducive to foster trust on line, which is an essential element of any well-functioning market. In fact, less than 40% of African countries have established data protection and consumer protection laws. As more and more consumers and firms turn to the internet, to buy and sell goods and services, online presence becomes vital. And in a few years, if firms do not exist on the web, they will not exist at all. In Africa, under the current circumstances, e-commerce can exacerbate exclusion rather than inclusion, putting African entrepreneurs at a disadvantage in the evolving digital economy. This is something we have to avoid.
ECA’s Stephen Karingi: comments at Africa Session of the Aid for Trade Global Review 2017
Mr Karingi said key initiatives on the continent for boosting intra-African trade include the on-going Continental Free Trade Area negotiations, which are set to be concluded this year, and the Boosting Intra-African Trade initiative (BIAT). BIAT, he said, is a useful framework for addressing connectivity issues in Africa while the CFTA aims to, among other things, create a single continental market for goods and services, promote the free movement of business persons and investments and expand intra-African trade. The CFTA is also expected to enhance competitiveness at the industry and enterprise levels. Mr Karingi also spoke about the Action Plan for Boosting Intra-African Trade which has seven priority clusters: trade policy, trade facilitation, productive capacity, trade-related infrastructure, trade finance, trade information and factor market mobility. “For Aid for Trade to deliver on Africa’s priorities, it should be aligned with these frameworks and the continent’s priorities.”
The role of Aid for Trade in boosting intra-African trade: executive summary (pdf, WTO)
E-commerce was also seen by the African respondents as an emerging opportunity. However, significant challenges remain for African countries to connect. Going forward, Aid for Trade is likely to play a larger role in addressing the physical and regulatory constraints to digital connectivity. Digital connectivity intertwines with physical connectivity, and there are clear links between closing the digital gap and the priority clusters of the Action Plan for Boosting Intra-African Trade.
Given the ongoing CFTA negotiations, there is scope to extend support to trade policy. The proportion of regional and sub-regional projects in trade policy is approximately 34%, which is higher than for many other areas of Aid for Trade. Support for this area in general and in regional initiatives, however, has been falling in the recent years. Going forward, it is important that adequate support be guided towards Africa’s regional integration and global agendas, both at the regional and national levels. In the context of the CFTA, technical assistance is required for addressing limited capacities in negotiating and implementing commitments on services trade, investment frameworks, competition and intellectual property rights. Aid for Trade could also play a role in addressing the short-term adjustment costs that are likely to be experienced by some countries in the CFTA process.
Aid for Trade at a Glance 2017: Promoting trade, inclusiveness and connectivity for sustainable development. The publication reviews action being taken by a broad range of stakeholders to promote connectivity for sustainable development, including by governments, their development partners and by the private sector. One message that emerges strongly is that participation in e-commerce requires much more than a simple Internet connection. Table of contents:
Foreword and Executive Summary
Chapter 1: Overview
Chapter 2: Setting the scene
Chapter 3: Digital connectivity and trade logistics
Chapter 4: The contribution of services trade policies
Chapter 5: Spanning the Internet divide to drive development
Chapter 6: Improving the e-trade environment
Chapter 7: Harnessing e-commerce for sustainable development
Chapter 8: Closing the small business and gender gap
Chapter 9: Promoting trade inclusion in the least developed countries
Chapter 10: Public-private priorities for aid for trade in the digital era
Chapter 11: Financing connectivity
Chapter 12: Aid for inclusive trade and poverty reduction
Aid for Trade country profiles, Profiles by country, Statistical Notes and Annexes (including Aid for Trade key data)
Germany’s new AfT strategy is posted. The key themes are (pdf): integration and trade policy, quality infrastructure, trade facilitation, productive capacities, promotion of investment and competition, and economic infrastructure.
Sub-Saharan Africa to see huge mobile subscriber growth: GSMA presentation
The latest State of Mobile Money in Sub-Saharan Africa presentation (pdf) reveals that the number of live mobile money schemes in the region had reached 140 across 39 countries at the end of last year, accounting for more than half of the 277 mobile money deployments worldwide. The study points to a decade of growth in mobile money services in the region following the launch of M-Pesa in Kenya in 2007. It notes that there are now seven markets in the region where more than 40% of adults are active mobile money users: Gabon, Ghana, Kenya, Namibia, Tanzania, Uganda and Zimbabwe. There were 277 million registered mobile money accounts across Sub-Saharan Africa at the end of 2016, plus 1.5 million registered agents. Mobile money users have historically been concentrated in East Africa. However, the latest data suggests that user growth is now being driven by other markets in the region, notably West Africa. Almost 29% of active mobile money accounts in Sub-Saharan Africa are now based in West Africa, compared to just 8% five years earlier.
Huawei agrees to deal to help African expats send money home (Bloomberg)
Huawei Technologies Co. said it will partner with British money-transfer operator WorldRemit Ltd. to enable African expatriates to send cash home to more than 100 million users of the Chinese company’s mobile-money service platform. The deal will let Huawei and WorldRemit tap into growing demand for money transfers from Africans living abroad using mobile-payments services, which are popular in places where banks are scarce or unreliable. All carriers that are Huawei partners will be able to use the service, the two companies said in an emailed statement Tuesday.
Egypt, Russia agree to build industrial zone in Suez Canal area (Xinhua)
The industrial zone will cover an area of 2 million square meters in the east of Suez Canal city of Port Said, according to the memorandum. Russian car makers, petrochemical enterprises, energy and medical companies are expected to build production facilities within the zone, which is planned to start operations in late 2018. He added that it is expected to become the first step to build infrastructure to bring Russian products to the African markets, while African markets will be more actively cooperating with Russian firms following the formation of an industrial zone.
Nigeria Industrial Policy and Competitiveness Advisory Council identifies five areas for industrialisation (Punch)
The Minister of Industry, Trade and Investment, Okechukwu Enelamah, said: “We have identified five top priority areas of critical infrastructure, financing, trade, skills and capacity building. Those are the five areas the committee will focus on and we have divided ourselves into groups. Next time we meet you, we will be telling you the priority areas we have focused on and the implementation solutions we have focused on.” The minister stated that members of the committee had committed to making sure that both the private and public sectors collaborate to solve the most pressing problems and challenges facing industries and industrialisation in Nigeria. [Related: Nigeria’s Aliko Dangote to invest $4.6bn in agriculture, Adeosun: Nigeria can no longer afford to borrow to fund its budget, EU, Nigeria to facilitate trade, investment dialogue]
Kenya moves to ease trade dispute with Dar (Business Daily)
Kenya has announced plans to buy new equipment for testing cooking gas entering the local market by road at border points in a move that could end the raging trade dispute with Tanzania. The Energy Regulatory Commission said yesterday it was procuring two test machines - gas chromatography-mass spectroscopy - for the inspections. This came after Ministry of Energy officials in May banned gas imports from Tanzania through land border due to failure to meet safety standards that exposed Kenyan consumers to the risk of cylinder explosions.
Great Lakes region: How trade is essential to regional peace and prosperity (UNCTAD)
Special Envoy Said Djinnit highlighted the need to ensure that political engagement goes hand-in-hand with multi-sectoral approaches. “More than ever, the Great Lakes Region requires predictable, coordinated and coherent support to avoid reversing the progress achieved to date,” he said. Discussions at the meeting (11 July) focussed on the Great Lakes Regional Strategic Framework – a multi-agency, regional and cross border coordination mechanism which fosters collaboration between stakeholders working towards solving and preventing conflicts and crisis in the region. The GLRSF also outlines the coordinated UN response in support of the implementation of the Peace, Security and Cooperation Framework for the Democratic Republic of Congo and the Great Lakes region. [Summary: UNSC debate on DRC, electoral process]
Rural electrification: How much does Sub-Saharan Africa need the grid? (World Bank)
This level of investment in grid extension is politically popular in many donor organizations and national governments, including those in Africa. It is seen – rightly – as a key part of the infrastructure development needed to achieve the economic transformation required for achieving the standard of living of industrialized countries. Moreover, there is some empirical evidence that electrification has contributed to economic growth and modernization in India, Southeast Asia, and Brazil, among other countries in Asia and Latin America. But to what degree can that experience apply to Africa? [The authors: Michal Tolman, Jörg Peters]
Arm’s-length trade: a source of post-crisis trade weakness (World Bank)
Trade growth has slowed sharply since the global financial crisis. US trade data highlights that arm’s-length trade —trade between unaffiliated firms—accounts disproportionately for the overall post-crisis trade slowdown. This is partly because arm’s-length trade depends more heavily than intra-firm trade on emerging market and developing economies, where output growth has slowed sharply from elevated pre-crisis rates, and on sectors with rapid pre-crisis growth that boosted arm’s-length trade pre-crisis but that have languished post-crisis.
Regional trade agreements, integration and development (UNCTAD)
This paper explores the question of how trade agreements affect inequality using two levels of analysis. The first is at the national level. A sovereign State can join an existing RTA or create a new one with its trading partners. The introduction of new trade relationships will affect between-household inequality in member States mostly through the impacts on the labour markets and wage earnings, akin to the general links between trade and poverty, although the direction is unclear. The second level is regional. Not all neighbouring States have RTA relationships. Yet where an RTA exists, even non-member States are impacted by changes in trade flows. That is, there are potential impacts for a country that is not in a formal RTA but trades extensively with countries that are highly exposed to regional agreement with other countries. This feature is incorporated into the analysis by estimating the effects of RTAs enacted by trading partners of a country with third parties. To differentiate this from the direct benefits of being a party to an RTA, this indirect measure is referred to as external exposure to regionalization.
Today’s Quick Links: Eleven of world’s leading banks to work with UN to promote climate transparency in financial markets Asia-Pacific moving in ‘wrong direction’ on some development targets, notes UN regional SDGs report Mitsuhiro Furusawa: The international tax dimension of economic growth in Asia International Taxation in Asia conference: issues and the way forward Peer Pressure: Tax competition and developing economies |
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Faster, better and together: the road to inclusive e-commerce in Africa
“Small is beautiful, small is powerful”. This is the creed embedded in the foundation of a global e-commerce giant: Alibaba. But the creed does not only define the genesis of a company. It also reflects the power and scope of e-commerce around the globe.
This is what makes e-commerce so formidable: the possibility of turning a small firm into a global giant; the possibility of bringing new, better and cheaper products to consumers; the possibility of opening new markets to anybody with a good idea, internet and a computer - and this includes your mobile phone.
Today, you do not need to be big to be global. The internet changed that forever. But we have to be smart to make sure we do not miss the opportunity e-commerce represents: both as an engine of growth and as a source of inclusiveness.
In 2015, the value of e-commerce worldwide was estimated as more than US$ 25 trillion. This is more than the GDP of the USA in the same year. E-commerce is big business. But there are sharp differences on how countries use it and profit from it. This contrast is nowhere more evident than in Africa, where way below 5% of the population shops on line. In Europe this share is as high as 60-80%.
According to UNCTAD’s e-commerce index, Africa is trailing far behind in terms of readiness to engage in and benefit from e-commerce. The index is composed of four factors: 1) Internet use; 2) credit card penetration; 3) postal reliability; and 4) the number of secure, encrypted internet servers per capita. The average score for developed countries is 71, for Africa it is 24. And even in comparison to other developing regions, Africa is at the bottom in all four areas.
On top of this, Africa’s inadequate regulatory framework is not conducive to foster trust on line, which is an essential element of any well-functioning market. In fact, less than 40% of African countries have established data protection and consumer protection laws.
As more and more consumers and firms turn to the internet, to buy and sell goods and services, online presence becomes vital. And in a few years, if firms do not exist on the web, they will not exist at all. In Africa, under the current circumstances, e-commerce can exacerbate exclusion rather than inclusion, putting African entrepreneurs at a disadvantage in the evolving digital economy. This is something we have to avoid.
We, the international community, governments, private sector and the civil society, have to pave the road for the inclusive digital commerce we want, where men and women, of all ages, can benefit from inclusive digital trade, or as we call it: eTrade for all.
Building this road is not an easy task, and how we do it is as critical as the efforts we put into the endeavor. We have to do it Faster, Better, and Together.
We need to respond faster to the gaps and challenges that prevent people and small businesses from profiting from e-commerce. For instance, accessing the Internet is one of these issues. In Africa, nearly 75% of the people do not use or have access to internet. And if you are a woman you are even less likely to have access. These gaps matter and we have to narrow them down.
In response, UNCTAD has created a Rapid e-Trade Readiness Assessment to help countries to quickly identify barriers to further e-commerce development. Liberia is the first country in Africa that will undergo such an assessment and we expect many more countries from the region to follow in the coming months.
But responding faster is not enough. We also have to do it better. And this implies learning from the past to better seize the opportunities e-commerce presents. We have learned that trade creates winners, but also losers, and that let alone on its own, trade can widen disparities rather than closing them.
This time we need to take policy measures that ensure e-commerce does not only benefit the big firms, but also the smaller ones. In other words, we must enable a mother in Africa to sell her handmade baskets to a customer in Argentina; a farmer in the Philippines to sell its mangos to the UK; and any hard working man or woman in this world to benefit from global trade.
And there is only one way we can undertake such an endeavor: together.
Today there are many organizations − national, regional and international − that offer assistance in different areas of e-commerce to developing countries. But current efforts are simply inadequate. They are highly fragmented and insufficient in scale.
We can achieve much more together, and this was the genesis of the UNCTAD-led eTrade for all initiative.
The initiative raises awareness of opportunities, challenges and solutions related to e-commerce in developing countries. It mobilizes financial and human resources for e-commerce projects and strengthens coherence and synergies among partners’ activities.
The main tool is an online platform (etradeforall.org), which helps developing countries and donors navigate the supply of technical and financial support available to foster e-commerce and digital trade, learn about trends and best practices, and to raise visibility for the various partners’ initiatives and resources.
Since its launch in July 2016, 24 organizations have joined the initiative and more than 30 private sector entities − including giants like Alibaba and eBay as well as smaller businesses like Burundishop and Kapruka − have also joined the Business for eTrade Development initiative, and we expect the groups to expand further in 2017. This reflects the wide consensus that we can go further if we go together.
E-commerce has the potential to make a difference for development. But this will only be the case if we move faster, react better and move together. And it will be only then when the prospects of e-Trade will become a real opportunity for all in Africa.
Mukhisa Kituyi is Secretary-General of the United Nations Conference on Trade and Development (UNCTAD).