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Boosting intra-African trade crucial to Africa’s development, says ECA’s Stephen Karingi
The Aid for Trade Global Review 2017 opened at the World Trade Organisation (WTO) headquarters in Geneva yesterday with the Economic Commission for Africa’s Capacity Development Division (CDD) Director, Stephen Karingi, emphasizing the need to boost intra-African trade.
Boosting intra-African trade is the most effective channel for trade to deliver development on the African continent, said Mr. Karingi, adding deeper trade integration is the surest way to speed up Africa’s economic transformation.
“Trade contributes towards industrialization and structural transformation. Intra-African trade currently stands at a mere 13 percent of the continent’s total trade, which is very low. As the ECA we are saying there’s need for African governments to do more to grow intra-African trade,” he said, adding Africa’s relatively low intra-regional trade is also as a result of barriers created by limited connectivity within the continent.
“With this we should think of physical connectivity, infrastructure, where the gaps remain significant,” said Mr. Karingi to participants attending the Africa Session of the Aid for Trade Global Review 2017.
“Equally, we should consider softer aspects of connectivity. Non-tariff and tariff costs both influence how African countries can link with each other.”
Higher volumes of intra-African trade, said Mr. Karingi, are essential so African countries can do business with each other more frequently and with wider margins. He said policies to enhance intra-regional trade on the continent are crucial, adding strategies to implement, enforce and monitor their progress and impact are also needed.
This year’s Global Review is dedicated to the theme of “Promoting Trade, Inclusiveness and Connectivity for Sustainable Development”, and will provide an opportunity for stakeholders to look at how Aid for Trade (AfT) can contribute to the integration of developing countries and least developed countries into the multilateral trading system and the achievement of the 2030 Agenda for Sustainable Development.
The Global Review will over three days examine how Aid for Trade promotes connectivity and inclusion and focus on crucial trade and development issues, such as the trade dimension of the SDGs, digital connectivity, women’s empowerment and trade facilitation.
Mr. Karingi said key initiatives on the continent for boosting intra-African trade include the on-going Continental Free Trade Area (CFTA) 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,” he said.
The entry into force of the WTO’s Trade Facilitation Agreement (TFA) on 22 February 2017 has given trade policymakers a powerful tool for reducing the physical trade costs that prevent many firms in developing countries from participating in international trade.
Implementation of the TFA, and the benefits to developing countries from the associated reforms, will be one of the key themes addressed at the Global Review.
Another key theme of the Global Review is how firms are using digital technology to log on to the multilateral trading system.
Action to bridge the digital divide, and in particular the strong gender dimension to this divide, will also be discussed as it the Review aims to address women’s economic empowerment and examine how Aid for Trade is promoting women’s empowerment as part of broader efforts to advance the 2030 Agenda for Sustainable Development.
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Connectivity and inclusiveness highlighted at opening of Aid for Trade Global Review
Continued support is needed to improve connectivity, lower trading costs and increase women’s participation in trade, particularly in developing and least developed countries (LDCs), speakers at the opening plenary session of the Aid for Trade Global Review 2017 said on 11 June. Providing this support will ensure trade contributes further to alleviating poverty and achieving the Sustainable Development Goals (SDGs), the speakers said.
“Many factors inhibit connectivity and inclusiveness – whether it’s poor infrastructure, high trading costs, or gender discrimination. And they all act as major constraints on sustainable development. Work to bring down these barriers can go a long way to connect more people and improve more lives,” WTO Director-General Roberto Azevêdo said at the opening of the three-day event.
The biennial Global Review provides a platform for high-level discussions on the Aid-for-Trade initiative, which aims to build the trading capacity of developing countries and LDCs. This year’s Global Review is dedicated to the theme of “Promoting Trade, Inclusiveness and Connectivity for Sustainable Development”.
According to DG Azevêdo, the right infrastructure must be in place to activate trade’s ability to deliver sustainable development. This includes the physical infrastructure of essential roads and ports, the soft infrastructure of rules, institutions and skills that help players take part in trade, and the digital infrastructure to connect people to the global marketplace at lower costs. The Trade Facilitation Agreement, he added, is also a tool that helps cut trade costs, with developing countries and LDCs to benefit most.
“We need to make a difference in all of these areas – and this is why Aid for Trade is so important,” DG Azevêdo said.
Since the Aid for Trade initiative was launched, almost $300 billion has been disbursed for Aid-for-Trade support in 146 developing countries and LDCs, DG Azevêdo said, pointing to data in the WTO-OECD publication titled “Aid for Trade at a Glance 2017”, which was launched at the opening session. A huge body of research, including some 500 case stories, illustrate further the difference Aid for Trade has made, DG Azevêdo added. More on case studies here.
“We should seek to build on these success stories – and many others like them because, clearly, although we have made good progress up the mountain, we are still a long, long way from the summit,” DG Azevêdo said. Read the full speech here.
Connectivity for developing countries, LDCs and women
Gambia’s Vice President and Minister of Women’s Affairs, Aja Fatoumatta Jallow Tambajang, emphasized the need to do more to take advantage of the benefits of trade.
“We believe in trade as an engine for growth and we would like to ensure that the gains from trade are inclusive,” she said in her keynote speech.
“However, we are yet to fully optimize the huge trade potentials that the system has to offer,” she said. “Connectivity is crucial in helping us realize our objectives.”
This is why, she explained, her government is attaching great importance to promoting connectivity, and enhancing the regulatory climate for information and communication technology infrastructure. The Gambia, she added, is also depositing its instrument of ratification of the Trade Facilitation Agreement.
Mukhisa Kituyi, UN Conference on Trade and Development Secretary-General, similarly highlighted the constraints faced by developing countries and LDCs in participating in trade, particularly online.
“At a time when global commerce is going electronic, if you are not visible, you are not existent. You cannot trade out of poverty if you are not in the trading community,” Mr Kituyi said.
In recognition of the importance of electronic commerce, the trade community, he added, is responsible for coordinating efforts and building competencies in poorer countries.
Aside from digital connectivity, physical connectivity remains an important factor for trade, Angel Gurría, Secretary-General of the Organisation of Economic Co-operation and Development (OECD), said.
“Trade facilitation and the offline infrastructure for trade – roads, ports, and bridges – are ever more important in the digital world,” he said.
Trade’s benefits and efforts to enhance connectivity must also reach women, International Trade Centre (ITC) Executive Director Arancha González said.
“Despite the proliferation of mobile phones there are still far too many, especially women, who are unconnected to the information grid,” she said. “ITC’s research for the ‘At a Glance’ publication shows that women-led enterprises are 12% less likely to use email than men-managed firms which is an important proxy for internet usage.”
A trade agenda which explicitly recognizes and acts on women’s economic empowerment can be a strong force for inclusive growth, she said.
Importance of Aid for Trade
Aid for Trade is critical in addressing connectivity concerns, the speakers said.
“Aid for Trade is central in ensuring benefits from cross-border trade reach women, small firms, entrepreneurs, farmers, everyone everywhere,” Anabel Gonzalez, Senior Director of the World Bank Trade and Competitiveness Global Practice, said.
Moreover, Aid-for-Trade initiatives work best when they are done in a coordinated manner in partnership with all stakeholders, she said.
Speakers from financing institutions likewise highlighted the importance of such partnerships. Officials from the European Bank for Reconstruction and Development, African Development Bank, Asian Development Bank, Inter-American Development Bank, Islamic Development Bank Group, International Finance Corporation, Federal Ministry of Economic Cooperation and Development of Germany, and TradeUp Capital Fund spoke of their respective initiatives for connectivity infrastructure and trade capacity building.
“This week is an opportunity to examine precisely where more efforts are needed, and how we can better channel the necessary aid and investment,” DG Azevêdo said.
Download the full text or individual chapters of the Aid for Trade at a Glance 2017 report here.
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Regional trade agreements, integration and development
Developing countries have become more active participants in regional trade agreements, which raise questions about how the benefits of integration are distributed. A key concern is whether countries at the low end of the income spectrum are able to capture development gains from integration. Historically, such impacts have been difficult to identify with precision.
This paper contributes to the understanding of such issues by analysing the impact of regional integration on growth and within country inequality. The investigation develops two measures of regional integration using trade agreement participation as a proxy for preferential trade access. The analysis shows that regional integration leads to higher economic growth and lower within-country inequality in member countries.
The direct development effects can be further enhanced by a second transmission channel whereby a country captures indirect benefits from any agreements to which its trading partners are party. The ability to capture gains from integration varies across developing country regional groups with developing Asia benefiting on par with the developed world.
Introduction
Regional trade agreements (RTAs) can be a useful tool in promoting growth. RTAs structure trade in a way that can increase domestic productive capacity, promote upward harmonization of standards, improve institutions, introduce technical know-how into the domestic market and increase preferential access to desirable markets. These are outcomes that could benefit developing economies in general and particularly the least developed countries (LDCs) and other low-income countries. However, most studies of regional integration agreements show that, on average, low-income countries benefit less.
Despite the relatively low benefits for LDCs, every country in the LDC category is a member of at least one RTA. The agreements range from partial scope agreements to economic integration agreements targeting political union. Most RTAs involving LDCs are South-South agreements, which are generally poorly implemented and not known to be particularly beneficial for the industrialization of partner countries. There is also an increasing, albeit small, number of agreements in which LDCs are part of North–South agreements (for example the European Union-Caribbean Forum (CARIFORUM) Economic Partnership Agreement). The expected impact of LDC participation in North-South agreements is larger, but few studies have sought to quantify the impact.
The paper’s motivation is rooted in the Sustainable Development Goals. The Goals clearly recognize the role of trade as a potential development tool. In particular, they highlight the role inequality plays in holding States back (Goal 10 concerns reduced inequalities) and the potential role trade can play in addressing this (Goal 2 targets zero hunger and Goal 8 targets decent work and growth). In 2016, RTAs were the de facto way to access the global trade regime. As a result, a clear understanding of whether RTAs promote developmental outcomes such as reducing inequality is paramount.
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.
The literature on the impact of RTAs on non-member countries has focused largely on trade outcomes and growth rates. Trade, on average, improves a country’s growth and such an impact is expected to be higher in less developed countries. However, trade has multidirectional impacts on inequality and development.
This level is particularly critical for LDCs, which would have the most to gain if RTAs narrowed regional gaps in inequality. Yet, while LDCs often receive the most preferential treatment, their vulnerability to shocks makes the benefits from openness (both direct and indirect) less evident. While RTAs can lead to convergence, some show that the poor countries in a region are more likely to diverge.
This paper attempts to capture both growth and development effects by considering whether lower levels of within-country inequality can be attributed to RTAs, controlling for the impact on low-income countries and other regional groups.
Two new measures of regional integration are introduced. The first measure is based on bilateral trade between RTA members and captures the ability of a country to have a self-determined regional trade policy. The second relates to the situation when a country is engaged in the regional networks of other countries. The results show that both a country’s own regionalization and its exposure to the regionalization of others positively contribute to economic growth globally. However, the results vary according to developing country clusters, with some areas such as sub-Saharan Africa having experienced relatively lower growth as a result of internal regionalization and exposure to regionalization.
In addition, growth results in positive distributional outcomes in the developing country clusters that are involved in more regionalization, compared with the rest of the world. For example, in developing Asia, a 10 per cent increase in internal regionalization resulted in a nearly 3 per cent reduction in income inequality. This suggests that location in a region that is characterized by noodle bowl regional trade policy activities observes a lesser increase in inequality. The paper also addresses the impact of various types of regionalization on inequality through its impact on gender.
Liberalization increases trade by lowering the tariffs that distort markets. Going one step further, trade has been shown to increase growth. However, the evidence about how openness impacts development-relevant indicators is less conclusive. This has been recognized at the multilateral level, and policymakers have introduced policy guidelines aimed at making trade more inclusive for all participants. One of the most prominent examples is the European Commission’s Sustainability Impact Assessment that was first developed for the World Trade Organization (WTO) Doha Development Agenda negotiations. It promotes corporate social responsibility, which has been shown to translate into more socially sustainable trade.
The literature shows a number of transmission channels for welfare gains from trade. The lessons from the trade literature are great, especially the contribution of various elements to changes in income. However, Arokolakis, Costinot and Rodriguez-Clare (2013) suggest that the welfare gains from trade may vary by input, that is, imports of intermediate inputs and supply networks, yet overall can be estimated by looking at standard trade statistics.
The literature that explores the impact of liberalization on household inequality has tended to show mixed impacts in developing countries. Over time, even as globalization has progressed, inequality has increased by many measures. Goldberg and Pavcnik (2007) show that inequality increases since gains from trade are directed mainly to skilled workers. Both Chang et al. (2009) and Dollar and Kraay (2004) show that increasing openness leads to faster growth and less absolute poverty in poor countries, but with ambiguous impacts on household inequality.
Other studies focus on demand forces to explain cross-country differences in income or welfare as a result of trade, showing a strong positive relationship between prices and the country’s income per capita. Fajgelbaum et al. (2011) suggest that income inequality within a country matters for trade patterns and the pricing of traded goods.
Of course, RTAs are not purely about liberalization, and lower average tariff rates are only one element. They are also characterized by limitations on policy space, preferential market access to partner countries and behavioural changes to firms in impacted sectors. Thus, while this paper is related to the literature on welfare impacts of liberalization, the effects shown are related but not parallel. The paper aims to contribute evidence on the potential of trade to benefit all populations, at a time when the gains from trade are being questioned on a global scale.
The authors are Alisa DiCaprio (Asian Development Bank Institute), Amelia U. Santos-Paulino (UNCTAD) and Maria V. Sokolova (UNCTAD and Graduate Institute Geneva).
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Enhancing international cooperation in the investigation of cross-border competition cases: Tools and procedures
Contribution from the Competition Commission of South Africa, prepared for the UNCTAD Intergovernmental Group of Experts on Competition Law and Policy Round Table on Enhancing international cooperation in the investigation of cross-border cases: tools and procedures, held during its Sixteenth Session (5-7 July 2017) in Geneva
Introduction
The proliferation of competition authorities in the world has augmented the need for cooperation in order to ensure the effectiveness of each country’s anti-cartel enforcement regime. There are push and pull factors that give rise to a need for inter-jurisdictional cooperation in anti-cartel enforcement. The push factors are those factors which the competition agencies themselves experience when enforcing their respective anti-cartel laws independent of each other. The pull factors are those factors which economic agents (firms) that are subjected to cartel regulation experience when they have to cope with multiple enforcement regimes. The young agencies particularly those in the Southern African Development Countries (SADC) region, in respect of which the discussion in this paper relate to, face a mix of these factors.
In this contribution we are firstly going to discuss the mix of various push and pull factors for the SADC region which lend credence to a need for cooperation in the fight against cartels. Secondly and lastly, this contribution deals with obstacles that exist to achievement of more intensive forms of cooperation and what attempt is made to overcome these obstacles, in particular the various steps that have been taken by the SADC region to achieve cooperation including the less intensive forms of cooperation that have been achieved so far.
The push factors that drive cooperation
Multinational firms
The SADC member states have a number of companies with either a local presence in each country or, if no local presence, that supply their products to customers located in various SADC states from locations within the SADC region. There are two main considerations which could complicate an investigation of a multinational firm by one state. One such issue relates to the state that is doing the investigation and other issue relates to the other states where the multinational firm operates.
Firstly, the success of the investigation in the state that is instituting the investigation could be hampered if the firm’s decisions relating to the collusive arrangements were taken in another state. In the SADC region this problem is likely to emerge given the fact that a number of companies which supply their products throughout the region have their headquarters in South Africa. In this regard, if another state other than South Africa launches an investigation without assistance from the South African competition authorities, such investigation is likely omit some important evidence if the such evidential material, at least that which can be obtained from the South African company, is stored in South Africa.
Secondly, there is a negative externality on other states which arises when one agency chooses to launch an investigation without coordinating with other agencies, in particular if the investigation involves contact with cartelists such as dawn raids, summonsing of information and interrogations. The negative externality arises from the fact that the investigation effectively alerts the cartelist that their conduct is no longer a secret. The cartelists may, in order to thwart investigations by other states, that may have not yet instituted their own separate investigations, conceal the evidence of collusion in respect of those states.
In SADC states such as South Africa, Namibia, Swaziland, Botswana and Zambia where many sectors are served by common players this negative externality could be more pronounced since the evidential material could be lost to the non-investigating states from more than one player.
These two drivers constitute the subcategories of the first push factor to inter-jurisdictional cooperation. In this regard, it is the competition authorities themselves, and not the regulated firms, which demand cooperation due to factors which affect the effectiveness of cartel enforcement.
Establishment of fora to share best practices
The establishment of fora for sharing of best practices to strengthen domestic enforcement mechanisms could lead to recognition of a need to coordinate case investigations in SADC.
The establishment of multilateral working groups such as the newly formed SADC Cartels Working Group provides platforms for exchange of ideas on how to improve cooperation between SADC member states. There are also bilateral arrangements between states in the form of memoranda of understanding (MoU) such as the one which the Competition Commission of South Africa has with the Namibian Competition Commission which create channels of communication.
Unlike other areas of competition enforcement such as abuse of dominance, vertical restraints and concentrative mergers there is a general convergence worldwide and amongst SADC member states that Hard Core Cartels are an egregious form of competition law infringements and almost always have no redeeming features as they are purely aimed at reducing competition in order to make profits or avoid losses. This convergence in the substantive view of cartels has resulted in enactment of similar legislative provisions in many jurisdictions which by their nature do not require an assessment of the effects of a hard core cartel on competition once evidence has shown that the firms are indeed engaged in this form of competition law infringement. This convergence in both substantive assessment of cartels and in the manner (procedure) of dealing with cases of cartelisation has paved the way for formation of various international fora such as the International Competition Network (ICN) and the OECD where high level discussions take place and also to the formation of even much more cooperative groups such as the European Competition Network (ECN) where joint enforcement, case coordination and more extensive sharing of information takes place.
However, the anomaly with the SADC region is that despite the fact that the economies of this region are characterised by presence of numerous firms with operations across the region, the region has not been able to achieve the more intensive case related cooperation like that of the ECN but has thus far only been able to interact on a high level involving the sharing of non-confidential information and carrying out of capacity building programmes. The justification for this approach being that a lot of the agencies in the SADC region are new and therefore more emphasis has been placed on the need to provision of training to staff of these agencies by relatively experienced agencies such as those from South Africa and from even more experienced agencies in developed countries. However, a number of SADC member states, such as Zambia, Botswana, Namibia and Mauritius are now already undertaking more demanding forms of investigations, such as dawn raids and interrogations of individuals. Therefore, there is currently a growing need to evolve to the next level of cooperation beyond capacity building to joint investigations of cases.
The pull factors that drive cooperation
The multiplicity of penalties
As noted above, the pull factors are those which come from outside the agency. These emanate from the benefits accruing to regulated firms as a result of inter-jurisdictional cooperation.
Unlike merger notifications proceedings, which are authorisation proceedings, cartel investigations are prosecutorial and there is an inherent incentive for firms minimise the number of jurisdictions where they are exposed to prosecution. This consideration skews the regulated firms’ preference towards less coordination between competition authorities. However, there are pull factors which favour multijurisdictional cooperation in anti-cartel enforcement. The issue of exposure to multiple fines on the same turnover is one such pull factor in favour of multijurisdictional cooperation. This is particularly important from a South African perspective since the relevant fining provision of the Competition Act No. 89 of 1998, as amended, namely section 59(2) provides that the penalty may not exceed 10% of the annual turnover of the firm in the Republic of South Africa including exports from the Republic of South Africa. This effectively means that the penalties that can be levied by South African competition authorities are calculated not only in respect of sales in South Africa but also includes sales into other states. The fact that when penalising firms the South African competition authority do not take into account penalties levied or yet to be levied in other jurisdictions is another form of negative externality and constitute a form of a pull factor calling for cooperation between states in order to avoid crippling the very entities that are being regulated by failing to take into account the penalties levied by other authorities. It is important to note that this may call for a much more extensive form of cooperation.
Adoption and harmonisation of leniency programmes
Adoption and harmonisation of leniency programmes is important for jurisdictions seeking to cooperate with each other. This is a significant benefit to firms since it means the same documentary evidence used to file a leniency application with one jurisdiction can be used in another jurisdiction without more or less compliance requirement and the same criteria for qualifying for leniency will apply. This reduces the risk that a firm will become a successful leniency applicant in one state and not in another due to being pre-empted by another firm as result of delays in preparation of sufficient application for the second state or for failure to meet a criteria unique to that state’s leniency programme.
A good leniency programme is one of the best tools for the detection and combating of cartels. While there are widely-accepted views as to what a good leniency programme should include, there are divergent approaches in different jurisdictions to leniency programmes. Competition Authorities recognise the need for the universal adoption of and harmonisation of formal leniency policies in all jurisdictions. In recognition of sovereignty, harmonisation is sought rather than standardisation. Leniency programmes need not be identical but ought to aid and not hinder each other.
Hindrances to the achievement of effective inter-jurisdictional cooperation
In this section, hindrances to the achievement of effective inter-jurisdictional cooperation are identified for both push factors and pull factors in the SADC region.
Lack of trust
The SADC countries have a number of multinational companies with either a local presence in each country or, if no local presence, that supply their products to customers located in various SADC countries from locations within the SADC region.
The hindrance relating to the first driver towards inter-jurisdictional cooperation emanates from lack of trust between competition authorities in the region. Lack of trust can be divided into two. Firstly, there is lack of trust which relates to differences in the boni mores of different states concerning cartel conduct. In some countries the attitudes towards cartel conduct may not have developed to the stage where cartel conduct vitiates against good morals. This could discourage cooperation in that one agency may be reluctant to share information with another agency if it perceives that the information will not be accorded the value it requires. This could range from total disregard by the receiving agency of the information provided to lack of interest in coordinating investigation of the cartel conduct such as conducting joint dawn raids, especially if the receiving agency does not perceive the information as sufficient to warrant a dawn raid.
The fact that some SADC member states have not yet even established their own competition authorities could be an indication that competition law issues do not yet feature prominently in their societies as concerns that require urgent attention. What compounds this form of lack of trust is that with regard to cartel investigations there is a strategic necessity to initially keep information about an investigation surreptitious, especially when a dawn raid is contemplated. Therefore, sharing information with a jurisdiction which does not have the same attitude to cartel conduct could put the investigation at risk. The receiving agency may simply decide to send an information request to cartelist and consequently thwart the investigation strategy of the agency that has provided the information with the aim of coordinating a dawn raid.
Fortunately, from interactions with most states in the SADC region which have set up their own competition authorities this has not been found to be the case. There is an agreement that cartels are the most egregious form of anticompetitive conduct and should be dealt with in the most decisive manner.
The second element which contributes to lack of trust is lack of familiarity with the processes for the safeguarding of confidential information that exists in other agencies. The Competition Commission of South Africa has taken proactive steps to learn about the processes of other SADC member states. In 2016 South Africa sent selected staff members to SADC agencies including Mauritius and Namibia to assist in actual case investigations including preparation and execution of dawn raids. This has assisted in knowing the internal processes of these agencies in order to strengthen trust of these institutions and to establish relationships of trust with its employees.
South Africa believes that cooperation with neighbouring states where a large number of South African firms have operations should evolve to case coordination as the most effective way to internalise the negative externality arising from individualistic enforcement since this will limit the avenue available to firms to conceal evidence of collusion while at the same time ensuring that there is consistent treatment of cartel conduct across the region. In the words of Ioannis Lianos, South Africa hopes that “... the long history of interaction of these actors and their collective memory” will be a source of trust. In addition, “Geographic proximity, common language, shared values and preferences facilitate interaction and thus build a certain level of “personal trust” between the different actors.”
Establishment of fora for deepening cooperation
Ideally South Africa would like to see the coordinated investigations that took place in 2007 being repeated in the SADC region. In 2007, following discussions, the Commission conducted raids in coordination with its counterparts from the European Commission and the US Department of Justice. The raids were conducted simultaneously between the three competition jurisdictions for maximum impact on a cartel involving freight forwarding companies whose reach was believed to be international. As a result of the coordination of efforts the investigation in South Africa was concluded with the signing of settlement agreements with two of the cartel members.
The SADC Cartels Working Group has already started with two important projects which run parallel to each other in order to pave the way for more intensive cooperation. The first is the review of enabling legislations of its member states with the aim of identifying existing provisions which could facilitate more intensive cooperation. In South Africa, section 82(4) of the Competition Act 89 of 1998, as amended, stipulates:
“The President may assign the Competition Commission any duty of the Republic, in terms of an international agreement relating to the purpose of the Act, to exchange information with a similar foreign agency.”
This project is also aimed at identifying areas where proposals could be made for amendments to enabling legislation in order to facilitate cooperation as a more effective way in the fight against international cartels.
The second project is the periodic sharing of information about cases being investigated by each jurisdiction, preferably as soon as the investigation is initiated in order to alert member states of cases which are suitable for joint investigation early in the life of the investigation.
The multiplicity of penalties
Barring the establishment of a single competition law enforcement agency in the SADC it does not seem there is much that can be done at this stage with respect to multiplicity of penalties on the same turnover.
Adoption and harmonisation of leniency programmes
When states are looking at cooperating with each other in actual investigations the effectiveness of the country’s own leniency programme can be affected by the lack of ability of the company to apply for leniency in other jurisdictions where it engaged in similar conduct. Risk of exposure to fines elsewhere in the world is an important factor for firms. A few SADC states with active competition regimes have not yet adopted their own corporate leniency programmes. Namibia which recently executed a dawn raid is still in the process of adopting its corporate leniency programme.
Part of the work of the SADC Cartels Working Group is to encourage its members to adopt leniency programmes as a gateway to a more meaningful information sharing of non-confidential and confidential information which is possible through waivers of confidentiality by leniency applicants that have been granted leniency in more than one jurisdiction.
Conclusion
There have been a lot of interactions between agencies in the SADC region but until recently this has been more at a high level involving the sharing of non-confidential information, investigation strategies and provision capacity building programmes. With the formation of the SADC Cartels Working Group, the region is gearing up for more intensive forms of cooperation relating to coordination in investigation of cases while encouraging member states to harmonise processes including the adoption of corporate leniency programmes.
About the Intergovernmental Group of Experts on Competition Law and Policy
The Intergovernmental Group of Experts (IGE) on Competition Law and Policy is a standing body established under the United Nations Set of Multilaterally Agreed Equitable Principles and Rules for the Control of Restrictive Business Practices (UN Set) to monitor the application and implementation of the Set.
The UN Set is a multilateral agreement on competition policy, which was negotiated and adopted by General Assembly resolution 35/63 on 5 December 1980. The Set i) provides a framework for international operation and exchange of best practices; ii) recognizes the development dimension of competition law and policy; and iii) provides for equitable rules for the control of anti-competitive practices.
The consultations at the sixteenth session focused on the following topics:
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Capacity-building activities and technical assistance implemented
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Challenges faced by young and small competition authorities in the design of merger control
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Enhancing international cooperation in the investigation of cross-border competition cases: Tools and procedures
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Voluntary peer review of the competition law and policy of Argentina
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tralac’s Daily News Selection
Posted: The Little Green Data Book 2017 (based on World Development Indicators 2017 and its online database)
Underway, in New York: ECOSOC High-Level Political Forum review of 2030 Agenda for Sustainable Development
Launching today: Global Value Chain Development Report 2017 (WTO). Profiled chapter: From domestic to regional to global – Factory Africa and Factory Latin America?
Worryingly, the evidence suggests that new free trade agreements that overlap with existing arrangements may not improve regional trade, especially if they are not broad in their liberalization and facilitation policies. It is perhaps no coincidence that in Sub-Saharan Africa and Latin America, with significant shares of small and medium-size firms and relatively low regional integration, overlapping agreements create a spaghetti bowl – adding barriers that many firms are ill equipped to deal with. In this respect, the more comprehensive multilateral agreements such as the Common Market for Eastern and Southern Africa-East African Community-Southern African Development Community Tripartite Free Trade Area, with 26 African countries and 58% of the continent’s GDP, bode well. Similar arguments could be made for Asia, but the starting point here differs. Integration has been facilitated by significant FDI flows, drawn in part by lower unit labor costs, and significant poles of higher income, with multinationals better equipped to handle the multiple layers of free trade agreements.
Improving regional integration may also help address competitiveness gaps that exacerbate those caused by geography (and indeed costs related to poor infrastructure). This is especially important since entry to GVCs through cheap labor alone does not seem to be enough. What appears to matter is the combination of labor and productivity, in other words unit labor costs. Despite, for example, the recent rise in China’s labor costs, its unit labor costs appear to have remained competitive with those of Sub-Saharan Africa and Latin America. It is important, therefore, to make inroads in improving productivity, particularly through FDI, bringing much needed capital, technology, and know-how. But FDI has to be coupled with policies that can extract maximum spillovers through robust domestic supply chains, including a more robust entrepreneurial environment. [The authors: Nadim Ahmad, Annalisa Primi][ Download: Full report]
Table of contents:
Chapter 1: Analytical frameworks for global value chains: An overview
Chapter 2: Recent trends in global trade and global value chains;
Chapter 3: From domestic to regional to global: Factory Africa and Factory Latin America?
Chapter 4: Accumulated trade costs and their impact on domestic and international value chains
Chapter 5: The middle-income trap and upgrading along global value chains
Chapter 6: Services trade and global value chains
Chapter 7: Institutional quality and participation in global value chains
Chapter 8: Preferential trade agreements and global value chains: theory, evidence, and open questions
Related: A David Dollar commentary Global value chains shed new light on trade
Shanta Devarajan: Why is regional integration so elusive? (Brookings)
There is no shortage of books and papers on the benefits of regional integration between countries. Yet, in practice, intra-regional integration has not received great traction, especially in South Asia, sub-Saharan Africa, and the Middle East and North Africa. (These are also the three regions of which I have been the World Bank’s chief economist. At different times, and using different indicators, each has claimed to be the “least integrated region in the world.”) Why then has even infrastructure integration been so elusive? I would suggest three reasons [The 800-pound gorilla problem, Geopolitics, Domestic politics], each of which can be turned into an opportunity for greater integration.
Promoting dialogue on SA’s regional integration role in Southern Africa (CCR)
The main focus of the two public dialogues – South Africa’s corporate expansion in Southern Africa, and, Powerful trade unions: South African drivers of regional economic growth? – interrogated the political economy of Southern Africa and discussed the role of South Africa’s regional corporate expansion, as well as the role of trade unions in Southern Africa; with a view to promoting socio-economic benefits through industrialisation, effecting regional trade, and boosting infrastructural development. In both dialogues, the role of the state in becoming a modern industrial democracy was considered critical for promoting intra-regional trade, and for building regional industrialisation that can improve labour in Southern Africa. The following ten key Policy Recommendations emerged from the two public dialogues:
Kenya Trade Week: “Transforming Kenya into a competitive export-led and efficient economy”
(i) President Uhuru Kenyatta’s opening speech (pdf, GoK). Further, we have witnessed a double digit growth in exports by 11% between 2013 and 2016 as a result of the duty free market access that the Government has secured through trade agreements as well as preferential trade arrangements with over 50 countries having a combined population of over 1.4billion people in the following regional blocks: EAC, COMESA, EU and the USA. These markets hold a great promise for Kenya’s exports going by revealed trade potential in the products that Kenya is already exporting or has potential to export to these markets. A traditional market like the EU, going by recent statistics of agro-processed products that Kenya has been trading with this bloc, has a potential of over Euro44 billion. Similar story holds in the regional and the USA market where Kenya has opportunity to increase her share of these markets imports from the rest of the world. The Government is fully engaged, in a bid to broaden Kenya’s market horizon in Africa for exports and imports on preferential tariffs, in the Tripartite Free Trade Area (TFTA) that collapses EAC, COMESA and SADC market into one big market of 26 countries; and in the Continental Free Trade Area, which embraces free trade across the entire continent of Africa.
(ii) Kenya launches national trade policy to boost forex earnings (Xinhua/KBC). “The new trade policy articulates provisions that are geared toward promoting efficiency in the growth of domestic trade through transformational measures that address the constraints impeding against the development of the wholesale, retail and informal sectors,” said National Treasury Cabinet Secretary Henry Rotich. Speaking during the opening of the Kenya Trade Week, Rotich said currently most of foreign exchange earnings are from foreign direct investments. ”The national trade policy will help to increase volume of exports so that we increase foreign exchange earnings,” he said. Besides the policy, the Kenyan government also launched the Buy Kenya Build Kenya Strategy; Guidelines for Kenya’s Trade and Investment Missions; the National Export Development and Promotion Strategy for Kenya 2017-2022; the National E-Trade portal; The National Trade Facilitation Committee (NTFC); and The State Department for Trade Website.
(iii) New trade policy puts dominant supermarkets under microscope (Daily Nation). Dominant supermarket chains will face closer State scrutiny to protect suppliers from exploitation, Trade Principal Secretary Chris Kiptoo has said. The National Trade Policy launched yesterday aims at introducing regulations to police the retail sector, including giving guidelines on access to trade information and unfair competition. Mr Kiptoo said during the policy launch yesterday that dominance has created an unfair playing filed for smaller suppliers and worsened the debt burden for major retailers such as Nakumatt and Uchumi whose financial woes now spread wide as many traders are affected. The policy document also aims at supporting smaller retailers who have suffered under the dominance by larger players who give price advantages and undercut them especially in small towns.
(iv) Kenya to enact anti-dumping law to protect local industries (New Times). Cabinet Secretary in the Ministry of Industry, Trade and Cooperatives Adan Mohammed told a media briefing in Nairobi that parliament has already endorsed the Kenya Trade Remedies bill and should receive presidential assent before the end of the year. ”The law will protect the domestic market and industries from unfair trade practices and threats arising from dumping and subsidies from other countries,” Mohamed said during the launch of the National Trade Week. Once the law is operational, the government will impose - stiff penalties on traders who import subsidized goods that provide unfair competition to locally made goods.
(v) Kenya’s clout wanes as China and India fight for control of EAC trade (The Standard). China and India - not Uganda, Tanzania, Rwanda and Burundi - are responsible for Kenya’s trade decline in the region. China’s entry into Kenya has been even tectonic, with the Asian country taking up 34%of Kenya’s import bill while India accounting for 18%, bring their total to 52%. This compared to 2000 when imports from both China and India together took up only 8.3%. If anything, Kenya is far ahead of her EAC peers in terms of industrialisation, and it will be long before manufacturers in these countries give their Kenyan counterparts a run for their money, according to economist, Dr Scholastica Odhiambo.
Anabel Gonzalez: Five actions that matter to the future of Aid for Trade (World Bank)
We know that Aid for Trade plays a vital role in ensuring that the gains from more and cheaper cross-border trade reach everyone, everywhere. But, as we look back over the 10 years since the first global review of Aid for Trade, it is important to take stock of the lessons we’ve learned and to identify some priorities for the future. Here are the five key areas of focus as I see them:
Today’s Quick Links: India to set up four think tanks to get help on trade talks Kenya - Arab Development Partners roundtable: statement by Mr Henry Rotich Rwanda is open for business, says President Kagame during visit to Israel EAC exchanges call for fast-tracking of capital markets integration to attract more investors SADC Parliamentary Forum: address by President Faure Nepad Special Fund: Contributors call for increased contribution for Africa’s infrastructure development India’s pharma trade with Africa: Dr Reddy’s, Lupin, others mull expanding Africa operations OECD-FAO Agricultural Outlook 2017-2026: slower growth in demand will keep world food prices low Sudan says US backs its WTO bid as sanctions decision due Morocco: IMF completes second review mission of the precautionary and liquidity line Rwanda gets Rwf136bn to fight poverty, boost trade Women Entrepreneurs Finance Initiative: launch update |
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More inclusive global value chains can advance productivity and growth in developing countries
Global value chains are transforming world trade, but must be more inclusive if they are to deliver greater benefits to developing countries and smaller companies, according to a new report from the World Bank Group, the World Trade Organisation (WTO), the Organisation for Economic Co-operation and Development (OECD), the Institute of Developing Economies (IDE-JETRO) and the Research Center of Global Value Chains of the University of International Business and Economics (RCGVC-UIBE).
Global value chains (GVCs) create new opportunities for developing countries, increase their participation in global markets and enable them to diversify exports. But while global value chains have helped many developing countries to advance, some countries have benefitted more than others, with some countries, small- and medium-sized firms, and workers in developed and developing economies still being left out. The Global Value Chain Development Report 2017 analyzes new data to help policy makers and others understand global trade’s increasing complexity and consider policies that can make GVCs more inclusive.
“Global value chains are helping to advance the development process in many countries, including developing countries where they contribute to increased productivity, more international trade and faster growth, all of which benefit entire populations. Our report shows how countries can maximize the benefits of GVCs by moving to higher-value added activities, lowering trade costs and making GVCs more inclusive,” said Anabel Gonzalez, Senior Director for the World Bank Group’s Trade & Competitiveness Global Practice.
Several factors determine how deeply a country participates in GVCs, the report finds. Non-tariff trade costs, such as freight, insurance, fees, regulations, bureaucracy, or weak transportation links, are a significant determinant of GVC participation. According to the Global Value Chain Development Report, in some complex value chains, such as motor vehicles, computers or machinery, non-tariff trade costs are more than four times higher than tariffs.
“Addressing these trade costs is a key factor to improving participation in GVCs and maximizing the benefits from that participation,” said Nadim Ahmad, Head of the OECD’s Trade and Competitiveness Statistics Division.
“Multilateral agreements play a crucial role in lowering trade costs, and ensuring that all economies, particularly the poorest, benefit from trade cost reductions,” said Robert Koopman, Chief Economist of the World Trade Organization. “Preferential trade agreements (PTAs) can also be very helpful as they often result in deeper commitments in particular areas."
The report also finds that proximity to the world’s three major production hubs – the United States, Asia, and Europe – is highly important. It also matters who a country’s trading partners are, how far the country is from high-income markets, and the degree to which partners are integrated within regional global value chains.
Experts from across the globe gathered in Geneva on 10 July at an event hosted by the WTO, World Bank Group, and the OECD to discuss this report and its findings.
Global Value Chain Development Report: Measuring and Analyzing the Impact of GVCs on Economic Development
Global value chains (GVCs) break up the production process so different steps can be carried out in different countries. Many smart phones and televisions, for example, are designed in the United States or Japan, incorporate sophisticated inputs – such as semiconductors and processors – produced in the Republic of Korea or Chinese Taipei, and are assembled in China.
These complex global production arrangements have transformed the nature of trade. GVCs provide new opportunities for developing countries to increase their participation in global trade and to diversify their exports. Without them, a developing country would have to be able to produce a complete product in order to expand into a new line of business.
Witnessing the potential benefits of GVCs, stakeholders in developing countries typically want to see their country more involved in value chains and moving to higher value-added activities over time. However, only a few developing economies, most notably China, are deeply involved in GVCs. The Global Value Chain Development Report examines ways developing countries can deepen their involvement in GVCs and move up the value chain.
“This report offers a superb overview... and breaks new ground on the study of the rise of GVCs,” comments Pol Antràs, Robert G. Ory Professor of Economics at Harvard University, in his foreword.
The key to building more inclusive GVCs, finds the Global Value Chain Development Report, is cutting trade costs. Although they have declined over the past decades, non-tariff trade costs related to infrastructure, transportation, and uncertainty remain relevant with the surge of fragmented supply chains and greater competition. In some complex value chains, such as motor vehicles, computers or machinery, non-tariff trade costs are more than four times higher than tariffs.
The report asserts that multilateral agreements can play a crucial role in lowering trade costs. Participating in deep trade and investment agreements can advance this agenda, and such agreements will be most powerful if they involve several neighboring countries. Preferential trade agreements are increasing in number and deepening in content, surging from 50 in 1990 to 279 in 2015. Analysis confirms that deep preferential trade agreements boost participation in GVCs, but the future of the relationship between preferential trade agreements and GVCs will depend the preservation of an open trading system.
Small firms and the informal sector also need to be included. Poor infrastructure, corruption, and red tape tend to hamstring smaller companies more than larger ones – large firms can often finance their own infrastructure and finds ways to operate in complex environments. Most job creation in the world is in small and medium-size firms and their involvement in GVCs is crucial for maximizing the positive impact from trade.
“How economies are linked, specialize, and grow (or not) is captured in the way global value chains (GVCs) are put together,” says Michael Spence, Nobel Laureate in Economics. “This report is a huge contribution to our deepening understanding of what the global economy really means and how it is changing.”
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Kenya launches National Trade Policy
The Government of Kenya, through the Ministry of Industry, Trade and Cooperatives, on Monday launched the National Trade Policy.
The launch of the pdf National Trade Policy (4.29 MB) took place during the first day of the three-day Kenya Trade Week, an event that has brought together prominent players and stakeholders in the trade sector under the theme, “Transforming Kenya into a Competitive Export-Led and Efficient Economy”.
“The new Trade Policy articulates provisions that are geared toward promoting efficiency in the growth of domestic trade through transformational measures that address the constraints impeding against the development of the wholesale, retail and informal sectors,” said National Treasury Cabinet Secretary, Henry Rotich, who was speaking on behalf of H.E President Uhuru Kenyatta.
The new Trade Policy adds impetus to the robust trade policy reforms that the country has pursued under regional and multilateral trade arrangements and 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 Kenya as a dependable and predictable trading partner.
“The National Trade Policy is being launched at a time when the global trade landscape is facing emerging challenges. Over 70% of global trade is made up of manufactured goods. Intra-Africa trade averages about 12% 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 partner,” said Principal Secretary, State Department of Trade – Ministry of Industry, Trade and Cooperatives Cabinet Secretary, Adan Mohammed.
Apart from the launch of the National Trade Policy, the Government of Kenya, through the Ministry of Industry, Trade and Cooperatives, also launched and unveiled:
pdf Buy Kenya Build Kenya Strategy (2.10 MB)
pdf Guidelines for Kenya’s Trade and Investment Missions, First Edition 2017 (1.65 MB)
pdf National Export Development and Promotion Strategy for Kenya 2017-2022 (5.52 MB)
pdf NTF Committee and Its Thematic Working Groups: Three-year Budget, 2017-2020 (880 KB)
The State Department for Trade Website
Moreover, the Buy Kenya Expo will run through the whole week.
“We urge all Kenyans to come and take part in this year’s Trade Week. We have a host of products and exhibitors drawn from varied parts of the country and this offers a great opportunity for us to support our local trade sector,” said Principal Secretary, State Department of Trade – Dr. Chris Kiptoo.
The National Trade 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.
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OECD and FAO see slower growth in demand keeping world food prices low
Vegetable oils, sugar and dairy products are expected to be main provider of additional calories over next decade
Global food commodity prices are projected to remain low over the next decade compared to previous peaks, as demand growth in a number of emerging economies is expected to slow down and biofuel policies have a diminished impact on markets, according to the latest 10-year agricultural outlook published today by the OECD and FAO.
The OECD-FAO Agricultural Outlook 2017-2026 says that the completed replenishment of cereal stocks by 230 million metric tonnes over the past decade, combined with abundant stocks of most other commodities, should also help limit growth in world prices, which are now almost back to their levels before the 2007-08 food price crisis.
The report foresees per capita demand for food staples remaining flat, except in least developed countries. Additional calories and protein consumption over the outlook period are expected to come mainly from vegetable oil, sugar and dairy products. Growth in demand for meat is projected to slow, with no new sources of demand projected to maintain the momentum previously generated by China.
By 2026, average calorie availability is projected to reach 2 450 kcal per person per day in least developed countries, and to exceed 3 000 kcal in other developing countries. Food insecurity and malnutrition in all its forms will nonetheless remain a persistent global problem, requiring a coordinated international approach, according to the report.
Future growth in crop production is projected to be principally attained through higher yields – 90 percent of the increase in maize production is expected to come from increased yields and just 10 percent from area expansion.
Growth in meat and dairy production, by contrast, is expected to come from both larger herds and higher output per-animal. Milk production growth will accelerate when compared to the previous decade, most notably in India and Pakistan. It is foreseen that aquaculture would dominate growth in the fish sector and farmed fish production will be the fastest-growing protein source among all commodities analysed in the Outlook.
The growth in agriculture and fish trade is projected to slow to about half the previous decade’s growth rate, and average less than 2 percent per year in volume terms for most commodities. Nevertheless, agricultural trade is expected to remain more resilient to economic downturns than trade in other sectors. For nearly all commodities, exports are projected to remain concentrated in a few supplying countries, which may imply a greater susceptibility of world markets to supply shocks.
“Real prices of most agricultural and fish commodities are expected to decline slightly over the ten-year Outlook period,” OECD Secretary-General Angel Gurría said at the launch event in Paris. “As we have seen in the past, unexpected events can easily take markets away from these central trends, so it is essential that governments continue joint efforts to provide stability to world food markets. It is equally important that we look ahead as we seek to meet the fundamental challenge facing world food and agriculture: to ensure access to safe, healthy, and nutritious food for a growing world population, while at the same time using natural resources more sustainably and making an effective contribution to mitigating climate change.”
“The report foresees that the average calorie availability per person per day will increase in least developed countries and in most emerging economies,” said FAO Director-General José Graziano da Silva. “But we also know that more food alone is not enough to eliminate undernourishment and other forms of malnutrition. Access to the additional calories is extremely important. More challenging is the fight against malnutrition: Fighting malnutrition requires a diversified, safe and nutritious diet, ideally produced with a lower environmental footprint.”
Focus on Southeast Asia
Every year the Outlook contains a special feature, and this year it covers Southeast Asia.
Economic growth has been strong and the agriculture and fish sectors have developed rapidly in the region. The report finds that this broad-based growth has enabled the region to significantly reduce undernourishment in recent years. However, the growth of agriculture and fisheries, in particular in the export-oriented fish and palm oil sectors, has led to rising pressure on natural resources.
A greater focus on sustainable development in Southeast Asia will slow the growth of palm oil production, according to the Outlook. Across the agricultural sector, yields will continue to increase, but cropland is projected to expand by only 10 percent over the next 10 years, compared to 70 percent over the previous decade.
Improved resource management and increased R&D will be needed to achieve sustainable productivity growth across the agricultural sector. Support for rice production could also be reoriented to facilitate the diversification of agriculture. Given the region’s sensitivity to climate change, investments to facilitate adaption will be required.
Other findings from the report include:
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Large low-income groups will keep growth in per capita global meat demand at 1 percent over the next ten years, compared to 6 percent increase over the previous decade.
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Per capita demand for sugar is expected to increase more rapidly, at 8.1 percent over the next ten years, compared to 5.6 percent growth over the previous decade.
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India is projected to be the most populous country by 2026. With high and still rising per capita consumption levels for milk, the country is projected to account for 42 percent of the increase in global milk production over the coming decade.
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Biofuel production is projected to grow by 17 percent over the next ten years, compared to a 90 percent increase over the previous decade.
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Yield gains are projected to account for 85 percent of the increase in wheat production and 90 percent of the increase in maize production, keeping the increases in harvested area to 2 percent. By contrast, a 14 percent expansion in soybean area, mainly in South America, is projected, accounting for about 60 percent of the global production increase.
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Fish is projected to account for half of animal protein consumed in China and Southeast Asia by 2026.
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The total production of fish from aquaculture is projected to overtake production from capture fisheries in the middle of the outlook period.
The full report is available to download here.
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tralac’s Daily News Selection
Featured infographic: Visualizing trade flows among G20 nations
Starting tomorrow, in Geneva: Sixth Global Review of Aid for Trade
Lily Sommer, Heini Suominen, David Luke: Aid for Trade in Africa – what are the strategic priorities? (Bridges Africa)
Many characteristics of AfT flows to Africa have remained relatively unchanged over the last decade. The current picture of AfT in Africa is presented, before recommending three key strategic priorities: (i) refocusing AfT for enhanced intra-African trade, (ii) making AfT work for all, and (iii) strengthening human and institutional capacities for effective AfT. These proposals are not exhaustive, but they can go a long way towards ensuring that, through AfT, trade is more effectively used as a tool to transform African economies and achieve the 2030 Agenda in Africa. [Aid for Trade: A springboard for sustainable development? Volume 6, Number 5, 10 July 2017], [ICTSD at Aid for Trade Global Review 2017]
Public hearing concerning out-of-cycle review of Rwanda, Tanzania, and Uganda’s eligibility for benefits under AGOA: comments received. The AGOA Subcommittee of the TPSC will (Thursday) consider written comments, written testimony, and oral testimony in response to this notice to develop recommendations for the President as to whether the Republic of Rwanda, United Republic of Tanzania, and Republic of Uganda are meeting the AGOA eligibility criteria. Profiled submissions:
SMART (pdf): SMART is aware of news reports that Kenya has recently announced that it will impose “minimum tariffs” on containers of “used goods.” Depending on how the Kenyan government interprets the term “used goods” this action threatens to negate Kenya’s announced roll back of its tariffs on imported used clothing. For this reason, SMART requests that Kenya also be included in this out-of-cycle review.
Kenneth Bagamuhunda, EAC (pdf): Development of the local textile industry will not undermine the market based economy stipulated under AGOA as it will boost more production for export and local market that will see EAC countries enhance its export volumes to the U.S. EAC countries import a range of goods from U.S. including capital goods, plant and machinery, agro chemicals, aircrafts and parts, petroleum equipment, and these products do not attract duty. The EAC has for a long time been registering trade deficits in its trade with USA. There is a thriving business of importation of new garments and apparel into East Africa from U.S. by business women.
Amelia Kyambadde, Uganda’s Ministry of Trade, Industry and Cooperatives (pdf): As we implement the infrastructure development and industrialization programme for Uganda, we will create more jobs for the USA and the countries in the north through the purchase of services, capital goods, IT equipment, earth moving equipment, oil and gas extraction equipment, etc. With this in mind, there is no justifiable reason for the out-of-cycle review. The eligibility of the Republic of Uganda for AGOA should not be in question. The USA and Uganda should collectively look ahead to more harmonious trade and investment partnerships to exploit the opportunities in Uganda, in the great lakes region and in the USA.
Bonny Musefano, Embassy of Rwanda (pdf): Looking at the figures, Rwanda has not yet reaped much from AGOA arrangement. In response to such a situation, Rwanda with the support of USAID East Africa Trade and Investment Hub finalized her AGOA strategy in April 2016 and the strategy focuses on three key sectors: textiles and apparel, specialty foods and home décor and fashion by which its implementation would require the support of the USA government and other stakeholders. Any decision to challenge the eligibility of Rwanda to AGOA market access preferences will compromise the current momentum and discourage the ongoing dialogue to enhance trade and investment partnership between the USA and Rwanda.
Adolf F Mkenda, PS, Ministry of Industry, Trade and Investment, Tanzania (pdf): The EAC Decision is yet to be implemented. Therefore, there is no scientific proof that changes in the trade pattern and other macroeconomic variable [jobs, trade patterns, shipping, etc] were caused by the EAC decision to phase out importation of second hand clothing and leather as pointed out in the petition and therefore the claim cannot be justified. In Tanzania, the question of increase or decrease tax, duties, fees is a fiscal decision which has been implemented as part of annual fiscal measure during budget submission and it is a sovereign legitimate budget decision.
EAC Secretariat (pdf): As earlier indicated, the EAC finds it imperative to provide a submission clarifying on the issues raised in the petition. This stems from the fact that EAC as an integrated regional body pursues and implements harmonized trade regimes under the Customs Union which is being consolidated into a Single Customs Territory. Secondly, EAC has been galvanizing its industrialization development agenda through common programs and strategies to promote our industrial sector, export promotion and value chain development. [Additional downloads are available]
Related: Kenya: Mitumba imports cross Sh3bn mark in first 3 months (Business Daily). Kenya spent its hard currency worth Sh4.41 billion on importing second-hand clothes and footwear between January and March alone, official data shows. The import bill for second-hand clothes, also called mitumba, reached a staggering Sh3.28 billion, a 13% growth on the Sh2.85 billon spent in the first quarter of last year, data produced by the Kenya National Bureau of Statistics shows. The KNBS data shows first quarter import of footwear also soared to Sh1.13 billion or a 16.5 per cent increase on the Sh970 million orders of similar period last year. [Tanzania: Trade ministry calls for increased investment in textile sector]
TFTA updates
(i) Dr Francis Mangeni: The Tripartite Free Trade Area – a breakthrough in July 2017 as South Africa signs the Tripartite Agreement. The ministerial meeting of 7 July 2017 in Kampala injected fresh momentum into the tripartite negotiations to create a free trade area covering half of Africa. South Africa signed the Tripartite Agreement bringing the total of countries that had signed to 19, out of 26. Madagascar will sign on 13 July 2017 while Botswana is expected to follow suit. South Africa signed the Tripartite Agreement the very hour that the remaining three Annexes to the Tripartite Agreement were adopted by the Ministers, at a public ceremony covered by the media following the conclusion of the ministerial meeting. The meeting finalised and adopted the three remaining Annexes (on rules of origin, trade remedies and dispute settlement), thus producing the full Tripartite Agreement. The adoption of the three remaining Annexes, therefore, represented a milestone in the Tripartite negotiations, as it finally removed the last obstacle to signing and ratifying the Agreement. Uganda said it would complete its ratification process by end of August 2017, as the matter is before Cabinet. Egypt already ratified the Agreement. A total of 14 ratifications is required for the Agreement to enter force.
(ii) Andrew Mold, Rodgers Mukwaya: Modelling the economic impact of the Tripartite Free Trade Area: its implications for the economic geography of Southern, Eastern and Northern Africa (Journal of African Trade). The study uses the Global Trade Analysis Project computable general equilibrium model and the latest GTAP 9 database to simulate the effects of the establishment of the TFTA. The results indicate a significant 29% increase in intra-regional trade as a result of tariff elimination between member states. Particularly encouraging is the fact that the sectors benefiting most are manufacturing ones, such as light and heavy manufacturing, and processed foods. The results reveal an aggregate welfare gain of $2.4bn for the TFTA region. Concerns have been raised that industrial production of the TFTA could concentrate in the countries with highest productivity levels namely, Egypt and South Africa. However, our simulation results suggest that these fears are exaggerated, with little evidence of the concentration of industries in the larger countries.
Axel Addy, Ratnakar Adhikari: Four ways Africa can achieve a manufacturing renaissance (WEF)
It is not a new argument that these four pillars of institutions, infrastructure, human capital and technology, will drive manufacturing-led growth in Africa. On the contrary, these elements have been included by the World Economic Forum in its competitiveness analyses and are well embedded in the Agenda 2063 – which was carefully drafted, adopted and owned by the Heads of States of the African Union as a blueprint for accelerated development and technological progress of Africa. The only missing piece of the puzzle to realise these aspirations is the political will to deliver. [Addy is Minister for Commerce and Industry, Liberia; Adhikari is ED of the Enhanced Integrated Framework Executive Secretariat, WTO]
Central Africa: ECA webinar on the need for efficient industries
The webinar, which drew panelists from government, academia and the private sector, is part of activities leading up to the 33rd meeting of the Intergovernmental Committee of Experts (ICE2017) scheduled for 26-29 September in Douala. The theme for ICE 2017: Made in Central Africa: from the vicious to the virtuous circle. This event came two days after another ECA webinar: Industrial policies in Central Africa: current state, future prospects.
Zimbabwe: 2017 Article IV Consultation documentation (IMF)
Box 4. Experience with the dollarized regime (pdf): Dollarization brought benefits to the economy at a critical moment. (i) It halted hyperinflation. Inflation declined from 79.6 billion percent at end-2008 to 3.2% by end-2010. (ii) It helped restore business confidence. Real GDP had declined by 15% in 2008 and grew by 15.4% in 2010. (iii) It supported re-monetization of the economy and eliminated the exchange rate risk involved in investment decisions. However, the basic conditions for the system to function smoothly were not in place. [Statement]
Seychelles: Systematic Country Diagnostic (World Bank)
Overall business environment: (i) Seychelles fares worse in global competitiveness rankings than would be expected based on its income level. (ii) Some slippage in recent years: from 76th rank in WEF Global Competitiveness Index when first included in 2012/13, to 97th/140 in 2015/16. (iii) Aside from small market size, Seychelles’ competitiveness is hampered by shortfalls in its “efficiency enhancers”, especially finance and skills. [Note: The report (pdf) includes 6 Topical Notes - tourism, blue economy, SOEs, social protection, welfare, labour market]
Profiled G20 Summit outcome: Africa Partnership (pdf)
The G20 expressed its strong commitment to provide a political platform for the initiative and to ensure continuity. Individual G20 members and other countries and institutions announced voluntary contributions to country-specific Compacts. The AU and NEPAD as well as partner institutions like the OECD are welcome to support the implementation and monitoring process of the initiative. All partners are committed to striving for high-quality and sustainable measures to support the Compacts in an effective way. The goal is to provide credibility, visibility, and scale to the initiative, further strengthen the G20 Compact with Africa and attract African and international private investors and entrepreneurs. We welcome complementary measures by the forthcoming EU External Investment Plan, the Forum of China Africa Cooperation, the Tokyo International Conference on African Development as well as others. [G20 Summit Declaration and other documents, ICC’s response to G20 Hamburg Summit]
Africa defeats world’s biggest mobile carriers (Bloomberg)
Back when African countries were auctioning off mobile licenses by the boatload to serve the region’s young, tech-savvy population, investing in the continent’s fast-growing economies seemed like a no-brainer. Some of the world’s biggest wireless carriers rushed in. Now they’re wondering if they made a mistake. Increasing government and regulatory scrutiny, as well as a lack of expansion opportunities in sub-Saharan Africa, are making it harder for operators such as Vodafone Group Plc, Orange SA and Bharti Airtel Ltd. to grow. Their choice: Pull back or double down.
SADC and Germany agree on areas of cooperation (SADC)
SADC and BMZ also agreed to re-focus their Cooperation from the current six to four programmes by 2019, which will include (i) Regional Economic Integration (covering also Peace, Security and Good Governance); (ii) Transboundary Water Management; (iii) Transboundary Natural Resource Management and Resilience to Climate Change; and (iv) Strengthening National-Regional Linkages.
The report – commissioned by the International Chamber of Commerce – shows that G20 nations rank below the global standard in terms of openness to trade, with only Canada placing among the world’s top 20 open markets. Singapore, Luxembourg and Hong Kong SAR head the 2017 rankings for the fourth successive edition of the report, far outstripping major economies such as the United States in terms of trade openness. The Index scores 75 countries on a scale of one to six on four key factors: observed trade openness, trade policy, openness to foreign direct investment and trade-enabling infrastructure. In doing so, the Index also monitors government follow through on longstanding G20 commitments to boost global trade flows.
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The Tripartite Free Trade Area – a breakthrough in July 2017 as South Africa signs the Tripartite Agreement
The ministerial meeting of 7 July 2017 in Kampala injected fresh momentum into the tripartite negotiations to create a free trade area covering half of Africa.
South Africa signed the Tripartite Agreement, bringing the total of countries that had signed to 19 out of 26. Madagascar will sign on 13 July 2017 while Botswana is expected to follow suit.
South Africa signed the Tripartite Agreement the very hour that the remaining three Annexes to the Tripartite Agreement were adopted by the Ministers, at a public ceremony covered by the media following the conclusion of the ministerial meeting.
The meeting finalised and adopted the three remaining Annexes (on rules of origin, trade remedies and dispute settlement), thus producing the full Tripartite Agreement. While the main Agreement had been signed on 10 June 2015, six out of the 10 Annexes had by then been negotiated and cleaned up by the lawyers. Three Annexes, though negotiated, were yet to be scrubbed by the lawyers and were on this ground considered outstanding. And a few other issues had yet to be tied up, such as preparing guidelines under the Annex on trade remedies. The final Annex was simply the tariff schedules, which countries would submit for attaching to the Agreement as and when finalised. Mauritius and Seychelles had already submitted their tariff schedules to the Tripartite Task Force made up of the secretariats of the three regional economic communities (COMESA, EAC and SADC).
These three outstanding Annexes had meant that the Tripartite Agreement was not complete, and this had been advanced by a number of countries as the reason they could not sign or ratify the Agreement.
The adoption of the three remaining Annexes, therefore, represented a milestone in the Tripartite negotiations, as it finally removed the last obstacle to signing and ratifying the Agreement.
Uganda said it would complete its ratification process by end of August 2017, as the matter is before Cabinet. Egypt already ratified the Agreement. A total of 14 ratifications is required for the Agreement to enter force.
The tripartite ministers set a new time frame of three months for completing outstanding issues, that is, 30 October 2017, especially tariff negotiations and ratification of the Agreement.
The tripartite free trade area was launched on 10 June 2015. The presidents set a timeframe of 12 months for finalising tariff negotiations and other outstanding issues. That time frame was missed and in October 2016, the ministers set a new timeframe of April 2017. That too was missed. The timeframe of 30 October 2017 was expected to be different because of the apparent existential risk the tripartite faced from the Continental free trade area expected to be launched by the end of 2017 in accordance with a timeframe the African presidents set back in 2012.
Some argued that with the 55-member continental free trade area, the 27-member Tripartite Free Trade Area was unnecessary and redundant. Besides, they added, the Tripartite free trade area was not as ambitious as the continental free trade area (CFTA) especially regarding the level of tariff liberalisation and areas covered such as services and investment.
The African ministers of trade met in Niamey in Niger on 16 June 2017 to adopt the modalities for negotiating trade in goods and services, with just six months left to the deadline for establishing the CFTA, after a tortured process of negotiations since being launched on 15 June 2015.
First, the Ministers adopted the modalities for tariff negotiations for the CFTA. The modalities provided for tariff liberalisation of 90 percent of tariff lines over a five year period for Non-LDCs and over a 10 year period for LDCs. There would be sensitive and excluded products for the remaining 10 percent of the tariff lines, to be negotiated. the idea was that the 10 percent sensitive and excluded products were for industrialisation policy space, though industrialisation was not mentioned in the modalities. Such an industrialisation strategy, if that was all to it, would be largely erratic if the technological, financial and institutional capabilities were not appropriately prioritised.
It could be observed that these CFTA modalities were not as ambitious as those of the Tripartite, which provided for 100 percent product coverage with a Tariff elimination period of five to eight years, but with 60 to 85 percent of tariff lines to be liberalised upon entry into force of the Agreement. Industrialisation and infrastructure development in the Tripartite were integral complementary pillars to the Tripartite free trade area. The Tripartite Industrial Work Program was negotiated and finally adopted by the ministers in October 2016. The African Union adopted the Action Plan for Boosting Intra-Africa Trade (BIAT) at the time of launching the CFTA negotiations, to supplement the Accelerated Industrial Development Program for Africa adopted earlier but hardly implemented as such.
In addition, there was no consensus on the CFTA Modalities, as seven countries registered reservations. A proposal that would have accommodated these countries was made by the Tripartite group of countries, namely to explicitly underscore the critical importance of industrialisation in the modalities, and to indicate the level of ambition as ranging from 85 to 90 percent, rather than indicating it as just 90 percent. Another tripartite proposal was to recognise the progress made by the regional economic communities and provide that the CFTA would not unravel it. This too was not included in the CFTA Modalities.
The apparent animosity or antipathy towards the Tripartite, had been nurtured over time by those who feared that the Tripartite would present them with a done deal, making them irrelevant or leaving them no room for a role or a contribution. In addition, francophone countries from West Africa started to see the tripartite as an anglo-phone imposition, and fought it in the CFTA negotiations.
Second, the African Ministers adopted modalities for services negotiations. The services negotiations took the positive list approach and were to produce schedules of specific commitments and regulatory frameworks after the negotiations, as well as an Agreement on Trade in Services. On the contrary, the Tripartite had not started services negotiations, nor investment, competition policy and intellectual property negotiations, on which the CFTA had already produced draft text for consideration.
The tripartite had taken the approach of negotiating these additional issues during a second phase, after completing negotiations on trade in goods. This was a strategic decision, not to overload the negotiations. Experience in the CFTA negotiations showed that negotiating all these multiple areas required long sessions lasting half a month, which was costly in terms of funds and time spent away from other equally important priorities of government in the capitals.
The tripartite was to be a launch pad for the CFTA. Covering half the African continent, the Tripartite meant that more than half the job of creating the CFTA was done. Yet the African Union seemed prepared to throw this away and start from scratch.
Dr Francis Mangeni is Director of Trade, Customs and Monetary Affairs at the Common Market for Eastern and Southern Africa (COMESA). The views expressed in this article are those of the author and do not necessarily represent the views of tralac.
Click here to view our collection of legal texts and negotiating documents for the TFTA.
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Major leap for Africa at G20 summit
The Group of 20 (G20) Leaders’ Summit, which concluded in Hamburg, Germany, on Saturday, has recorded positive outcomes for global development, with significant benefits for the African continent.
The office of South African President Jacob Zuma on Sunday said critical developmental issues were tabled at the summit, which brought together leaders from the world’s major economies, including the European Union.
Speaking at the conclusion of the two-day summit, President Zuma said the German Presidency of the G20 has managed to build on the achievements of the last summit in China, which had emphasised sustainable development in Africa.
“Despite disagreements on certain issues, the summit managed to discuss and agree on various developmental matters that would be of advantage to South Africa and the African continent, including the launch of the G20 Africa Partnership.
“This programme was launched in recognition of the opportunities and challenges on the African continent, as well as the goals of the United Nations Social Development Agenda 2030.
“It was agreed that this initiative would be based on equal partnerships and will be in line with the African Union Agenda 2063. The partnership will further serve our national interest, as it will generate sustainable and inclusive economic growth and development, contribute to creating decent employment and economic advancement for women and youth as well as alleviate poverty and inequality,” President Zuma said.
Boost for rural development and women
The partnership will include developmental projects such as G20 Initiative for Rural Youth Employment in developing countries, with a focus on Africa. This initiative is intended to contribute to creating 1.1 million new jobs by 2022 and provide innovative skills development for at least five million young people over the next five years.
The G20 Africa Partnership programme will also include projects such as the Women Entrepreneurs Financing Initiative housed at the World Bank, and the establishment of the Business Women’s Leaders Task Force to work with the G20’s Women20 and Business20 initiatives.
The partnership will also see the launch of the #eSkills4Girls Initiative to promote opportunities and equal participation for women and girls in the digital economy, particularly in low income and developing countries.
President Zuma said such developmental programmes are necessary to address the growing discontent by citizens, which is a worrisome issue confronting the world.
“We are confronted by rising inequality within countries and a lack of quality jobs. It cannot be business as usual, where we simply take an approach to better explain the benefits of trade. It is imperative that the discourse and action acknowledges the benefits and costs of globalization,” the President said.
Economic development
President Zuma said the summit also discussed thoroughly the issue of the global economy and trade and investment against the unfavourable backdrop of sluggish growth.
“The summit agreed that despite improvements in trade and investment, the benefits of international trade and investment have not been shared fairly enough.
“The leaders agreed that trade and investment are key pillars of growth and development, therefore it would be appropriate to promote a fair and favourable environment that will ensure transparency, mutually beneficial trade relations as well as inclusive and sustainable global growth.
“We further agreed on the improvement of the functions of the World Trade Organisation (WTO), as well as the full implementation of the WTO Trade Facilitation Agreement, which will provide technical assistance to developing countries.
“As South Africa, we will take full advantage of these agreements and opportunities to address the immediate challenges facing the country such as economic growth, creation of decent jobs as well as the eradication of poverty and inequality,” President Zuma said.
Sustainable development and climate change
Climate change, sustainable development and energy also featured highly on the summit’s agenda.
President Zuma said despite the differences on climate and energy matters, including the decision of the United States to withdraw from the Paris Agreement, the majority of leaders remain committed to the agreement as the best opportunity to address the existential threat posed by climate change.
Leaders, President Zuma said, reaffirmed their strong commitment to the Paris Agreement and agreed on the full implementation of the agreement. They also agreed to the G20 Hamburg Climate and Energy Action Plan for Growth.
“We must make good on past commitments, most importantly, the mobilisation of financial resources, including the Green Climate Fund, technology transfer and capacity building, to deal with both mitigation and adaptation needs, especially in Africa, where we bear the brunt of climate change,” the President said.
He said infrastructure investment in Africa is critical to development, with investment in renewable energy as part of the energy mix.
“We support G20 efforts towards a transition to sustainable and low greenhouse gas emission energy systems in a manner that is technically feasible and economically viable, especially in developing countries. We also wish to reiterate our support for cleaner fossil fuel technologies and nuclear energy,” the President said.
Terrorism
A G20 Leaders’ Retreat meeting was held during the summit to discussed terrorism and extremism.
President Zuma said South Africa noted with concern the alarming regularity and persistence of terror attacks across the world, causing death and devastation and impacting national and regional security.
“International coordination and cooperation in countering this threat is critical. As South Africa, we maintained our full support of the global campaign against terrorism within the framework of the United Nations,” the President said.
President Zuma was accompanied by the Ministers of International Relations and Cooperation, Maite Nkoana-Mashabane, Finance Malusi Gigaba and Energy Nkhensani Kubayi.
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Aid for trade in Africa: What are the strategic priorities?
Taking stock of aid for trade in Africa over the last decade, how can the targeting and delivery of this development assistance be improved to help achieve the continent’s structural transformation, integration, and poverty reduction agendas?
Aid for trade (AfT) is explicitly addressed in the Sustainable Development Goals (SDGs) under Goal 8: “Promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all.” For AfT to deliver on the ambitions of this goal in Africa, along with the objectives contained in the African Union’s (AU) long-term development vision and action plan, Agenda 2063, it is important to ensure that it is well-targeted and aligned with the continent’s strategic priority of structural transformation.
This article provides some suggestions on how to achieve this. Many characteristics of AfT flows to Africa have remained relatively unchanged over the last decade. The current picture of AfT in Africa is presented, before recommending three key strategic priorities: (1) refocusing AfT for enhanced intra-African trade, (2) making AfT work for all, and (3) strengthening human and institutional capacities for effective AfT. These proposals are not exhaustive, but they can go a long way towards ensuring that, through AfT, trade is more effectively used as a tool to transform African economies and achieve the 2030 Agenda in Africa.
Aid for trade in Africa: A state of play
In 2015, AfT disbursements to African countries reached a record high of US$14.1 billion, representing an increase of over 150 percent from 2006.[1] From the beginning of the Aid for Trade Initiative, Africa – together with Asia – has been one of the key destinations for AfT, with its share of global disbursements fluctuating between 30 and 40 percent. AfT therefore represents a significant and growing channel of aid for African countries, as is evident in Figure 1.
Figure 1: Aid for trade disbursements, 2006-2015 (US$ million, constant 2015)
Source: OECD-Creditor Reporting System Database.
AfT flows to the continent are not evenly distributed, with a number of large economies dominating AfT funding. Since 2010, Egypt, Ethiopia, Kenya, Morocco, and Tanzania have attracted the largest disbursement flows. Together, these five countries have on average accounted for over 35 percent of the annual AfT disbursements to Africa. Both Morocco and Egypt alone have accounted for over 8 percent annually. These countries are also among those with the highest GDP on the continent, and Egypt, Morocco, and Kenya have been classified by the World Bank as lower-middle-income countries. Perhaps as a reflection of their more developed status, AfT represents a larger share of their official development assistance (ODA), up to 52 percent for Morocco, 44 percent for Egypt and 27 percent for Kenya. While the share of AfT in ODA to Africa has been increasing, at a continental level it stood at around only 24 percent in 2015.
Concentration of AfT is also evident at the sectoral level. A large majority of Africa’s AfT has been directed towards projects related to economic infrastructure and productive capacity building. Infrastructure – including transport and storage, energy, and communications – accounted for around 55 percent of AfT funding in 2015. Given the significant infrastructure needs of the continent, this is not surprising. In 2012, it was estimated that US$68 billion was needed by 2020 to complete the priority projects of the Programme for Infrastructure Development in Africa (PIDA).
Productive capacity building is the second largest sectoral recipient of AfT in Africa. The majority – around 54 percent in 2015 – of this funding is directed towards the agricultural sector,[2] which still accounts for around half of Africa’s total employment.[3] Only around 13 percent of productive capacity disbursements went towards industry. This is less than for banking and finance, which accounted for around 16 percent of AfT for productive capacity and 7 per cent of the total in 2015. Trade policy and regulations represented around 3 percent of total AfT, the bulk of which (around 60 percent) was accounted for by trade facilitation.
In terms of the form of aid, the trend over the years has been away from grants towards ODA loans and equity investment. In 2006, 62 percent of AfT to Africa was in grant form, but by 2015, the share had decreased to slightly below 48 percent. A similar share was accounted for by loans, while equity investment was still in minority at 3.8 percent. Multilateral partners, such as the World Bank, the EU, and the African Development Bank are the largest providers of AfT to Africa. At a bilateral level, Germany, Japan, United States, and France are the leading providers. Some new partners have emerged during the decade, including Kuwait, the United Arab Emirates, the Climate Investment Funds, and the OPEC Fund for International Development.
Priority 1: Refocusing aid for trade for enhanced intra-African trade
In 2012, African heads of state adopted the decision to fast-track the Continental Free Trade Area (CFTA) and the Boosting Intra-African Trade (BIAT) Action Plan. These twin initiatives are aimed at harnessing the transformative potential of intra-African trade, which is more diversified and industrialised than Africa’s trade with the rest of the world. In 2014, manufactured goods accounted for 41.9 percent of intra-African exports, compared to only 14.8 percent of Africa’s exports outside the continent.[4] The share of intra-African trade in total African trade was only 15.3 percent in 2015, compared to 46.8 percent in America, 61.3 percent in Asia and 66.2 percent in Europe.[5] Intra-African trade is therefore underexploited. Economic modelling conducted by the Economic Commission for Africa indicates that establishing the CFTA would boost intra-African trade by about 50 percent – with the highest estimated increase for industrial products.[6]
The removal of tariff barriers to intra-African trade will go some distance towards boosting and diversifying intra-African trade, but not the full distance needed to transform African economies. This is well recognised in the BIAT Action Plan, which was designed to address the non-tariff constraints to intra-African trade under seven priority clusters – namely, trade policy, trade facilitation, productive capacity, infrastructure, trade finance, trade information, and factor market integration. Economic infrastructure and productive capacity building – the two sectors attracting the most AfT funds in Africa – are reflected in the BIAT clusters. Indeed, data from the regular monitoring and evaluation exercises carried out in the context of global reviews of AfT has suggested that the priorities of the donors and recipients are well aligned. As Africa moves towards deeper integration with the CFTA, it is important that this link is maintained and enhanced. Intra-African trade should be placed at the centre of AfT cooperation.
Central to enhancing alignment will be to increase the share of regional or multi-country projects. In 2015, the share of regional projects in Africa’s AfT was around 12 percent. While this is relatively high compared to other regions, there is room for improvement. For example, only 3 percent of AfT flows towards transport and storage went to regional projects. On the other hand, African countries have successfully attracted AfT for regional projects in other sectors such as industry (48 percent of funding towards regional projects) and banking and financial services (45 percent).
There is scope for AfT to contribute towards the CFTA process. The negotiations on trade in goods and services are being conducted against a tight December 2017 deadline. In the next phase of the negotiations, investment, intellectual property rights, and competition policy will be covered. The implementation and monitoring of the agreement in the 55 countries will be a challenging exercise. The current share of trade policy support in AfT is very small, and in real terms, this support declined between 2013 and 2015. While the low share of trade policy projects can partly be explained by the lower cost of implementation relative to hard infrastructure for example, there is scope to diversify support towards the urgent CFTA agenda.
Diversification of AfT funding should be considered beyond trade policy support. The other BIAT clusters are closely interlinked and have an important place in AfT cooperation. The BIAT Action Plan could act as a useful framework for ensuring that the projects implemented through AfT in these key areas are geared towards boosting intra-African trade, in view of its strong development impacts. A range of initiatives have already been implemented on the BIAT priority clusters by African countries and their partners.
Priority 2: Making aid for trade work for all
SDG 8a calls for increased AfT support for developing countries, in particular least developed countries (LDCs), including through the Enhanced Integrated Framework (EIF) for Trade-related Technical Assistance to LDCs. As presented above, many key recipients of AfT in Africa are non-LDCs. Improved targeting of AfT to LDCs is crucial.
More AfT funds could be channelled through the EIF. The first phase (2008-2015) of the EIF programme provided almost US$204 million in support to LDC beneficiary countries. The recently launched second phase of the programme (2016-2022) has secured US$70 million from contribution agreements so far, but would benefit from scaled commitments in the future. Almost three quarters of EIF funds are directed towards Africa, in areas key to inclusive trade – agribusiness, trade facilitation, plant and post-harvest protection, and pest control and fishery development. The EIF could, however, be better targeted on transformative regional projects, including through support to corridor management institutes, regional economic communities (RECs), and the African Union Commission’s (AUC) programmes such as BIAT. Part of the problem is that EIF has a country focus, mirroring AfT. Increasing the share of regional projects should be a priority for both AfT and the EIF.
The targeting of AfT is particularly poor in the area of trade facilitation, a key area for trade policy support and one of the BIAT priority clusters. Disbursements in this area are largely directed at countries closest to the WTO’s Trade Facilitation Agreement (TFA) targets, as captured by the OECD Trade Facilitation Indicators. Recent assessments indicate that a shift in trade facilitation disbursements towards LDCs and landlocked developing countries (LLDCs) would provide the highest returns for AfT funds.[7] The WTO TFA Facility established in 2014 to support developing and LDC members should be used to encourage a shift of AfT to trade facilitation measures centred on the poorest countries.[8]
AfT must also be better targeted within countries. The SDG aspiration is that no one should be left behind. To achieve this, AfT must be underpinned by a strong focus on vulnerable groups – including women, small-scale farmers, informal cross-border traders, and youth – who are often constrained in participating in welfare-enhancing trade. A good example of using AfT to ensure equitable outcomes was the integration of gender into Uganda’s National Export Strategy. The project, supported by the International Trade Centre (ITC), helped 3,150 women entrepreneurs improve their business and enterprise management skills, supported the formalisation of women-owned businesses, promoted women’s access to regional export markets, and ultimately contributed to increased household income.[9]
Small and medium-sized enterprises (SMEs) are key to channelling trade and growth into employment, poverty reduction, and women’s economic empowerment. It is important that AfT contributes towards improving SMEs’ access to export markets and regional and global value chains. In low income countries, seven out of ten new export relationships developed by SMEs fail within two years.[10] AfT projects seek to address the various competitiveness challenges faced by SMEs, but the trade dimension of SME development is often not adequately captured. Access to affordable trade finance and technical assistance on how to comply with cumbersome rules of origin and public and private standards must receive greater attention. South-South partnerships can play an important role, given the similar challenges faced by SMEs in partner countries.
Priority 3: Strengthening human and institutional capacities for effective aid for trade
Ownership is a crucial element of effective AfT. For this, strong institutional structures are needed to ensure the effective design, implementation, and monitoring of AfT projects.
AfT activities cut across several policy areas and sectors. It is therefore crucial that national institutions are supported to build the required capacities to exercise ownership. Weak coordination, governance structures, and technical capacities can undermine the efficiency and effective utilisation of AfT resources. This is particularly important given the current emphasis on results, including the use of impact assessments and greater attention to baselines and indicators. Inadequate capacities to meet these demands may partly explain the low share of AfT directed to LDCs. A larger share of AfT should be targeted at enhancing the human and institutional capacities needed to ensure sound management principles are followed.
The institutional and capacity challenges of regional AfT are even greater. An uneven distribution of the costs and benefits of regional projects, and the varying levels of economic development of programme beneficiaries, can make it difficult to align national priorities with regional programmes. Effective regional AfT requires strong coordination between a wide range of regional actors, as well as shared deliverables and indicators to assess results.
As previously argued, there is scope and reason to increase regional AfT in Africa, particularly in certain sectors. Although AfT is demand-driven, the international community’s appetite for regional AfT could be strengthened through building institutional and human capacities at the regional level and involving regional partners to ensure effective coordination.[11] A strong CFTA institutional structure, centred at the AU, but also building on existing strengths and structures of the RECs, would help ensure the effective coordination needed to advance regional AfT efforts. The RECs and other regional agencies, such as corridor management institutions, have already been successful in attracting AfT and aligning their activities to national development plans. AfT support should be scaled up to further support this.
Conclusion
AfT flows to African countries continue to be an important source of support for development. The recent trends suggest that the distribution of AfT across priority areas, partners, and countries in the region has remained relatively unchanged in recent years. The key areas of support, economic infrastructure and projects aimed at building productive capacity, can meaningfully contribute to Africa’s structural transformation.
While Africa is one of the main recipients of AfT funds, the targeting of these funds could be improved. Aligning AfT closer to continental frameworks such as the CFTA and BIAT Action Plan would allow African countries and development partners to better capture the transformative potential of intra-African trade. Furthermore, benefits must be felt by all for trade to act as an effective tool for development. To ensure inclusive gains, LDCs and LLDCs should receive a greater share of AfT. At a national level, vulnerable groups and SMEs must also be better supported through AfT. Intra-African trade can offer considerable opportunities to small-scale businesses due to the proximity of markets and lower barriers of entry relative to global markets. Actions taken to boost intra-African trade could therefore benefit smaller operators disproportionately, contributing to reducing inequality and delivering on Agenda 2063 and the SDGs. Finally, regional programmes should receive more attention. In addition to technical projects, AfT should strengthen regional institutions to ensure strong collaboration and effective delivery of AfT.
Lily Sommer is a Trade Policy Fellow at the African Trade Policy Centre, United Nations Economic Commission for Africa; Heini Suominen is an Economic Affairs Officer at the African Trade Policy Centre, UNECA; and David Luke is Coordinator: African Trade Policy Centre, UNECA.
This article is published under Bridges Africa, Volume 6 - Number 5, by the ICTSD.
[1] All figures are in constant US$ (2015). Data relating to official development assistance and AfT has been drawn from the OECD-Creditor Reporting System Database, consulted in May 2017. A more extensive description of the trends will be available in the regional report prepared by the Economic Commission for Africa (in collaboration with WTO) for the Sixth Global Review of Aid for Trade.
[2] 23 percent of all AfT.
[3] Economic Commission for Africa (ECA). Economic Report on Africa 2017: Urbanization and Industrialisation for Africa’s transformation. ECA: Addis Ababa, 2017.
[4] Economic Commission for Africa (ECA). Smart industrialization through trade in the context of Africa’s transformation. ECA: Addis Ababa, forthcoming.
[5] ECA calculations using UNCTADStat data.
[6] Economic Commission for Africa (ECA). Assessing Regional Integration in Africa V: Towards an African Continental Free Trade Area. ECA: Addis Ababa, 2012.
[7] de Melo, Jaime, and Laurent Wagner. “How the Trade Facilitation Agreement can Help Reduce Trade Costs for LDCs.” E15 Expert Group on Trade, Finance and Development. Geneva: International Centre for Trade and Sustainable Development and World Economic Forum, 2016.
[8] Sommer, Lily, and David Luke. “Priority Trade Policy Actions to Support the 2030 Agenda and Transform African Livelihoods.” Geneva: International Centre for Trade and Sustainable Development, 2016.
[9] International Trade Centre (ITC). “Case Story on Gender Dimension of Aid for Trade: Integrating Gender into the National Export Strategy – A Case for Uganda.” Geneva: ITC, 2010.
[10] International Trade Centre (ITC) and World Trade Organization (WTO). “SME Competitiveness and Aid for Trade: Connecting Developing Country SMEs to Global Value Chains.” Geneva: ITC and WTO, 2014.
[11] Lammersen, Frans. “Aid for Trade 10 Years On – What’s Next?” E15 Expert Group on Trade, Finance, and Development. Geneva: International Centre for Trade and Sustainable Development and World Economic Forum, 2015.
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Public Hearing concerning out-of-cycle review of Rwanda, Tanzania, and Uganda eligibility for benefits under AGOA: Comments received
The Office of the United States Trade Representative (USTR), in consultation with the Trade Policy Staff Committee (TPSC), has announced the initiation of an out-of-cycle review of the eligibility of the Republic of Rwanda, United Republic of Tanzania, and Republic of Uganda to receive benefits under the African Growth and Opportunity Act (AGOA) in response to a petition.
The AGOA Subcommittee of the TPSC has sought public comments in connection with this out-of-cycle review of the AGOA eligibility of the Republic of Rwanda, United Republic of Tanzania, and Republic of Uganda. The Subcommittee will consider the written comments, written testimony, and oral testimony in developing recommendations for the President as to whether Rwanda, Tanzania, and Uganda are meeting the AGOA eligibility criteria.
A public hearing by the USTR is scheduled for 13th July 2017.
The Petition
On March 21, 2017, the Secondary Materials and Recycled Textiles Association (SMART) submitted a petition to USTR requesting an out-of-cycle review to determine whether the Republic of Kenya, Republic of Rwanda, United Republic of Tanzania, and Republic of Uganda are meeting the AGOA eligibility criteria. The SMART petition asserts that a March 2016 decision by the East African Community (EAC), which includes the Republic of Kenya, Republic of Rwanda, United Republic of Tanzania, and Republic of Uganda, to phase in a ban on imports of used clothing and footwear is imposing significant economic hardship on the U.S. used clothing industry, and is in violation of the AGOA statutory eligibility criteria to make continual progress toward establishing a market based economy and eliminating barriers to U.S. trade and investment.
In response to the SMART petition, USTR has determined, in consultation with the TPSC, that there are exceptional circumstances warranting an out-of-cycle review of the AGOA eligibility of the Republic of Rwanda, United Republic of Tanzania, and Republic of Uganda. With respect to the Republic of Kenya, USTR has determined that an out-of-cycle review of Kenya’s AGOA eligibility is not warranted at this time, due to 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. USTR will continue to monitor Kenya’s actions to ensure that Kenya follows through on its commitments. The USTR has consulted with Congress about these determinations.
Section 506A of the 1974 Act requires the President to terminate the designation of a country as a beneficiary sub-Saharan African country if he determines that the beneficiary country is not making continual progress in meeting the eligibility requirements. As amended by the TPEA, the President may withdraw, suspend, or limit the application of duty-free treatment with respect to articles from the country if he determines that it would be more effective in promoting compliance with AGOA-eligibility requirements than terminating the designation of the country as a beneficiary sub-Saharan African country.
Further information is contained in the full Federal Notice and Petition from SMART, available here.
The full list of Comments/Submissions received is available on regulations.gov.
EAC response to the petition by SMART for an out-of-cycle AGOA eligibility review for Rwanda, Tanzania and Uganda
The EAC is a regional integration bloc comprising of six Partner States of which the four countries indicated in the petition are active members. Since 2005 and 2010 the EAC has been implementing a Customs Union and Common Market respectively, whereby the trade policies and regimes have been harmonized. Given the common trade implementation framework that is engrained in the common EAC Protocols and laws, the EAC Secretariat feels obliged as a key stakeholder to provide a response and clarification to the petition as required in the notice for public hearing.
Response to the petition by SMART
As earlier indicated, the EAC finds it imperative to provide a submission clarifying on the issues raised in the petition. This stems from the fact that EAC as an integrated regional body pursues and implements harmonized trade regimes under the Customs Union which is being consolidated into a Single Customs Territory. Secondly, EAC has been galvanizing its industrialization development agenda through common programs and strategies to promote our industrial sector, export promotion and value chain development. The response also arises from the fact that the petition has been sparked off by a collective decision made by EAC Heads of State in relation to promotion of textile and footwear manufacturing, which touches on importation of used clothing. The response is therefore as follows:
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EAC Heads of State Summit which is comprised of the Presidents of the six Partner States is the apex organ of the EAC which gives direction and impetus to the integration process of the EAC. One of the fundamental goals under the EAC Treaty is to promote industrialization in the EAC in order to attain a competitive position in global trade. Textile and footwear manufacturing among others was identified as a priority sector where EAC should put focus. The decision of the Heads of State in March 2016 was to revamp the textile sector and the whole value chain which had once been one of the vibrant sectors in the 1960s and 70s. Indeed EAC countries were among the major producers of cotton, lint and fabrics in Africa. The decision did not slap a ban on the importation of textiles but is an initiative to promote the textile and footwear industry while progressively phasing out used textiles on a gradual basis.
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The EAC has a tariff structure that was exhaustively negotiated by EAC Partner States before the coming into force of the Customs Union in 2005. After comprehensive analysis of the EAC economic environment, a simple and moderate three-band structure of 0% for raw materials, 10% for intermediate goods, and 25% for finished goods was agreed upon. Fifty Six (56) products including worn clothes/footwear and cotton fabrics were placed under a sensitive list based on a clearly defined criteria and their rates were above 25%.
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The Common External Tariff is compliant with the WTO requirements in regard to tariff binding and the two trade policy reviews undertaken by the WTO in 2006 and 2012 fully endorsed the EAC trade regime as satisfactory and compatible with WTO.
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In 2003/2004 while negotiating the EAC tariff it was decided to protect the textile industry in EAC, hence worn clothing were give a duty rate of 50% or $ 0.75 per kg (whichever is higher) based on the international researched values at that time. Likewise 15 products of cotton fabrics and garments were also given a sensitive rate of 50%. However, the sensitive rates of worn clothing were revised downwards to 35% or $0.20 (whichever is higher) immediately thereafter in July 2015 after realizing that the abrupt rise of the rate in some partner states would negatively impact on the used garment sector in the region. It should be noted that the adoption of specific rate alternately with the ad valorem rate was to address the challenges of valuation of used clothing. The specific threshold of $0.20 per kg was derived by applying the 35% on average CIF prices of the used clothing once landed at the first port of entry such as Mombasa and Dar es Salaam.
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The review of the specific duty threshold from $0.20 to $0.40 per kg while maintaining the 35% was not a tariff increment but a realignment made after 11 years to reflect the realistic landing price of used clothing to be compatible with the ad valorem rate of 35%. This was done through a comprehensive analysis. From the [analysis] the $0.20 per kg had become redundant because the base CIF values used in Partner States would yield higher taxes if 35% is applied compared to $0.20 per Kg since the principle of “whichever is higher” would apply.
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It suffices to note that the review of the specific rate does not isolate worn clothing but covered all sensitive goods including rice and sugar. Sugar was revised from 100% or $200 per MT to 100% or $450 per MT while rice changed from 75% or $200 per MT to 75% or $345 per MT. Other items such as cement, crown corks and match boxes were dropped from the sensitive list.
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The sensitive rate on worn clothing is not discriminatory to imports from USA but applies to all imports of used clothing from any country. Preliminary data indicates that most used clothes imported in EAC Partner States originate from China, Canada and USA. Likewise new cotton fabrics and garments are also subjected to 50% import duty and the leading exporter of cotton fabrics and fabrics of cotton mixed with synthetic materials originate from the Far East and China. It should be noted that the rest of fabrics of textiles and garments not under the sensitive list attract the maximum rate of 25%. It is therefore not realistic to assume that textiles are not subjected to high taxes when imported from China and other countries.
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The EAC is highly cognizant of the levels of employment by the used clothing industry in the U.S. and EAC. Equally EAC is desirous of job creation that will arise from revamping its textile and footwear manufacturing value chain and income growth of the people involved in cotton growing, ginning, weaving, garment manufacturing, leather tanning, shoe making and retail business.
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The fear of environmental impact caused by the discarding of used clothing in US is equally a concern of EAC since eventually the used clothes would also be discarded after use in EAC. It should be noted that EAC both at regional and national level are aggressively developing environmental protection laws and interventions particularly the littering of plastic materials and bags. Used and discarded clothing are equally menace.
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EAC has adopted a deliberate program to promote exports through Export schemes. These schemes are explicitly catered for in the Protocol Establishing the Customs Union, the EAC Customs Management Act and the EAC Regulations. Recently the Council of Ministers decided to establish Special Economic Zones in EAC through the Customs Union Protocol. These schemes which enjoy a wide range of tax incentives have been a vehicle for the apparel and garment manufacturing for AGOA. Presently EAC is considering opening up the Export Scheme products to the local market to boost access to fairly priced garments. Kenya and Rwanda have commenced this program and the results are very positive. Once the textile mills are operationalized in the region, EAC will access fairly priced new apparel similar to that the EAC is exporting to USA under AGOA.
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Development of the local textile industry will not undermine the market based economy stipulated under AGOA as it will boost more production for export and local market that will see EAC countries enhance its export volumes to the U.S. This will break the current vicious circle of minimal value addition in the region that leads to low income and low investment.
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Related to the above, it should be noted that EAC trade with U.S. has been in-creasing progressively since 2005. Apart from worn clothing, EAC countries import significantly from U.S. capital goods, plant and machinery, agro chemicals, aircrafts and parts, furnishing materials, petroleum equipment. It should also be noted that nearly all these products do not attract any duty under the EAC tariff. The EAC has for a long time been registering trade deficits in its trade with USA.
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All EAC countries have established open market-based economies as provided in the Treaty. A number of U.S. companies have established in EAC in the service and manufacturing sector because of the opportunities created by the EAC integration. The areas include banking, insurance, health, shipping, fast food and manufacturing.
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The sanitary requirement on used clothing has been in place for a long time now and it is an international standards normal practice. EAC has progressively been developing a harmonized quality standards program and is currently looking at the used clothing standards so that there are no variations in quality requirements across all the Partner States. All countries in the world have quality standards requirements imposed on both local and imported goods to protect its people and environment. The prohibition of the used undergarments is a hygiene requirements to prevent spread of infectious diseases. This position of EAC to prohibit used undergarments is a position of principle which cannot be varied.
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The EAC is aware that the business environment is dynamic and the tariff setting cannot be static. Currently a comprehensive review is being undertaken on the tariff structure and rates in response to the trading environment. This review which will end in September 2017 will cover all products in the Tariff Book including used clothing. Realistic considerations will be made based on agreed criteria and empirical data collected. Teams are already in the field collecting quantitative and qualitative data to inform this process. Stakeholders are being consulted including those involved in the trade of used clothing.
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Currently there are ongoing discussions under the EAC-U.S. Trade and Investment Partnership which will establish a practical working arrangement between the two parties. Progress has been achieved in a number of areas such as the conclusion of the Cooperation Agreement on Trade Facilitation, Sanitary and Phyto Sanitary measures (SPS) and Technical Barriers to Trade (TBT). EAC is determined to ensure all areas of cooperation are concluded and implemented and this will create a platform on which to discuss such issues without reaching such level. EAC has planned to continue the engagements as agreed and will revive the discussions immediately after this public hearing.
Conclusion
EAC wishes to reaffirm that the eligibility to AGOA by its Partner States is of great benefit to the people of EAC and U.S. The need to attract more investment is still high on the agenda. EAC has been recognized as the fastest integrating region in Africa having transformed into a Customs Union and Common market in a short time. Collective policy decisions are made to realize the objectives of economic, social, political and cultural cooperation and development. Eligibility to AGOA is therefore a critical vehicle to boost it industrialization and promote exports. The tariff regime is a tool used to manage trade, collect revenue and protect the people and environment. Continuous review will be undertaken to ensure EAC integration is on track without disadvantaging any party.
The EAC is committed to the ongoing Trade and Investment Partnership, where such matters should be discussed and resolved. EAC will immediately engage USTR to progress the Partnership. More information will be provided during the post hearing period.
Intent to testify: Comment from Peter Bogard, Secondary Materials and Recycled Textiles Association (SMART)
Lawrence Bogard, on behalf of the Secondary Materials and Recycled Textiles Association (“SMART”) will testify as to the following:
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SMART is the trade association that represents mostly small- and medium-sized companies (non-profit and for-profit) that are involved in using, converting, and recycling pre- and post- consumer textiles – otherwise known as used or second-hand clothing.
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SMART requested this out-of-cycle review because in March 2016, Kenya, Rwanda, Tanzania, and Uganda issued a Joint Communique in which they announced a ban on the importation of used clothing into its member countries. The first phases of the ban have come into effect. These tariff increases are so high that they amount to a de facto ban on second-hand clothing imports.
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SMART is aware of news reports that Kenya has recently announced that it will impose “minimum tariffs” on containers of “used goods.” Depending on how the Kenyan government interprets the term “used goods” this action threatens to negate Kenya’s announced roll back of its tariffs on imported used clothing. For this reason, SMART requests that Kenya also be included in this out-of-cycle review.
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Banning the importation of second-hand clothing in order to a local industry conflicts with the statutory requirement that AGOA beneficiaries work toward developing market-based economies.
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Banning the importation of second-hand clothing contravenes the statute’s requirement that AGOA beneficiaries work toward eliminating barriers to U.S. trade and investment.
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The proposed import ban already has had negative effects on the second-hand clothing industry in the United States.
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Banning the importation of second hand clothing also contravenes the statute’s requirement that a beneficiary country “has established or is making continual progress toward establishing... economic policies to reduce poverty.”
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Banning the importation of second-hand clothing would clearly contravene the requirement that AGOA beneficiaries work toward eliminating barriers to U.S. trade and investment, with dramatic negative impacts on the second-hand clothing industry and its employment and crushing effects on SMART’s charitable and for-profit stakeholders that supply the industry. It would also create greater poverty in the East African nations by eliminating hundreds of thousands of jobs in the East African Community and making any available clothing far less affordable.
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SMART therefore requests that the Trade Policy Staff Committee recommend suspending duty-free access to the United States under AGOA for all currently eligible apparel imports from Kenya, Tanzania, Rwanda, and Uganda until such time as those countries roll back all increased import duties on used clothing and commit not to implement their proposed ban on imports of used clothing.
Comment from Amelia Kyambadde, Ministry of Trade, Industry and Cooperatives, Uganda
We reject the assertion that there are exceptional circumstances warranting the out-of-cycle review of the AGOA eligibility for the Republic of Uganda and, indeed, the other EAC Partner States, namely the United Republic of Tanzania and the Republic of Rwanda, for the reasons provided below:
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There is no ban on importation of used clothes to Uganda and indeed to the EAC region.
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There are sanitary concerns that have been raised by different stakeholders hence the need to protect the health of the peoples in Uganda and East Africa
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Imports of used clothes to the EAC region and to Uganda have been minimal and declining over the years. Imports of used clothes from the USA to Uganda was US $7.2 million in 2015. This is 0.72% of the used items sales.
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The specific tariff was increased in order to align it to the ad valorem rates. The application of this tariff is not discriminatory and is not targeted at the USA. The tariff is in accordance with the EAC Customs Union Protocol and compliant to our commitments at the WTO.
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Uganda operates a market based economy that promotes fair competition.
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USA investment in Uganda is not hindered by any undue policy. The USA originating businesses currently operating in Uganda are Citibank, Coca-Cola, Pizza Hut, KFC, NCR, Balton, Mantrac among others.
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The USA exports to Uganda are far beyond the used clothes. The volume of trade bilaterally is US$143.294 million. Data for 2016 indicates that Uganda imported from the USA a total of US$89.327 million. Uganda exports to the USA in 2016 on the other hand amount to US$53.967 million. For the year 2016 the trade balance is US$35.36 million in favor of the USA. The USA has over the last few decades posited a favorable trade balance in her trade relations with Uganda. Uganda is committed to AGOA, and to the broad bilateral cooperation with the USA.
The performance of Uganda has not been significant owing to some structural bottlenecks AGOA remains one of our focus market access programs for which we have been planning a number of initiatives. These initiatives include the following:
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Revitalization of the textile industry. This has started with establishment of 3 textile mills in the last two years two in Jinja and one due to be set up in Gulu. We are rehabilitating and expanding two garment factories in Kampala, one of which is already supplying to the USA. The textile industry will in the medium term provide employment for 50,000 people before we consider the downstream smallholder farmers
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A program for the expansion of cotton production to feed the textile mills, covering the northern, eastern and western parts of the country. Note that the northern and eastern parts of Uganda are recovering from a debilitating war that was led by the infamous Kony.
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Expansion of the dairy processing capacity in the country some of which are already supplying the US market under AGOA
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The expansion of the floriculture industry
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Aggressive coffee production, value addition and export drive under the 2020 roadmap which has been partly supported by the USAID
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The resuscitation of the fisheries sector. As you will appreciate, Uganda is one of the countries hosting the largest fresh water lake in Africa and a number of other lakes, rivers and wetlands. As such the fisheries resources are significant.
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We are reviving the Uganda Airlines to boost our industries, trade and tourism, through the improvement of domestic, regional and international air connections. We believe that the purchase of aircraft and aircraft parts will go up significantly.
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We have just completed the drafting of Uganda’s AGOA National Response Strategy with support from the US Trade and Investment Hub in East Africa. We will be implementing this strategy.
These programs will all be in jeopardy if we are excluded from the AGOA initiative. You may wish to note that the unemployment rate in Uganda is currently standing at 65.2%. This rate of unemployment is not sustainable in the long run. This will not enable us to fulfill the UN Sustainable Development Goals and Agenda 2030.
As we implement the infrastructure development and industrialization programme for Uganda, we will create more jobs for the USA and the countries in the north through the purchase of services, capital goods, IT equipment, earth moving equipment, oil and gas extraction equipment, etc.
With this in mind, there is no justifiable reason for the out-of-cycle review. The eligibility of the Republic of Uganda for AGOA should not be in question. The USA and Uganda should collectively look ahead to more harmonious trade and investment partnerships to exploit the opportunities in Uganda, in the great lakes region and in the USA.
Uganda is committed to providing any other additional information that you may wish to receive in the resolution of this matter.
Intent to testify: Comment from Bonny Musefano, Embassy of the Republic of Rwanda
Rwanda and the USA enjoy long-standing commercial ties. The USA and Rwanda have a trade and investment framework agreement and a Bilateral Trade and Investment treaty signed in 2012. The USA was a substantial investor in Rwanda in 2012-2016, with a number of high value investment projects in education, energy and manufacturing following the implementation of the above bilateral framework starting in 2012.
Overall exports to the US have been growing steadily over the past 10 years, with an annual average growth rate of 21%. However, exports under AGOA are only a very small fraction of total exports. In 2015, they accounted for only 0, 95% of total exports to US.
The average exports under AGOA in the last three years are 2%. This is minimal value compared to other Rwanda’s exports under MFN tariff which accounts 96% in the same period. Rwanda’s largest export to the USA is coffee, with just over $23 million in exports. Other export products are minerals ($17.8 million), pyrethrum ($2.1 million) and a range of smaller value exports, mainly in tea and the handicrafts and apparel sectors. The top two export products made up 87% of Rwanda’s exports to the USA, demonstrating the challenge of limited diversification in Rwanda’s exports. However, an increase in exports of certain items such as handbags, jewelry and textiles show promise for the future.
On the other hand, Rwanda imports a wide range of products from US, including vaccines, machinery, 2nd hand clothes, vehicles, aircraft parts and medical equipment.
Looking at the figures, Rwanda has not yet reaped much from AGOA arrangement. In response to such a situation, Rwanda with the support of USAID East Africa Trade and Investment Hub finalized her AGOA strategy in April 2016 and the strategy focuses on three key sectors: textiles and apparel, specialty foods and home décor and fashion by which its implementation would require the support of the USA government and other stakeholders.
Any decision to challenge the eligibility of Rwanda to AGOA market access preferences will compromise the current momentum and discourage the ongoing dialogue to enhance trade and investment partnership between the USA and Rwanda.
Intent to Testify: Adolf F Mkenda, Permanent Secretary – Ministry of Industry, Trade and Investment, United Republic of Tanzania
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The EAC Decision on clothing is a legitimate decision meant to industrialize the region by using abundant raw materials [cotton, textile] as one of the top priorities in the region. The Decision takes into account the EAC industrialization policy approved by the EAC Summit in November 2011 which aims at transforming the region into modern industrial economies through high value addition industries an increase in manufactured exports, thereby promoting employment and purchasing power, product diversification and increased linkages with other economic sectors.
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The EAC Decision is yet to be implemented. Therefore, there is no scientific proof that changes in the trade pattern and other macroeconomic variable [jobs, trade patterns, shipping etc] were caused by the EAC decision to phase out importation of second hand clothing and leather as pointed out in the petition and therefore the claim cannot be justified.
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In Tanzania, the question of increase or decrease tax, duties, fees is a fiscal decision which has been implemented as part of annual fiscal measure during budget submission and it is a sovereign legitimate budget decision.
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The EAC and Tanzania budget decisions are non-discriminatory to the rest of the world and in no ways they are targeted to United States, therefore it is WTO compatible.
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There are strong trade ties between US and EAC/URT beyond AGOA such as pharmaceuticals, machinery and equipments, agriculture, automobiles etc. Trade on used clothes form just a small part of the entire balance of trade between the US and EAC/URT.
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The US investors may explore the possibilities to invest in the EAC region in textile and leather sector to further enhances trade and diplomatic ties between the EAC/URT.
Joint comment from US apparel, footwear and retail associations
American Apparel & Footwear Assoc., National Retail Fed, Retail Industry Leaders Assoc., and US Fashion Industry Assoc.
On behalf of the joint associations representing apparel brands and retailers, we are writing to offer pre‐hearing comments regarding the review of AGOA eligibility for Rwanda, Tanzania, and Uganda.
It is our recommendation that this out of cycle review NOT lead to the suspension or termination of AGOA benefits for these three countries.
The AGOA program was recently renewed for a ten‐year period. These countries are now at the beginning stage of undertaking the necessary steps to maximize utilization of the AGOA and to foster sustainable economic growth. Withdrawing benefits now would undermine those initiatives, including those fostering market based economies or leading to the elimination of barriers to U.S. trade and investment. Even the threat of withdrawal induces uncertainty that puts progress toward those reforms in jeopardy.
We acknowledge the concerns that have been raised by the Secondary Materials and Recycled Textiles (SMART) organization. We believe the issues can be resolved without terminating benefits for the named countries.
It is indeed disconcerting when countries – either AGOA beneficiary countries or others – are contemplating policies that would restrict trade through high tariffs or bans. It is our strong hope that the United States and the three countries that are subject to this Out of Cycle review can work together so that this issue can be quickly resolved.
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Modelling the economic impact of the Tripartite FTA: Its implications for the economic geography of Southern, Eastern and Northern Africa
This study evaluates the economic impact of the proposed Tripartite Free Trade Area (TFTA) on consumption, industrial production, and trade, across the 26 African countries. The study focuses on how the TFTA could impact on the economic geography of the region.
Introduction
Negotiations for the formation of a Tripartite Free Trade Area (TFTA) between three existing regional economic communities – the East African Community (EAC), the Common Market for Eastern and Southern Africa (COMESA), and the Southern African Development Community (SADC) – have now been ongoing since the first TFTA summit held in Kampala in October 2008. In a decisive move forward at a meeting held in June 2015 in Egypt, the member states of the three blocks agreed to move forward to the establishment of a TFTA.
The implications in economic terms for the countries involved are potentially enormous – the TFTA involves 26 (almost half of all African) countries, spanning the whole Eastern side of the continent from the Cape to the North African coast. If fully implemented, it would create Africa's largest free trade area. The TFTA area currently has a total population of 683 million people and a combined Gross Domestic Product (GDP) of USD 1.2 trillion at market exchange rates of 2015. This represents more than half (54.3%) of the Africa's total GDP, and 58% of Africa's population.The TFTA thus constitutes a very significant market by any standards and collectively places the block as the 14th largest economy in the world.
As with most regional integration schemes, the underlying economic rationale of the agreement is to provide greater opportunities to reap economies of scale, greater competition, a more attractive internal market for investment (both foreign and domestic), and an acceleration of intra-regional trade. As stressed by the EAC (2014) on the TFTA, “in opening our markets to each other, the development of regional value chains will be enhanced. We would increase intra-Africa trade, stimulate economic growth and lift people out of poverty”. Beyond that, the agreement also has a great symbolic importance – the TFTA is expected to serve as the basis for the completion of a Continental Free Trade Area (ostensibly to be completed by 2017), with the aim of boosting trade within Africa by 25-30% in the next decade, and ultimately establishing a continental-wide African Economic Community.
It needs stressing that the current levels of intra-regional trade are low – in COMESA, intra-regional trade has oscillated in recent years between just 5-10% of total trade, and for SADC, intra-regional trade was actually declining in the early 2000s (from around 15 to 11 percent) (principally due to the sharp rise in commodity exports from the SADC region to the rest of the world). The EAC has been more successful in maintaining a relatively high level of intra-regional trade (between 18 and 20% of total trade since 2008), but pointedly the share has not been growing significantly over the last decade. By 2014, intra-regional trade within the TFTA accounted for just 16.7% of total trade of the 26 TFTA members.
Compared with an integrated area like the European Union, where intra-regional trade already represented around two-thirds of total trade at the onset of the European Single Market in 1993, it can be appreciated that, regardless of the differences in geography (above all, the much larger geographic span of the TFTA) and the constraints to trade because of serious infrastructural deficits, there is the potential for a significant increase in the volume of intra-regional trade under the TFTA.
A particularly pertinent question is what will be the economic geography implications of these changes. At the time of implementing the European Single Market in the early 1990s, there was a rush in academic interest in how it might impact on different member states and the implications for the location of industry across the integrated block. This reflected concerns that the Single Market might result in a concentration of industry in the ‘core’ countries of the EU (Germany, France, Belgium, Luxembourg, and the Netherlands) to the detriment of the more peripheral countries like Spain, Portugal, Ireland and Greece.
Such concerns are equally legitimate within the TFTA – not only does it span an enormous geographic area, but the existing economic geography is highly uneven. GDP within the block is not evenly distributed – indeed, the two largest economies (Egypt and South Africa) together account for more than 50% of the TFTA's total GDP. The seven largest economies (South Africa, Egypt, Angola, Sudan, Ethiopia, Kenya and Tanzania) together account for more than 80% of the GDP of the total area, the remaining 19 countries accounting for just one-fifth.
Perhaps even more striking from an economic geography perspective is the extent to which manufacturing capacity is unevenly distributed across the TFTA. Two thirds of manufacturing value added produced within the TFTA are accounted for by South Africa and Egypt alone. At a time when industrialisation has risen sharply up the agenda of priorities for African states, this raises fears that the free trade area could result in a polarisation of the benefits at the two geographical extremes, at the expense of the relatively weak and undeveloped manufacturing sectors in rest of the TFTA.
Compounding such concerns is the fact that average productivity differences (as reflected in average GDP per capita) between the richest and poorest members of the TFTA are enormous. The richest TFTA member in 2015 (Seychelles) had an average GDP per capita more than 56 times that of the poorest member (Burundi). South African and Egyptian per capita GDP was 20 and 13 times larger than Burundi's. If we compare these differences with those existing in the EU-12 at the time of the formation of the Single Market Programme (SMP) in 1993, it will be noted that the scale of the gap is several multiples in the TFTA.
Another key challenge in the establishment of the TFTA is the elimination or reduction of Non-Tariff Measures (NTMs). Trade costs within the TFTA have been declining over recent decades, with tariffs falling as a result of multilateral, regional and bilateral trade liberalisation. However, NTMs have not declined at the same pace as tariffs and consequently countries in the region have not the realised the full benefits of integration. Some NTMs are employed as tools of trade policy (e.g. quotas, subsidies, and export restrictions), while others stem from non-trade policy objectives (e.g. technical measures). The TFTA has a relatively high incidence of such non-tariff measures, even when compared to the rest of Africa. According to what must be admittedly incomplete WTO data, TFTA countries account for as much as 87% of (recorded) NTMs within Africa. Again, however, the geographical distribution of NTMs within the TFTA is uneven. Technical barriers and phytosanitary measures to trade are the most common NTMs, with four countries – Uganda, Kenya, South Africa, and Egypt –accounting for 86% and 72% of reported NTMs, respectively.
Against this backdrop, the purpose of this paper is to evaluate the economic effects of the proposed TFTA on industrial production, trade, and consumption across the member states. It focuses on the effects of the TFTA on the economic geography of the region. While several studies have explored the welfare effect of trade integration in Africa, very few specifically study the impact of integration on economic geography. The paper aims to improve our understanding of the economic impact of the TFTA in the region, as well as the distribution of benefits among member countries. The results have important implications for regional trade and industrial policy.
The paper is organised as follows: the second section provides an overview of the theoretical literature regarding industrial geography focussing on recent contributions collectively know as the ‘new economic geography’ and discussing its possible implications to the TFTA. The third section reviews the relevant empirical literature studying the impact of regional integration within the African continent. The fourth section describes the computable general equilibrium (CGE) model and methodology used for the simulations. The fifth section presents the results of the simulation and discusses the results. The final section makes some concluding observations.
Andrew Mold and Rodgers Mukwaya are from the United Nations Economic Commission for Africa.
This article has been published (In Press) in the Journal of African Trade. It is an open access article funded by Afreximbank under the CC BY-NC-ND license.
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Diarise: Southern Africa Civil Society Forum (13-17 August, Johannesburg); China-Africa Investment Forum (27-28 November, Marrakesh)
UNCTAD SG Mukhisa Kituyi confirmed for a second term: ‘During my first term, I managed to build links and create trust with donor countries and now we have largest extra-budget resources. Among my second term priorities is to help lift Africa’s production capacity.’
TFTA Ministerial: update (New Times)
Ministers from 26 African countries are meeting in Kampala, today, in another attempt to see through overdue negotiations on a larger free trade area covering three regional economic communities. “There is some progress now. Initially, there were delays as some SADC countries did not have a clear position on tariff reductions. They have now given their proposal on how things can work and I think it will work now,” François Kanimba, the minister for trade, industry and EAC affairs, told The New Times yesterday. Dr Francis Mangeni, COMESA’s director of trade and customs, is optimistic that the Kampala meeting will deliver. The most important expected outcome, Mangeni said, is that three outstanding legal instruments – on rules of origin, trade remedies, and dispute settlement – will be adopted. ”This is what has been preventing some countries from signing and ratifying the tripartite agreement. We expect the tripartite agreement to be ratified and come into force quickly after this. The second expected outcome is that South Africa has said it will sign the Agreement at the ministerial meeting. This would bring the total number of countries that have signed to 19.”
Ethiopia rejects negotiation on CFTA implementation (Walta)
Prime Minister Hailemariam Dessalegn said Ethiopia rejects the negotiation for the implementation of the Continental Free Trade Area, considering its effect on the economy of the country. Seven countries including Ethiopia disagreed on the negotiations to fully open their doors for the CFTA. They argued the need to open their doors step by step as it requires readiness in the side of the countries, Hailemariam said during a press conference. To fully open its doors for the free trade area, Hailemariam noted that it is important that the country need to create a conducive atmosphere that complies with the situation. In this regard, Ethiopia believes that it is proper to open its doors to the free market step by step since its economy is not ready yet, he said. ”We took a stand on sensitive issues that would bring negative impact on the country and the people, and we are happy that this stand of ours has been accepted by other countries. Our decision is to work together and trade with our fellow African countries in areas other than the sensitive issue” Hailemariam underlined. “We are also happy that our difference was respected.”
Outcomes of the 29th Summit of the African Union: unofficial note by Désiré Assogbavi
The 29th ordinary Summit of the AU (July 2017) has just ended in Addis Ababa. The official decisions of the Summit are not expected to be publicly available before a couple of weeks but, based on meetings and discussions that I have had with several delegations around the Summit and after looking at some of the Summit documents, I would like to share the following unofficial note on the key outcomes of the Summit. In the coming days I will share on this blog, some personal analysis on these outcomes.
African, global air freight demand increases in May (IATA)
The International Air Transport Association has released data for global air freight markets showing that demand, measured in freight tonne kilometers, grew 12.7% in May 2017 compared to the year-earlier period. This was up from the 8.7% annual growth recorded in April 2017 and is more than three times higher than the five year average growth rate of 3.8%. African carriers’ posted the largest year-on-year increase in demand of all regions in May 2017 with freight volumes growing 27.6%. Capacity increased by 14.7% over the same time period. Demand has been boosted by very strong growth on the trade lanes to and from Asia which have increased by nearly 57% so far this year. IATA passenger data: African airlines’ traffic rose 11.7% in May compared to the year-ago period, which was more than twice as fast as the 5.1% rise in capacity. As a result, load factor jumped 4.0 percentage points to 67.5%. Demand is supported by recovery on the key Europe market.
G20 Summit commentaries: Joint IMF, WB, WTO statement on the need to reinvigorate trade; Simon Evenett, Johannes Fritz: Awe Trumps Rules: an update on this year’s G20 protectionism; Kimberley Botwright, Cristian Rodriguez Chiffelle: What trade rules are needed to support growth in the digital age?
East Africa and new 2025 global growth projections (Center for International Development)
The economic pole of global growth has moved over the past few years from China to neighboring India, where it is likely to stay over the coming decade, according to new growth projections presented by researchers at the Center for International Development at Harvard University. Growth in emerging markets is predicted to continue to outpace that of advanced economies, though not uniformly. The projections are optimistic about new growth hubs in East Africa and new segments of Southeast Asia, led by Indonesia and Vietnam. The growth projections are based on measures of each country’s economic complexity, which captures the diversity and sophistication of the productive capabilities embedded in its exports and the ease with which it could further diversify by expanding those capabilities.
The projections warn of a continued slowdown in global growth over the coming decade. India and Uganda top the list of the fastest growing economies to 2025, at 7.7% annually, but for different reasons. Uganda joins three other East African countries in the top 10 fastest growing countries, though a significant fraction of that growth is due to rapid population growth. On a per capita basis, Uganda is the only East African country that remains in the top 10 in the growth projections, though at 4.5% annually its prospects are more modest. On the other hand, the researchers attribute India’s rapid growth prospects to the fact that it is particularly well positioned to continue diversifying into new areas, given the capabilities accumulated to date. India has made inroads in diversifying its export base to include more complex sectors, such as chemicals, vehicles, and certain electronics. [Manufacturing in India and other BRICS countries: a stuttering performance]
South Africa: 2017 Article IV Consultation (IMF)
Rising integration between South Africa and its partners has been mutually beneficial but has also increased their interdependence. In 2016, South Africa’s imports and exports of goods and services were each equivalent to about 30% of GDP (11 and 9 percentage points of GDP higher than in 1994, respectively), with sub-Saharan Africa its largest regional recipient (28% of total goods exports) (See Figure 6: Rising Trade and Foreign Direct Investment Integration, p28). During the same period, FDI integration almost quadrupled as a share of GDP. Greater linkages have contributed to more significant inward and outward transmission of shocks. The decline in commodity prices has had not only a direct impact on South Africa, but also indirect effects through a slowdown in other commodity-exporting trading partners in sub-Saharan Africa. Similarly, a growth slowdown in South Africa would have adverse repercussions for its regional partners.
The current account deficit is expected to narrow further in 2017 before gradually widening over the medium term. The current account deficit is projected to decline to 3% of GDP this year as the surplus on the goods balance is boosted by mining and agricultural exports. Meanwhile, the deficit on the transfer balance is expected to widen moderately to its 2010–16 average. Over the medium term, the current account is projected to return to just below 4% of GDP as the surplus on the trade balance dissipates. External debt is seen rising to almost 50% of GDP over the medium term (Figure 11 and Annex IV. External Debt Sustainability Analysis).
South Africa: Supermarkets’ capture must fall‚ Competition Commission hears (Times Live)
The big-name supermarkets should be compelled to stock products produced by “smallholders” and new shopping mall developments should be made to allocate 25% of floor space to local township businesses‚ it has been suggested to the Competition Commission. The submission‚ to the Commission’s Grocery Retail Sector Market Inquiry‚ was jointly made by the Sustainable Livelihoods Foundation‚ the DST-NRF Centre of Excellence in Food Security and the Institute for Poverty‚ Land and Agrarian Studies at the University of the Western Cape.
Namibia: Does fiscal policy benefit the poor and reduce inequality? (Namibia Statistics Agency, World Bank)
This report demonstrates that Namibia’s progressive income tax and generous social spending programs substantially reduce poverty and inequality, but the analysis also underscores the limits of what redistributive fiscal measures alone can accomplish. The economy must ultimately create more jobs for the poorest members of society to change the underlying distribution of what might be called ”pre-fiscal” income; i.e., the income before households pay taxes and receive benefits from social programs. This will require structural transformation through greater investment in activities that create employment for unskilled workers and offer the potential for continuous productivity increases. This report aims to measure the effectiveness of these efforts and draws comparisons to the experiences of other countries.
Kenya: Eight percent of medicines enter Kenya unlawfully, study shows (Capital FM)
A market study sponsored by the Kenya Association of Pharmaceutical Industry and conducted by pharmaceutical applied researchers from the University Of Nairobi School Of Pharmacy, has confirmed an 8% prevalence of unregulated or gray medicinal brands. Speaking during the release of the study, Kenya Association of Pharmaceutical Industry Chairperson Dr Anastasia Nyalita said such products unlike those imported through the official channels, pose grave danger to the patients using them as their efficacy and quality remains questionable. “Unregulated or gray medicines, Dr Nyalita said, are those that have entered the market through irregular channels and have not undergone the necessary regulatory scrutiny and market conformity by the Pharmacy and Poisons Board,” she added. Nyalita noted that the findings will serve as a basis for broad discussion among stakeholders, to further enhance the regulation, while raising awareness among the general public. She however cited that there is need for stricter market regulation to curb trade in unregulated medicines while calling for an inter-agency management programme to boost surveillance to ensure that all products available in the Kenyan market are regulated.
Mauritius hosts 20th Plenary Session of the Contact Group on Piracy off the Coast of Somalia (GoM)
The Contact Group on Piracy off the Coast of Somalia is holding its 20th Plenary Session in Mauritius (5-7 July) attended by some 200 participants from 20 countries, international and regional organisations, associations, and NGOs. They will discuss the policies to be adopted and will devise a common plan aimed at fighting piracy and restore maritime safety and security in the western coast of the Indian Ocean. The Contact Group’s four Working Groups are:
A brutal lesson for multinationals: golden tax deals can come back and bite you (The Guardian)
This is not a simple story. No one comes out of it looking good. Acacia may not have stolen billions of dollars worth of minerals – but it did make a deal that was hard to defend. Meanwhile, it is unclear whether President Magufuli’s tactics will benefit or harm the country in the long term. Barrick Gold and the Tanzanian government are now in talks in the hope of finding a solution. But reaching a balanced agreement will be difficult, with so many contested facts and so much bad blood, on all sides. And even if Magufuli “wins” in the high-pressure negotiation with Acacia, it could be at the cost of losing the confidence of investors in Tanzania. [The authors: Maya Forstater, Alexandra Readhead]
Today’s Quick Links South African stainless steel imports surged by 44% in 2016 Kenya’s sugar imports up 36% in four months on shortage FAO: Monthly global food price index up 1.4%; cereal stocks set to hit new record World Bank Commodities Price Data: June data David Omozuafoh: Revamped APRM is now tracking African Union Governance commitments. Should it still be voluntary? Pacific Alliance eyes new trade deals with creation of “Associate Member” role |
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WTO, IMF, World Bank urge G-20 leaders to act on trade
The leaders of the World Trade Organization, the International Monetary Fund and the World Bank urged G-20 leaders on 6 July to reinvigorate trade by reducing trade barriers and curbing trade-distorting subsidies while simultaneously seeking better policies to support workers who have lost their jobs.
In a statement released ahead of the G-20 leaders’ summit in Hamburg, WTO Director-General Roberto Azevêdo, IMF Managing Director Christine Lagarde and World Bank President Jim Yong Kim stressed that the economic wellbeing of billions of people depends on trade and that deeper trade integration coupled with supportive domestic policies can help boost incomes and accelerate global growth.
Reinvigorate Trade to Boost Global Economic Growth
“The economic wellbeing of billions of people depends on trade. Deeper trade integration twinned with supportive domestic policies can help boost incomes and accelerate global growth. This calls for decisive actions by world leaders gathering for the G-20 Summit this week.
The good news is that when it comes to trade, we do not need to choose between inclusiveness and economic growth.
Evidence shows that opening of economies to trade, especially in the late 20th century, boosted incomes and living standards across advanced and developing countries. Since the early 2000’s, however, the pace of opening has largely stalled, with too many existing trade barriers and other policies that favor chosen domestic industries over the broader economy remaining in place, and new barriers being created. Such policies can cause a chain reaction, as other countries adopt similar measures with the effect of lowering overall growth, reducing output, and harming workers.
Reinvigorating trade, packaged with domestic policies to share gains from trade widely, needs to be a key priority. One part of this is to remove trade barriers and reduce subsidies and other measures that distort trade. Stepping up trade reform is essential to reinvigorate productivity and income growth, both in advanced and in developing countries.
But these reforms also require thinking in advance and during implementation about those workers and communities that are being negatively affected by structural economic changes. Even though job losses in certain sectors or regions have resulted to a larger extent from technology than from trade, thinking in advance about the policy package that shares trade gains widely is critical for the success of trade reforms. Without the right supporting polices, adjustment to structural changes can bring a human and economic downside that is often concentrated, sometimes harsh, and has too often become prolonged.
This is why governments must find better ways of supporting workers. Each country needs to find its own mix of policies that is right for their circumstances. Approaches such as a greater emphasis on job search assistance, retraining, and vocational training can help those negatively affected by technology or trade to change jobs and industries. Unemployment insurance and other social safety nets give workers the chance to retool.
Education systems may also be important to prepare workers for the changing demands of modern labor markets; that requires a commitment to life-long learning, from early childhood education, to workplace training, to online courses for seniors, just to name a few. In addition, housing, credit, and infrastructure policies could be designed so as to ease worker mobility.
Recent analysis by the IMF, World Bank, and WTO shows that, when it comes to trade, we do not need to choose between inclusiveness and economic growth. Now is the time to press ahead with trade reforms that can deliver greater prosperity for all.”
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IMF Executive Board 2017 Article IV Consultation with South Africa
On June 26, 2017, the Executive Board of the International Monetary Fund concluded the Article IV consultation with South Africa.
Living conditions have ameliorated substantially for the bulk of South Africa’s population during the past two decades, but the pace of improvement has gradually slowed. Following last year’s near-standstill in economic activity, growth is projected to increase to 1.0 percent in 2017 and 1.2 percent in 2018, still insufficient to keep pace with the rising population. The current account deficit is projected to decline to 3 percent of GDP in 2017, boosted by mining and agricultural exports, and to widen to just below 4 percent of GDP in the medium term. Consumer price inflation recently returned below 6 percent, owing in part to the easing of the drought, and is projected to remain marginally below the upper threshold of the 3-6 percent target band for the remainder of 2017 and in 2018.
South Africa’s vulnerabilities have become more pronounced and are set to increase further unless economic growth revives. Low growth has taken a toll on the state of the public finances, increasing government debt. The public sector’s balance sheet is also exposed to sizable contingent liabilities from state-owned enterprises (SOEs). Perceptions of weakening governance and uncertainties regarding the direction of future economic policies, partly related to the electoral calendar, have also adversely affected consumer and investor confidence. In the external sector, large gross external financing needs, financed mainly by portfolio flows, expose South Africa to significant financing risks. Vulnerabilities from exchange rate fluctuations are attenuated by South Africa’s track record of a freely floating exchange rate, corporate resilience to sizable exchange rate depreciation during the past few years, and high share of domestic currency-denominated government debt. Even so, external and domestic contexts could result in significant shocks, whose implications could in turn be amplified by linkages among the real, financial, and fiscal sectors, especially if accompanied by further downgrades of local currency sovereign credit ratings to below investment grade.
Monetary and fiscal policies have been focused on keeping inflation in check and maintaining medium-term debt sustainability. The South African Reserve Bank (SARB) tightened the repo rate in stages by 75 bps in early-2016 to 7.0 percent and has kept it at that level since then. The headline fiscal deficit was reduced to 3.9 percent of GDP in FY2016/17 from 4.5 percent the previous fiscal year, and the budget for FY2017/18 envisages a further moderate tightening. The pace of reform in the labor market and in product/service markets has been insufficient to make a noticeable contribution to reviving economic growth.
Staff Report
Background: Slowdown in economic growth
Living conditions have ameliorated substantially for the bulk of South Africa’s population during the past two decades, but the pace of improvement has gradually slowed. Robust economic growth and sound macroeconomic policies were mutually reinforcing in the decade that followed the advent of democracy, fostering economic transformation and reducing poverty. However, potential growth has abated in more recent years and poverty reduction has stalled. Following the global economic and financial crisis that erupted in 2008 and the decline in commodity prices that began in 2011-12, economic activity dwindled to a near-standstill in 2016.
Weak economic growth impedes the economy’s ability to curb unemployment and inequality, and creates new vulnerabilities. South Africa remains one of the world’s most unequal societies, largely owing to the legacies of apartheid. A 2016 survey by the national statistical office found that average incomes for blacks are still one-fifth of those for whites. The rate of unemployment, at 27.7 percent (54.4 percent for ages 15-24) in the first quarter of 2017, is high by international standards and has risen by five percentage points since 2008. Projected output growth, at 1 percent in 2017, is insufficient to keep pace with the increase in population. In view of lackluster job creation and the rapid rise in the working-age population, the unemployment rate is set to rise further and inequality is unlikely to decline. Slow growth and persistent inequalities have contributed to increased questioning in the public discourse of whether the prevailing economic policy paradigm can deliver results for all citizens.
The electoral calendar has heightened perceived uncertainty regarding future economic policies. Public discourse in the run-up to the 2019 presidential elections is increasingly focusing on “radical economic transformation,” including more rapid transfer of economic resources to the black majority and other disadvantaged groups. A government reshuffle in late March 2017 led the rand to depreciate by 8 percent within a few days although the currency has largely recovered since then. The remainder of this year may bring increased competition among candidates for election in December to the presidency of the African National Congress – the party with an absolute parliamentary majority since 1994. Low investment and consumer confidence have been associated with rising uncertainty regarding the direction of policies as well as perceptions of weakening governance (including control of corruption), as illustrated for example by a gradual worsening during the past few years of the Doing Business index (text table) and the Control of Corruption index assembled by the World Bank.
Growth weakened further to 0.3 percent in 2016 from 1.3 percent in 2015. Domestic demand ground to a halt, as private investment declined consistent with weakening business confidence, and private consumption was constrained by tighter credit conditions and higher unemployment. The ensuing decline in imports more than offset the weakening in export demand, resulting in a positive contribution of net exports to growth. On the supply side, these developments were mirrored by a decline in agricultural and mining production, owing to drought conditions and low commodity prices, combined with weak growth in financial services and other business-cycle sensitive sectors. Employment growth fell to 0.3 percent in 2016 from 3.9 percent in 2015 as employment shrank in agriculture, mining, and manufacturing, and hiring slowed in the construction, financial, real estate, and business services sectors, as well as in the general government.
The current account deficit narrowed markedly to 3.3 percent of GDP in 2016, and was financed by portfolio flows. The trade balance turned to a surplus in 2016: beyond the positive net export contribution to growth, the terms of trade improved modestly. Unit labor cost growth has been broadly stable since 2011 and has been marginally above consumer price inflation. Overall, the current account deficit narrowed by more than 1 percentage point of GDP compared with 2015, despite a deteriorating income balance. Financing of the current account deficit relied fully on portfolio investment flows, in part as a review of equity portfolio investment flows led to a reallocation from unrecorded transactions toward portfolio flows. 2 Net direct investment outflows fell to 0.4 percent of GDP in 2016 from net outflows of 1.3 percent of GDP the previous year. Overall, the 2016 external position is assessed as moderately weaker than implied by fundamentals and medium-term desirable policy settings (Annex I. External Sector Assessment).
Rising integration between South Africa and its partners has been mutually beneficial but has also increased their interdependence. In 2016, South Africa’s imports and exports of goods and services were each equivalent to about 30 percent of GDP (11 and 9 percentage points of GDP higher than in 1994, respectively), with sub-Saharan Africa its largest regional recipient (28 percent of total goods exports). During the same period, FDI integration almost quadrupled as a share of GDP. Greater linkages have contributed to more significant inward and outward transmission of shocks. The decline in commodity prices has had not only a direct impact on South Africa, but also indirect effects through a slowdown in other commodity-exporting trading partners in sub-Saharan Africa. Similarly, a growth slowdown in South Africa would have adverse repercussions for its regional partners.
The financial sector has been resilient to slowing economic activity, but many less affluent individuals and SMEs have limited access to credit. The banking sector has traditionally been well capitalized and highly profitable, partly owing to high concentration and pricing power, including sizable fees for financial services. Major performance indicators broadly improved in 2017, largely because of higher interest income. Capital ratios (both risk weighted and unweighted) increased, with the Tier 1 capital ratio at 14.6 percent in April 2017, well above regulatory requirements. The non-performing loan ratio (NPL) declined to 2.4 percent in April 2017 from 3.1 percent in 2015 and 2.9 percent in 2016. Banks’ profitability improved as the rise in interest rates was transmitted more rapidly to their lending rates (often linked to the SARB’s repo rate) than to their deposit rates. Return on assets (1.7 percent) and return on equity (22 percent) are one of the highest since the global financial crisis and compare favorably with international peers. Wholesale funding has been an important but generally stable source of funding for banks (customer deposits accounted for 49 percent of total non-inter bank loans in April 2017). The Johannesburg Stock Exchange bank index rose by 27 percent in 2016. The banking sector’s resilience to the sluggish macro-economy stems from the sector’s conservative management, which focuses lending on less risky/higher net worth firms and individuals. However, compared to other emerging markets, less affluent individuals and smaller or riskier firms have more limited access to formal credit channels, with adverse implications for entrepreneurship and economic growth. For example, only 9 percent of SMEs have credit facilities with banks and only 4 percent of the poorest 40 percent of households have borrowed from a bank in the past year (Annex II. Financial Inclusion).
Outlook: Modest recovery in challenging external and domestic contexts
A modest improvement in real growth is expected in 2017 and the following few years. Growth is projected to rise to 1.0 percent in 2017 with better rainfall, an increase in mining output prompted by a moderate rebound in commodity prices, and prospects for a continued low number of days lost to strikes. 6 Private consumption growth is projected to be broadly unchanged, at about 1 percent, with relatively weak credit growth to households. Private investment is expected to decline – consistent with high uncertainty and low business confidence – but at a slower pace than last year. Net exports are expected to remain supportive of growth, as the rebound in commodity prices fosters export growth sufficiently to offset the rise in imports from the slight pickup in domestic demand. Economic growth is projected to recover gradually in subsequent years, as consumption and investment recover and the output gap closes, to 2.2 percent, slightly above population growth.
The current account deficit is expected to narrow further in 2017 before gradually widening over the medium term. The current account deficit is projected to decline to 3 percent of GDP this year as the surplus on the goods balance is boosted by mining and agricultural exports. Meanwhile, the deficit on the transfer balance is expected to widen moderately to its 2010–16 average. Over the medium term, the current account is projected to return to just below 4 percent of GDP as the surplus on the trade balance dissipates. External debt is seen rising to almost 50 percent of GDP over the medium term.
South Africa’s vulnerabilities have risen and are set to increase further unless economic growth revives. Low growth has taken a toll on the state of the public finances, with government debt projected at 52.6 percent of GDP by the end of fiscal year 2017 and the public sector’s balance sheet exposed to significant contingent liabilities from SOEs (10 percent of GDP). Weak growth and rising interest rates would pose risks also for some corporates: interest coverage ratios (cash flow profits divided by interest payments) were relatively low in personal services, energy, and business services. In the external sector, gross external debt equivalent to 48½ percent of GDP at end-2016, as well as significant gross external financing needs (projected at above 17 percent of GDP in 2017) expose South Africa to significant financing risks. Gross external liabilities are large at 128 percent of GDP at end-2016, though the net international investment position is marginally positive (3½ percent of GDP on the back of valuation effects). Vulnerabilities from exchange rate fluctuations are attenuated by South Africa’s track record of a freely floating exchange rate, corporate resilience to sizable exchange rate depreciation during the past few years, and high share of domestic-currency denominated government debt. Gross international reserves as of end-2016 covered 104 percent of short-term debt (residual maturity). However, at 77 percent of the IMF’s Assessing Reserve Adequacy metric (without considering capital flow management measures; 84 percent after considering them), they were below the recommended range of 100 to 150 percent.
Risks to the outlook are tilted to the downside given challenging external and domestic contexts
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External Risks. South Africa’s highly liquid financial markets are vulnerable to tightening global financial conditions as investors may reassess policy fundamentals, in the event of international policy uncertainty and/or a faster-than-expected normalization of U.S. interest rates. Risks from unstable wholesale funding from European banks and exposure to sub-Saharan African borrowers would increase in such scenarios, especially if accompanied by additional local currency sovereign credit rating downgrades to below-investment level. A fall in the prices of South Africa’s main commodity exports would reduce investment and worsen the current account. A slowdown in partner growth (e.g., China, destination for about 10 percent of South Africa’s exports, or other large emerging markets) or structurally weak growth in key advanced and emerging economies would have both direct and indirect spillovers to South Africa through financial markets and trade channels.
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Domestic Risks. These include protracted domestic policy uncertainty and continued deterioration in perceptions of the quality of governance; renewed spending pressures (such as resurfacing demands for free university tuition, a new costly public wage settlement in 2018, or the materialization of contingent liabilities from SOEs); reversal of the recent improvement in labor relations; or a deterioration in banks’ balance sheets stemming from protracted low growth.
Feedback loops between the real, financial, and fiscal sectors could amplify the impact of these shocks. A continued low growth outlook with rising unemployment would worsen the financial situation of households and firms, resulting in higher NPLs in banks’ loan portfolios as well as portfolio rebalancing by foreign investors and domestic non-bank institutions, which would reduce liquidity and increase funding costs for banks. Under these circumstances, banks would likely curtail credit, further exacerbating the growth downturn. Staff estimates suggest that, for instance, following a one percentage point decline in GDP growth, the NPL ratio would increase by 0.5 percentage point. This would in turn dampen credit growth by 2 percentage points (Annex VI. Macro-financial Linkages in South Africa). Lower growth and weaker bank profitability would also have sizeable implications for tax revenues. To maintain debt sustainability, further fiscal adjustment would be required, thus imparting an additional negative impulse to growth.
Policies to lift growth, permit more gradual fiscal adjustment, and increase resilience
With fiscal and monetary policy space constrained by rising government debt and the need to maintain inflation within the target band, the priority to stimulate economic growth and job creation rests with structural reforms, especially in labor and product/service markets. To the extent the authorities succeed in doing so, there will be an opportunity to reduce the pace of fiscal adjustment. An early start in undertaking such reforms would also reduce the likelihood of extreme downside risks materializing.
Monetary and Financial Sector Policies
Bringing to fruition ongoing reforms of prudential regulation and the resolution framework is expected further to buttress financial sector resilience. The authorities have made progress in implementing the 2014 IMF FSAP recommendations (Annex IX), particularly on modernizing the macro-prudential framework, including the introduction of “Twin Peaks” and resolution regimes. These reforms will likely increase financial stability by removing regulatory gaps and reducing implicit contingent liabilities from the banking sector. The Financial Sector Regulation bill to execute the Twin Peaks reform is likely to be approved and implemented in 2017, and the Designated Institutions Resolution bill to introduce the new resolution regime is expected to be submitted to parliament in late 2017. In this context, National Treasury and the SARB published for public comment a policy document on an explicit, privately-funded deposit insurance scheme. The SARB is also working toward an enhanced macro-prudential framework, including the addition of new tools such as countercyclical capital buffers, sectoral capital requirements, dynamic provisioning, as well as leverage and liquidity ratios. Moreover, the tightening of credit standards that began in 2015 has helped to correct past frothiness in the market for credit to households; slow consumption growth reflects not only these measures, but also an appropriate, continued reduction in the indebtedness of many overstretched households. A third draft on the OTC derivative regulatory framework will be reviewed by National Treasury and the SARB in 2017. However, limited progress has been made on the reform of collective investment schemes, promotion of fair competition and financial inclusion, and better consumer protection.
Access to financial services for low-income households and SMEs needs to be enhanced. Greater access of firms and households to banking services or the lifting of their financial constraints may be expected to foster economic growth and to reduce income inequality. At the same time, access to credit should be expanded with proper supervision to prevent an increase in financial stability risks, as illustrated by the recent bankruptcy of African Bank arising from its unsecured lending to low income customers. The authorities are taking steps to increase financial inclusion. For the first time in 11 years, the SARB granted three provisional banking licenses in 2016 (to Post Bank, Discovery Bank, and TYME (Take Your Money Elsewhere), a local mobile payments start-up acquired by Commonwealth Bank of Australia). The market conduct authority under twin peaks is also expected to introduce more transparency to financial products sold to consumers and SMEs. Even so, more could be done to expand financial inclusion while keeping financial risks in check. International experience suggests several options, such as encouraging community-based credit unions, institutions relying on emerging technologies (“FinTech”), and microcredit insurance; promoting financial literacy; better protection of low-income borrowers from predatory lending and abusive loan-recovery; streamlined disclosure standards for small-scale lending; expansion of eligible collateral and improved and centralized credit registry systems. Hurdles faced by potential entrants, such as non-transparent rules for access to clearing and payment systems operated by incumbents, should also be reduced.
Full and swift implementation of the Financial Intelligence Center Amendment (FICA) Act is needed to bring South Africa closer to international standards against money laundering, financing of terrorism, and other illegal financial transactions. The FICA Bill was signed by President Zuma in April 2017 and the next step is to issue and enact regulations to fully implement the FICA Act. Lack of comprehensive implementation might lead to a statement by the Financial Action Task Force about the risk of doing business with South Africa and could increase international transaction costs for South African businesses.
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Regional ministers meet in Kampala over free trade area
Ministers from 26 African countries are meeting in Kampala today (Friday, 7 July) in another attempt to see through overdue negotiations on a larger free trade area covering three regional economic communities (RECs).
Ministers from the Common Market for Eastern and Southern Africa (COMESA), East African Community (EAC), and the Southern Africa Development Community (SADC), are expected to settle issues that prevented the countries from ratifying the Tripartite Free Trade Area (TFTA) signed by African leaders on June 10, 2015, in Egypt.
“There is some progress now. Initially, there were delays as some SADC countries did not have a clear position on tariff reductions. They have now given their proposal on how things can work and I think it will work now,” François Kanimba, the minister for trade, industry and EAC affairs, told The New Times yesterday.
The agreement intends to create a common market across half of the continent. It would be a critical step toward opening up opportunities for business and investment within the tripartite bloc.
But for benefits to actually be realised, it must first be ratified by at least 14 of the 26 member countries. To date, 18 countries signed while only one, Egypt, ratified the agreement.
When the agreement was initially signed in 2015, a one year timeline was agreed for ratification.
But that timeline elapsed last year and responsible ministers set a new timeline of April, which also passed without any headway.
Dr Francis Mangeni, the director of trade and customs in the 19-member COMESA bloc, is optimistic that the Kampala meeting will deliver.
The most important expected outcome, Mangeni said, is that three outstanding legal instruments – on rules of origin, trade remedies, and dispute settlement – will be adopted.
“This is what has been preventing some countries from signing and ratifying the tripartite agreement. We expect the tripartite agreement to be ratified and come into force quickly after this,” Dr Mangeni said.
“The second expected outcome is that South Africa has said it will sign the Agreement at the ministerial meeting. This would bring the total number of countries that have signed to 19.”
According to the COMESA official, this comprehensive framework for trade comes into force – after ratification – it will bring numerous gains. Among others, the FTA means that products coming from member countries will not pay duties.
How does this benefit the common man?
Dr Mangeni stresses that the importance of the tripartite TFA to the ordinary citizen is linked to the fact that the three blocs have a combined GDP of $1.3 trillion, and a market of nearly 720 million people.
This large market, he said, means that investment can be done at a much higher level.
“If you want to sell in large volumes, you need more people. The bigger the market, the larger the investment and, investment creates jobs for people and thus income generation. In addition, a tripartite free trade area helps our governments and people to work together and this is extremely important.
“When you have a framework that brings governments and people together on a regular basis to discuss issues such as infrastructure and industrialisation as well as security, transboundary diseases, terrorism and others, which all concern them, it is critical for socio-economic transformation. Whichever way you look at it, in the world today, we need to work together. Such a framework also promotes and peace and prosperity.”
Sources say EAC and COMESA countries are at an advanced stage of ratification and opened up 100 percent, with all their products covered except prohibited or illegal products such as harmful drugs and arms.
The problem, sources indicated earlier, was with the so-called BLNS countries; Botswana, Lesotho, Namibia, South Africa and Swaziland, which belong to one of the world’s oldest customs union – the Southern African Customs Union, and had wanted to open up only 60 to 85 per cent.
The five countries being within the SADC bloc, sources said, this created a complexity in tariff offers that the former were struggling with.
The Kampala meeting, it is hoped, will table solutions to the issues and conclude with a win-win way forward.
The tripartite vision is to improve socio-economic welfare of the region’s citizens by promoting economic growth and creating a favourable environment for trade.
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New 2025 global growth projections predict China’s further slowdown and the continued rise of India
The economic pole of global growth has moved over the past few years from China to neighboring India, where it is likely to stay over the coming decade, according to new growth projections presented by researchers at the Center for International Development at Harvard University (CID).
Growth in emerging markets is predicted to continue to outpace that of advanced economies, though not uniformly. The projections are optimistic about new growth hubs in East Africa and new segments of Southeast Asia, led by Indonesia and Vietnam. The growth projections are based on measures of each country’s economic complexity, which captures the diversity and sophistication of the productive capabilities embedded in its exports and the ease with which it could further diversify by expanding those capabilities.
In examining the latest 2015 global trade data, CID researchers find a clear turn in trade winds, as 2015 marks the first year for which world exports have fallen since the 2009 global financial crisis. This time around, the decline in trade was driven largely by the fall in oil prices. High oil prices had driven a decade of rapid growth in oil economies, outpacing expectations. Since the decline in oil prices in mid 2014, growth in oil economies ground to a halt, where it is likely to stay, according to the projections, given little progress on diversification and complexity.
“The major oil economies are experiencing the pitfalls of their reliance on one resource. India, Indonesia, and Vietnam have accumulated new capabilities that allow for more diverse and more complex production that predicts faster growth in the coming years,” said Ricardo Hausmann, director of CID, professor at the Harvard Kennedy School (HKS), and the lead researcher of The Atlas of Economic Complexity.
The projections warn of a continued slowdown in global growth over the coming decade. India and Uganda top the list of the fastest growing economies to 2025, at 7.7 percent annually, but for different reasons. Uganda joins three other East African countries in the top 10 fastest growing countries, though a significant fraction of that growth is due to rapid population growth. On a per capita basis, Uganda is the only East African country that remains in the top 10 in the growth projections, though at 4.5 percent annually its prospects are more modest. On the other hand, the researchers attribute India’s rapid growth prospects to the fact that it is particularly well positioned to continue diversifying into new areas, given the capabilities accumulated to date. India has made inroads in diversifying its export base to include more complex sectors, such as chemicals, vehicles, and certain electronics.
The new 2015 data reveal a decline in China’s exports. China’s economic complexity ranking also falls four spots for the first time since the global financial crisis. China’s rapid growth rate over the past decade has narrowed the gap between its complexity and its income, which researchers suggest is the harbinger of slower growth. The growth projections still have China growing above the world average, though at 4.4 percent annually for the coming decade, the slowdown relative to the current growth trend is significant.
The researchers place the diversity of tacit productive knowledge – or knowhow – that a society has at the heart of the economic growth story. A central stylized fact of world income differences is that poor countries produce few goods that many countries can make, while rich countries produce a great diversity of goods, including products that few other countries can make. The team uses this fact to measure the amount of knowhow that is held in each economy. “Economic complexity not only describes why countries are rich or poor today, but also can predict future growth, about five times more accurately than the World Economic Forum’s Global Competitiveness Index,” said Sebastian Bustos, a research fellow at CID.
New Economic Complexity Index Rankings
CID also released new country rankings of the 2015 Economic Complexity Index (ECI), the measure that forms the basis for much of the growth projections. The ECI finds the most complex countries in the world, as measured by the average complexity of their export basket, remain Japan, Switzerland, Germany, South Korea, and Austria. Of the 40 most complex countries, the biggest risers in the rankings for the decade ending in 2015 have been the Philippines (ECI rank: up 28 positions to rank 32nd globally), Thailand (+11 to 25th), China (+10 to 23rd), Lithuania (+9 to 30th), and South Korea (+8 to 4th). Conversely, the biggest losers have been Canada (-9 to 33rd), Serbia, Belarus, Spain (-6 to 29th), and France (-6 to 16th).
The countries that show the fastest declines in the complexity rankings in the decade ending in 2015 nearly all have had policy regimes that have been adversarial to the accumulation of productive knowhow, with the largest declines in Cuba (-50), Venezuela (-44), Zimbabwe (-23), Tajikistan (-22), Libya (-22), and Argentina (-18). Globally, the fastest risers in complexity in 2015 have been the Philippines, Malawi (+26 to 94th), Uganda (+24 to 77th), Vietnam (+24 to 64th), and Cambodia (+16 to 88th).
The growth projections highlight that economic growth fails to follow one easy pattern or rule system. The countries that are expected to be the fastest growing – India, Turkey, Indonesia, Uganda, and Bulgaria – are diverse in all political, institutional, geographic and demographic dimensions. “What they share is a focus on expanding the capabilities of their workforce that leaves them well positioned to diversify into new products, and products of increasingly greater complexity,” said Timothy Cheston, a research fellow at CID.
The projections divide global countries into three basic categories: those countries with too few productive capabilities to easily diversify into related products, including Bangladesh, Ecuador, and Guinea; those countries which have enough capabilities that make diversification and growth easier, which include India, Indonesia, and Turkey; and those advanced countries – such as Japan, Germany, and the United States – that already produce nearly all existing products, so that progress will require pushing the world’s technological frontier by inventing new products, a process that implies slower growth.
The economic complexity growth projections differ from those of the IMF and the Economist Intelligence Unit (EIU). Relative to EIU predictions, CID researchers are less optimistic about a set of countries that include Bangladesh, Cambodia, Iran, Sri Lanka, and Cuba. Conversely, CID researchers have greater optimism for the growth prospects of Uganda, Guatemala, Mexico, Tanzania, and Brazil.
The researchers emphasize that the benefit of these medium-term projections is that nothing is set in stone, but there are many steps policymakers, investors, and business leaders can take to enter more complex production to realize faster growth.
About the Center for International Development
The Center for International Development (CID) at Harvard University is a university-wide center that works to advance the understanding of development challenges and offer viable solutions to problems of global poverty. CID is Harvard’s leading research hub focusing on resolving the dilemmas of public policy associated with generating stable, shared, and sustainable prosperity in developing countries
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Concluding today, in Maputo: WIDER Development Conference Public Economics for Development. Access the conference papers, presentations
Tomorrow, in Kampala: Tripartite Committee of Sectoral Ministers meeting. The main agenda item will be an update on progress with TFTA negotiations.
Economic Development in Africa Report 2017: African tourists emerge as powerhouse for tourism on the continent (UNCTAD)
Tourism in Africa is a flourishing industry that supports more than 21 million jobs, or 1 in 14 jobs, on the continent. Over the last two decades, Africa has recorded robust growth, with international tourist arrivals and tourism revenues growing at 6% and 9%, respectively, each year between 1995 and 2014. By collecting and comparing data from two different periods, 1995–1998 and 2011–2014, the report reveals that international tourist arrivals to Africa increased from 24 million to 56 million. Tourism export revenues more than tripled, increasing from $14bn to approximately $47bn. As a result, tourism now contributes about 8.5% to the continent’s GDP.
The First Ten-Year Implementation Plan of the African Union’s Agenda 2063 aims at doubling the contribution of tourism to the continent’s GDP. To meet this target, tourism needs to grow at a faster and stronger pace. To realize the potential of intraregional tourism for the continent’s economic growth, African Governments should take steps to liberalize air transport, promote the free movement of persons, ensure currency convertibility and, crucially, recognize the value of African tourism and plan for it. Another important theme highlighted in the report is the mutually beneficial relationship between peace and tourism. [Dubai’s tourism body targets Eastern Africa]
The role of the services economy and trade in structural transformation and inclusive development: UNCTAD Secretariat note (pdf)
At the international level, efforts are needed to advance a global services trade agenda in the international trading system that is supportive of the Sustainable Development Goals, and includes preferential treatment, flexibilities, experimentation, adjustment mechanisms and support and capacity-building for developing countries, in order to unlock the transformative potential of services trade to spur growth and development. Adequately designing the content, pace and sequence of the liberalization process and coordinating this process coherently with the implementation of national policies and regulations, is essential to creating an enabling environment for trade in services. Complementary measures, such as strengthening regulatory cooperation relating to services trade to create a more facilitative services trade environment, could also make an important contribution. [Prepared for the Multi-year Expert Meeting on Trade, Services and Development, 18-20 July]
(i) B20 statement: 58 CEOs and Presidents of Business Associations call upon the G20 to take decisive actions in shaping globalization. Extract (pdf): We also call upon the G20 members to jointly restate their commitment to open and rules-based trade. We would like the G20 to take concrete actions to strengthen the implementation of the protectionism standstill and rollback. G20 members should further reinforce their commitment to the multilateral trading system. The WTO is the premier guardian of a global level playing field and fair competition. Today, it is more imperative than ever to strengthen the WTO, its rules, its monitoring instruments, and its dispute settlement mechanism. The WTO Ministerial Conference in Buenos Aires in December 2017 is an opportunity to lay the groundwork for a future-oriented multilateral trade agenda. The B20 supports the goals of the Doha Round and asks G20 members to strive for an ambitious and rapid conclusion of the remaining topics. Furthermore, G20 members need to actively support the implementation of the Trade Facilitation Agreement. It is imperative that the G20 pushes for a forward-looking agenda. Digital trade holds huge potential. It lowers transaction costs and scale requirements while giving easy access to a global marketplace, particularly for developing countries. However, substantial barriers prevent the potential benefits of digital trade from being fully realized. We therefore would like to see a significant increase in concrete actions enabling digital trade, including advancing the dialogue on rules both in regional agreements as well as the WTO.
(ii) Arancha González Laya, Peter Draper: Five reasons not to give up on global trade. As G20 leaders meet in Hamburg, many people feel the international trading system is unfair or unaccountable. Some blame it for the loss of jobs; others for pressurising local industries or eroding labour standards. It is true that economic globalization has not lifted all boats. Income and wealth inequality is on the rise. Significantly, 42% of countries ranked on the World Economic Forum Inclusive Development Index saw their scores decline over the past five years even as GDP per capita increased, with wealth inequality a chief culprit. Small businesses can be buffeted hard by shocks in global markets. The world’s poorest countries’ share in global exports has barely budged above 1% over the past decade. In the face of these challenges, there is a pressing need for efforts to ensure the benefits from trade are more widely spread. But governments should also recognise the core value of the global trade system as a foundation to build on. Here are five reasons why: [Christine Lagarde: Strengthening global growth and building inclusive economies]
Malawi Economic Development Document: Assessment letter for the IMF (GoM/IMF)
Malawi’s Economic Development Document (pdf) presents an interim picture of the country’s medium-term development plan, as the successor strategy - likely to be called MGDS III - is prepared. Disappointing results with respect to implementation of MGDS II have triggered a qualified rethink in Malawi’s development planning process. There is a growing recognition that Malawi needs a more realistic development plan, in terms of both the underlying assumptions and resource availability, as well as with fewer priorities and a greater emphasis on implementation. Climate change has also become a major new factor in this process. The recent formation of a quasi-independent National Development and Planning Commission will also help to improve the independence of the planning process in Malawi. [Related: Ninth Review under the Extended Credit Facility Arrangement]
Rwanda’s economy grew 1.7% in Q1,2017 (NISR)
In the first quarter of 2017, GDP at current market prices was estimated to be Frw 1,817 billion, up from Frw 1,593 billion in the same quarter of 2016. Services sector contributed 46% of GDP while the agriculture sector contributed 32%. The industrial sector contributed 15% while 7% was attributed to adjustment for taxes and subsidies on products.
Tanzania: Bunge team to look into management of diamond mines (IPPMedia)
Speaker of the National Assembly Job Ndugai has formed a special committee of nine MPs to investigate, among other things, extraction system, ownership and management of diamond mines in the country. He said the committee chaired by Ilala MP Mussa Zungu (CCM) will have 30 days to carry out its duty and his office would support members fully to perform their task diligently. Ndugai noted that the decision to forma the parliamentary committee was reached after recommendations by President John Magufuli on June 12, 2017 when he received the second report on mineral sand. [Mining sector clean-up takes shape]
Tanzania: We’re not venturing into state capitalism, says Mpango (The Citizen)
The government has clarified that it does not plan to introduce ‘state capitalism’, but its current measures are aimed at bringing sanity to the way businesses are run. The minister for Finance and Planning, Dr Philip Mpango, said yesterday people tend to misinterpret official calls by the government for State institutions to consider dealing with public firms. “We’re in no way trying to promote state capitalism. Since we made a decision to shift from that form of managing the economy to a market one, we have no intention of returning to the past system,” Dr Mpango said during an event where he received a total of Sh10 billion in dividend from three companies in which the government has stakes.
Zambia: Smuggled sugar affecting local industry (Daily Mail)
Zambia Sugar Plc has called on the government to intervene in the influx of cheap smuggled sugar into the country, as it is negatively affecting the local industry. Company marketing director Chembe Kabandama says about 20,000 tonnes of sugar, valued at over K2 million, was allegedly smuggled last year into the country. ”We had a lot of imports from Malawi coming in through Chipata, while other products came in through Namibia via Sesheke and from Zimbabwe into Livingstone. We also had a lot of imports coming from Tanzania through Nakonde,” Mr Kabandama said.
Technologies for African agricultural transformation: environmental and social management framework summary (pdf, AfDB)
The overall program development objective of TAAT is to execute a bold plan to achieve rapid agricultural transformation across Africa through raising agricultural productivity in selected Priority Intervention Areas targeting specific agricultural commodity value chains. TAAT will support centrally managed activities and promotion of key technologies in select countries. The overall TAAT activities is proposed in 35 countries and 23 Commodity value chains albeit in three tiers and include program management and coordination, program services (including policy support, capacity development and outreach, youth in agribusiness support, and the services of the Clearinghouse), and core implementation activities of the agricultural commodity value chains. [NEPAD Agency and partners launch 2016 Global Hunger Index: Africa Report]
UN SG proposes ‘Funding Compact’ to retool development system, boost efficiency (ECOSOC)
Mr Guterres noted that his report to the Council (on repositioning the UN development system) is an integral component of the broader reform agenda at the UN to better meet the world’s complex and interlinked challenges. He added that his ideas and proposals are intended to spur further discussions in the Council and to solicit the views of Member States on a number of key areas. A more detailed report will be submitted in December. Mr Guterres highlighted eight key guiding areas for his proposed reforms. He also announced that Deputy Secretary-General Amina Mohammed has been tasked to oversee and provide strategic guidance to the UN Development Group and lead a Steering Committee to strengthen coherence between humanitarian action and development work. Other areas of focus included strengthening a more cohesive UN policy voice at the regional level; strengthening accountability of the UN development system; and ensuring effective and efficient funding structures that would offer greater value-for-money and reporting on system-wide results. [Full text]
European Fund for Sustainable Development: update (EURACTIV)
Members of the European Parliament are expected to pass on Thursday, 6 July the new European Fund for Sustainable Development (EFSD), a key element to a plan to raise as much as €88bn, blending EU funds with national and private financing, bringing African development to a new level. The EFSD is a key element of the European External Investment Plan (EEIP), an innovative approach to boost investments in Africa and EU neighbourhood countries. The EEIP consists of three pillars:
Hogan Lovells 2017 Africa Forum: highlights
A common discussion thread throughout the Forum centered on the challenges still to be overcome. Delegates were split in their opinion of the biggest challenge to growth in Africa, with 41% each citing certainty and corruption. Government policies were cited as the greatest barrier to intra-Africa trade (38%), with market penetration/ accessibility and lack of knowledge/ understanding of regional markets coming in joint second at 25% each. Political risk was considered the greatest challenge faced by private sector investors in African infrastructure projects, by 44% of delegates polled. Development banks were voted to have the biggest role to play in developing these infrastructure projects (41%), followed by African national Governments and private investors, with 24% each of the vote. In contrast, regional trade blocs were seen as most key to facilitating intra-Africa trade by 55% of delegates, however most surprisingly, none of the delegates considered these trade blocs to be ‘working’ to full effect currently.
Today’s Quick Links: Dar Port expansion heralds trade boom Rwanda: Cross-border traders urged to leverage new customs reforms Rwanda needs its own Bilateral Investment Treaty model President Kagame’s keynote address, today, at SDG Africa Centre conference Mobilizing African intellectuals towards quality tertiary education SA’s DBSA seeks to finance projects in Botswana Botswana becomes Base Erosion and Profit Shifting framework’s 99th member Zimbabwe: National Diaspora Engagement Action Plan update Stephen Chan: Trump’s US still lacks an Africa policy – but that might be about to change Sir Simon McDonald: Brexit will help the UK-Rwanda relationship transition from aid to trade |