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Glass half full: The 2017 Foreign Direct Investment Confidence Index
Investors are bullish about economic growth and FDI prospects, but are monitoring political risks for abrupt changes to the business environment.
A New Risk on Attitude
Global investors may finally be emerging from the financial crisis hangover.
The results of the 2017 FDI Confidence Index indicate investors are becoming more optimistic about the global economy and more open to investment diversification. Such strong investor sentiment suggests pent-up business investments around the world are likely to be unlocked, creating a virtuous cycle and strengthening economic growth.
Sixty percent of investors say they are more optimistic about the global economy than they were last year. International Monetary Fund forecasts support what investors are telling us: growth projections for 2017 and 2018 are 3.4 and 3.6 percent respectively – up from 3.1 percent in 2016. Regionally, Asian investors are most bullish of all. This could reflect the region’s improved prospects and the increasingly vital role of the Pacific Rim in the global economy. In fact, investors are much more optimistic about the outlook for Asia Pacific and the Americas this year. Investor optimism is particularly strong for economic performance in large developed markets in these regions, including the United States, Canada, Japan, and Australia.
Investors are also displaying a greater risk appetite and willingness to diversify investments into different markets. After investors flocked to the perceived safe havens of developed markets in recent years, emerging markets account for seven spots in this year’s Index, up from an all-time low of five in 2016. And newcomers to the 2017 Index are diverse: the United Arab Emirates, New Zealand, and South Africa. This is the first time since 2014 that an African or Middle Eastern country has made the Index – a positive sign that investors may propel further upward momentum in the global economy.
FDI as a Localization Strategy
Investors are using FDI as a strategy to hedge against weakening international trade and globalization.
Globalization seems to be taking a hit in many respects, with persistently weak global trade growth, rising protectionism, and increasing anti-immigrant sentiments. But FDI continues to be seen as a growth opportunity in this environment. Last year, 71 percent of investors told us they planned to increase FDI in the coming years – and this year, 75 percent say the same. Why are more investors focusing on FDI as a pillar of their global growth strategies?
In the current volatile global environment in which globalization is shifting to islandization, investors likely see FDI as an important localization strategy. While a government may seek to limit imports, foreign companies with a local presence in the market are already in – and likely provide local jobs as well. Therefore, FDI may become crucial to maintaining access in large markets that risk turning inward. And more broadly, after years of subpar economic growth and lower levels of FDI, the quality of investment targets and the macroeconomic environment are improving across markets.
Executive Summary
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The United States tops the Foreign Direct Investment (FDI) Confidence Index for the fifth year in a row. This streak ties with the longest prior run that the United States had at the top of the Index (ending in 2001), and likely reflects the enduring attractiveness of the US market in terms of sheer size and a relatively open regulatory environment for foreign investment. Investors may also be motivated by protectionist rhetoric, as FDI would give them a local footprint in the world’s largest economy. In addition, investors have a very bullish outlook for the North American economy – with the United States and Canada the two domestic economies about which investors are most optimistic this year compared with last year. It is thus no surprise that Canada rounds out the top five in this year’s Index.
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Germany rises to second place, while China drops to third place. This is Germany’s highest ranking in the nearly two-decade long history of the FDI Confidence Index and likely reflects its business-friendly regulatory environment and improving economic prospects. Europe’s largest economy might also be benefitting from the fallout from Brexit. After holding the number two position for four consecutive years, China falls to third place this year – despite the fact that investors’ outlook for the Chinese economy is much more bullish than it was last year.
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Europe’s share of spots on the FDI Confidence Index falls this year, but the five largest European economies all rise in the rankings. The number of European markets in the Index falls for the second year in a row to 11 countries. This is still more than any other region (Asia Pacific is second with eight) but may reflect a downward trend in investor interest in Europe overall. However, many European markets – including the five largest European economies – make gains in the ranking this year. Brexit is a likely motivating factor for some of the gains of continental European countries, as investors may relocate there from the United Kingdom. For instance, Germany rises two spots to rank second (as noted above), Sweden makes the largest positive gain in rank (+7) this year, followed by Italy (+3) and Ireland (+3), and France rises one spot. The United Kingdom also rises one spot, which may suggest that businesses that are currently only in continental Europe may be seeking a presence in the post-Brexit UK market as well.
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Developed markets continue to dominate the Index, but their position is weakening. After hitting an all-time high of 80 percent of the 25 spots on the FDI Confidence Index in 2016, developed markets account for only 72 percent of the positions in this year’s Index. Developed markets still dominate as investment destinations, but this year marks a reversal of a five-year trend in which their share of the spots in the FDI Confidence Index rose each year. The flip side of this is that emerging markets are beginning to stage a comeback, accounting for 28 percent of the spots on the 2017 FDI Confidence Index, up from an all-time low of 20 percent last year.
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Investors are beginning to diversify their FDI destinations again. The past two years of the FDI Confidence Index have been characterized by a perceived flight to safety in developed markets, particularly in Europe. However, newcomers to the 2017 Index are diverse: the United Arab Emirates (UAE), New Zealand, and South Africa. This marks the inaugural appearance of New Zealand and the first time since 2014 that an African or Middle Eastern country has appeared on the Index. Along with a slight increase in investment intentions in emerging markets generally, this could signal a desire by global investors to diversify the location of their FDI as well as a greater risk appetite than they have had in recent years.
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The all-too-visible hand of political risk is on full display in how investors determine where to invest. This year, governance and regulatory issues represent the top three factors – and seven of the top 10 – that investors consider when deciding where to invest. This is a marked contrast from last year, when issues relating to market asset and infrastructure accounted for the top two investor considerations and half of the top 10. This may explain why developed markets continue to dominate the Index, as they are generally perceived to be more secure and have more transparent regulatory environments. However, it may also mean investors are monitoring policy and regulatory developments in developed markets more closely than in the past – in fact, significantly more global investors perceive a more restrictive regulatory environment in a developed market as a likely wild card this year than in the past two years.
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FDI continues to be seen as a channel for growth in an environment of weakening global trade flows and increasing protectionism. In the current volatile global environment in which globalization seems to be backsliding, investors continue to see FDI as a primary pillar of their growth strategy. As highlighted in last year’s Index, this is likely because of rising protectionist sentiments creating the need to establish a local presence in key markets. Although the UN Conference on Trade and Development (UNCTAD) estimates that the global flow of FDI fell in 2016, this was from an unusually high level in 2015 because of a few large M&As. The flow in 2016 was significantly above 2014 levels, and a continued upward trend in the global flow of FDI is likely. In fact, 75 percent of investors told us that they plan to increase their FDI in the next three years.
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Investors are more bullish on the global economy this year but see rising geopolitical tensions as the top wild-card risk. Sixty percent of global investors are more bullish on the global economy this year than they were last year, a notable increase from the 50 percent who were more optimistic last year than the year before. In particular, global investors are much more optimistic about the economic outlook for the Asia Pacific and Americas regions this year and are also somewhat more optimistic about the Europe and Eurasia regional economic outlook. However, for the third year in a row, increasing geopolitical tensions top investors’ list of likely wild cards.
Find out more in the full report on the A.T. Kearney website.
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Attending @AfricaProg conf. Brexit impact on Africa. Even w/ underestimated figures Africa’s GDP would make AU G7 seat justified, like EU.
IGAD has posted the companion documentation to the State of the Region Report posted in yesterday’s selection.
Download: IGAD Regional Strategy 2016-2020: Framework (pdf), Implementation Plan (pdf)
Kenya: Economic Survey 2017 (KNBS)
International trade and balance of Payments (Chapter 7, para 7.23): Imports from Africa contributed 9.8% of the total import bill in 2016. However, the value of imports from Africa dropped by 6.0% to KSh 140.2bn in 2016 as shown in Table 7.10. COMESA accounted for 49.6% of total imports from Africa at KSh 69.6bn. Within COMESA, imports from Uganda dropped from KSh 22.3bn in 2015 to KSh 19.3bn. Similarly, imports from Swaziland and Madagascar declined by 10.7% and 67.1%, respectively. In contrast, expenditure on imports from Egypt rose by 16.3% to KSh 30.0bn, making the country second leading source of imports from Africa. South Africa accounted for 35.6% of total imports from Africa despite a reduction in the value of imports from KSh 61.3bn in 2015 to KSh 49.9bn in 2016, mainly due to reduction of iron and steel; and motor vehicles. Imports from Tanzania also contracted by 24.3% to KSh 12.8bn in 2016. [Nairobi a favourite for Fortune 500 firms, report says]
Africa Investment Index (Quantum Global)
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UNWTO Commission for Africa and High-level Meeting on Chinese Outbound Tourism to Africa: address by Dr Walter Mzembi (eTN)
The onus is on us, as African Ministers of Tourism, to get our act together, to intensify and accelerate our efforts – at national, regional and continental levels – to ensure, firstly, that our industry is accorded the respect and recognition it deserves within our own countries, regions and within the administrative structures of the African Union, and, secondly, to ensure that our individual and our collective efforts are directed – and let us give ourselves a definitive timeframe – towards growing Africa’s contribution to and its benefit from global tourism. An important part of our Agenda over the coming days is devoted to China’s outbound tourism flows and how we, as African nations, can mobilize ourselves – specifically at national and regional levels – to accommodate and service the 600-plus million tourists China is expected to unleash on the world by the year 2020. [Downloads: conference documentation]
International Monetary and Financial Committee:
Statement by Alamine Ousmane Mey (Minister of Finance, Cameroon) issued on behalf of Benin, Burkina Faso, Cameroon, Central African Republic...: We seize the opportunity to welcome the German-proposed G20 Compact with Africa initiative to foster long-term investment on the continent, and call on the G20 to swiftly expand the pilots to a larger set of countries and follow suit on partners’ commitment. We very much welcome the continued integration of capacity development with surveillance and the intended cooperation with new partners in support of IMF’s capacity development efforts as well as more flexible funding arrangements. We welcome the Fund’s work on the withdrawal of Correspondent Banking Relationships. We support a continued active role for the Fund to monitor risks and advise its membership on policies to help tackle the adverse impacts from CBR pressures, and endorse the multipronged approach, in collaboration with other agencies, to find a solution to this problem.
Statement by Mukhisa Kituyi (Secretary-General UNCTAD): Current macroeconomic data from the African continent is scarce but it suggests that a rebound from the exceptionally low rate of growth of 1.7% in 2016 may be underway, particularly if commodity prices and global trade activity continue to point upwards. Given that economic diversification has not happened in most African economies, financing for the required pace of investment to sustain economic growth will have to rely on either commodity exports or capital inflows. This makes African economies particularly vulnerable to changes of sentiment in commodity and capital markets. [Statement by Angel Gurría, OECD Secretary-General]
Protectionism in developed nations to affect India, China, South Africa the most (Mint)
The IMF cautioned on Wednesday that in a scenario of rising protectionism in developed countries, the greatest deterioration in corporate balance sheets would occur in China, India and South Africa. “If protectionist pressures increase, the combination of declining global trade and growth would increase corporate vulnerability and borrowing costs, that may lead to financial stability risks in these economies,” it said in its Global Financial Stability Report. [Press conference transcript]
Snapshots: Heritage Foundation 2017 Index of Economic Freedom (pdf, USAID)
The 2017 Index of Economic Freedom (Index), published by the Heritage Foundation and the Wall Street Journal, measures economic freedom in 186 countries. The analysis for this snapshot is limited to 92 countries that received at least $2m in USAID assistance in fiscal year 2015, and are not considered high income countries using World Bank GNI per capita data for 2017, hereto referred to as USAID-assisted countries. While half of the bottom 10 ranked USAID-assisted countries were from the Sub-Saharan Africa region, two SSA countries were also in the top 10 USAID-assisted countries, Botswana and Rwanda. The top 10 ranked USAID-assisted countries showed more regional variation, with no single region dominating the rankings. [Index of Economic Freedom: dataset]
Kenya: Curbing illegal trade at ports of entry key to economic growth (Business Daily)
At current capacity, the scanners are able to clear more than 500 containers a day. The system works in tandem with X-ray cargo scanners deployed at major airports, Kilindini port, Consolebase CFS and inland container depot in Embakasi Nairobi. The KRA has further received a donation of three scanners from the Chinese government to support the existing scanners. With the growing volumes of trade and limited personnel, the project will ultimately be expanded to increase the scanning capability of the system to enable it clear 1,500 containers per day, as well as reduce duplication of activities and queues, which will improve the global competitiveness of the port.
Ghana can’t accommodate two single window operators – Minister (StarrFM)
A Deputy Minister of Trade and Industry, Mr. Carlos Ahenkorah, has observed that Ghana as a country and signatory to the WTO Trade Facilitation Agreement is too tiny to accommodate two Single Window operators. He has therefore challenged the pioneer and only single window operator, Ghana Community Network Services Limited to speedily re-double its efforts in actualising the full breadth of Single Window operations in the country. He noted that GCNet had taken too long in securing the manifest, the seed document in clearance processes at the ports from source, a situation that may have encouraged other operators to exploit the loophole to try to secure that right from the International Air Transport Association.
Uganda: Government to spend Shs2 trillion on debt servicing (Daily Monitor)
Government will in the financial year 2017/2018 spend Shs2 trillion towards servicing the national debt in loans and interest, Finance minister Matia Kasaija has revealed. Speaking at a workshop organised by the Uganda Debt Network, Mr Kasaija said the need by the government to provide services such as health and education amid limited resources has led to increase in non-concessional and domestic loans, worsening the debt burden. [Debt Sustainability Analysis Report Financial Year 2015/16]
Uganda to open investment office in Doha, Qatar (Independent)
Museveni told the Qatar businessmen that “there is free entry and exit of investors in our country. Let the Islamic Bank come to Uganda and save investors from the challenge of high interest rates.” President Museveni noted that while the Arab region was close to Africa, not much trade was going on between the African continent and the Arab peninsula. He observed that there was need for the Arab region and Africa to work together, adding that Africa was a huge market that is growing.
Tanzanian gold miner Acacia to review operations if export ban persists (Reuters)
“If we get to a point where it’s a pure stalemate and we don’t see that dialogue there, then we are going to have to re-appraise,” Chief Financial Officer Andrew Wray told Reuters, adding that negotiations continued. “We are making contingency plans in the background of what we would need to do if we can’t resolve this.”
Namibia: Commodity export earnings generated N$25bn in 2016 (New Era)
Despite the cyclical nature of the minerals industry and some declining commodity prices, coupled with increasing financial market volatility, the country generated about N$25bn through export earnings and N$1.4bn in royalties during the 2016/17 financial year. These funds were collected from mining companies and mineral rights holders for the benefit of the State Revenue Fund. The growth in value was mainly driven by diamonds and the base metals industry, especially gold and copper cathode exports. These figures were revealed in parliament by Minister of Mines and Energy Obeth Kandjoze during the motivation of his ministry’s approximately N$208m budget for the 2017/18 financial year.
Zimbabwe: Rand adoption logical (NewsDay)
Going forward, if dollars continue to flow out of the formal system, as at present maybe we will have only two options left — either a full scale return to the Zimbabwean dollar or the much maligned rand. An immediate return to the local currency is not sustainable — significant long term damage can be done to this economy through a hurried and injudicious return of the Zimbabwean dollar. Unless we count on miracles, the only logical step to take is the rand, simultaneously addressing deep structural and macro imbalances, as necessary to get back our industry production to full capacity, increase exports, forex reserves and thereafter a graduated return of the local currency. [The author, Joseph Mverecha, is an economist attached to a Zimbabwean commercial bank]
Zimbabwe CTC to host COMESA competition policy workshop (Zimbabwe Daily)
The Competition and Tariff Commission is set to host a national sensitisation workshop on COMESA competition policy and law to raise awareness of the existence of regional and national competition laws. The workshop is set for 16 May in Harare. It is being hosted against the background that over 50 transactions involving cross-border mergers notified with the commission have involved the Zimbabwean market.
Zambia: Manufacturing on decline (ZNBC)
Mrs Mwanakatwe said statistics from the Central Statistical Office show that the wholesale and retail sectors are now the largest share of overall GDP averaging 18.3% per annum. She says the manufacturing sector’s contribution remains a paltry 9.2%. The Minister was officiated at the dissemination of research findings by Zambia Institute of Policy Analysis and Research on the expansion of supermarket chains in the country.
SADC launches qualifications framework (New Era)
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Online course on trade and gender: call for applications (COMESA)
UNCTAD, in partnership with COMESA Secretariat, will organize a special edition of its online course on trade and gender for COMESA member States and professionals in the Secretariat from 29 May to 23 July 2017. The course will focus on analysing the links between trade, gender and development with the aim of:
Today’s Quick Links: Zambia targets to borrow $1.6bn from IMF UN, African Union sign new partnership framework: UN Secretary-General’s remarks Kagame to Djibouti MPs: African unity not theory South African group Sasol plans to build industrial park in Mozambique |
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Africa’s Pulse: Why we need to close the infrastructure gap in Sub-Saharan Africa (World Bank), World Economic Outlook, April 2017: gaining momentum? (IMF)
IGAD State of the Region Report 2016 (IGAD)
The report (pdf) assesses the performance of the region in six key sectors, namely Agriculture, Livestock, Fisheries and Food Security; Natural Resources and Environmental Protection; Regional Economic Cooperation and Integration; Social Development; Peace and Security; and Gender Affairs. In terms of inter-linkages and synergies, the report examines the policy coherence within sectors and with each other, institutional collaboration and programme coordination of the various programmes under each sector. The Report further looks at IGAD’s corporate governance. Furthermore, looking ahead with foresight, the Report takes the implications of mega trends in the region into account and aims to offer scenarios for the strategic planning. [The report was compiled by Dr Mehari Taddele Maru]
In Washington: Adeosun calls for global support to tackle illicit financial flows (ThisDay)
Addressing the Global Parliamentary Conference at the ongoing IMF/World Bank Spring meetings in Washington, Nigeria’s Minister of Finance, Mrs Kemi Adeosun, stressed the need for strong executive and legislative collaboration. “To improve non-oil revenues, we have to address illicit capital flows. When stolen money is transferred from Nigeria, or other African countries, there are too few questions asked by those countries that receive the funds, but when we identify those funds as stolen and seek to recover them, there are too many questions being asked. There is money sitting in foreign bank accounts that we have spent over a decade trying to recover. That is money that could deliver significant value for Nigeria as we seek to increase spending on critical infrastructure and establish a basis for long term sustainable growth. I hope that the Automatic Exchange of Information scheme coming into force next year will be a step towards achieving greater transparency, but we need more collaboration amongst parliamentarians in Africa, and across the world to ensure that this situation improves and that recipient countries are held to account.”
MEPs in Ghana and Ivory Coast to monitor EPA implementation (EURACTIV)
A team of six MEPs, headed by Bernd Lange (S&D group), will be in Ghana and Ivory Coast, meeting politicians, business leaders and civil society from Tuesday to Thursday, finishing with a press conference in the Ghanian capital Accra on the final day. According to a statement from the MEP committee, the visit this week “will focus mostly on the implementation process of recently concluded interim EPAs, regional integration of Western Africa and business and investment environment in those countries”. Lange’s team will meet with government, parliamentarians, the private sector and civil society and NGOs during the trip. However, prior to departure, the committee posted a study on possible means of suspending EPAs with ACP states if they are deemed to break human rights, democratic principles or the rule of law, following the expiry of the Cotonou Agreement in three years time. [Download (pdf): Human rights provisions in Economic Partnership Agreements in light of the expiry of the Cotonou Agreement in 2020]
EU rejects SA’s dumping claims (Business Day)
“As we speak, there is no dumping of EU chicken in SA. If there had been, the association would have filed a complaint to the International Trade Administration Commission for dumping, as they did in the past. They have not. The South African authorities themselves acknowledge that dumping is not the issue,” the delegation said. To support its case, the EU noted that aggregate imports of EU chicken bone-in imports to SA last year did not exceed 200,000 tonnes, representing less than 10% of overall poultry consumption: “We fail to see how such a relatively moderate market share should be the main cause of the problems facing the South African industry.”
Senegal: Leveraging the potential of the services sector to support accelerated growth (World Bank)
Services play a major role in the Senegalese economy, accounting for 66% of economic activity and contributing nearly three-quarters of GDP growth between 2006 and 2013. During the period, the private sector contributed 71% of services and accounted for 84% of its contribution to growth. The dynamism of private services is driven primarily by telecommunications and financial services: while the two sub-sectors made up 21% of private services, they accounted for nearly half (48%) of the contributions of private services to growth during the period. These trends are projected to improve in the future. Available data on employment and credit confirm the critical importance of services. In 2013, over 50% of credit to the economy was devoted to services, and 55% of the labor force was employed in the services sector, including 36% of the rural workforce and as much as 80% of the urban workforce.
Tanzania: Govt committee questions proliferation of regulators (IPPMedia)
The presence of far too many government-affiliated regulatory bodies and agencies is among major factors thwarting the growth of business in the country, a special committee under the Ministry of Trade, Industries and Investments has concluded. The committee, formed late last year and comprising representatives from the ministry and private sector, as well as independent experts, says that the high fees charged by these regulatory authorities are contributing to hiking the cost of doing business in the country and blunting the competitive edge of local companies in regional trade. Presenting the draft of its blueprint on regulatory and licensing reform in Dar es Salaam yesterday, the committee’s technical leader, Dr John Mduma, said it is high time the government reviews some of its regulations so as to make it easier for people to do business.
SACU under threat as South Africa sneezes (Southern Times)
SACU member states economies are facing a major risk due to the under performance of the South African economy, economists warned here last week. Standard Chartered Bank’s head of economics (Africa), Razia Khan said 2017 was supposed to have been a year of recovery. Speaking at a global market forecast meeting in Gaborone, Khan noted that “Botswana had had been through a lot, the Southern Africa drought had weighed on prospects across the region.” Former Bank of Botswana Governor and economist, Keith Jefferis said South Africa’s neighbours would be affected by the erratic and unstable political and economic situation in that country, which he said are causing slow growth in the region. He stated that the downgrade might see investors turning away from the region, which could indirectly affect Botswana, as it is likely to cause them to turn away from Botswana itself.
Angola’s new customs tariff system feeds expectations of growth (Macauhub)
A new customs tariff system, submitted to the Council of Ministers and expected to be implemented this year, proposes cuts on import duties on foodstuffs such as fruit and vegetables, cooking oils and grains (including wheat flour), as well as raw materials such as iron, steel and aluminium products as well as second-hand cars, the Angolan press reported. The aim is to replace the existing customs tariff system – introduced in 2014 before the start of the economic and financial crisis now facing the country – which is generally regarded as protectionist of local farmers and manufacturers, seeking to make imports more expensive in order to encourage diversification of an economy that is highly dependent on oil.
Zimbabwe: Zimra moves to curb transit fraud (The Herald)
The Zimbabwe Revenue Authority has started acquiring electric seals for transit break bulk cargo, mostly being carried in flat bed trailers in a move set to reduce incidents of transit fraud, an official has said. Zimra board secretary and director of Legal and Corporate Services Ms Florence Jambwa said transit fraud resulted in situations where importers declared that goods were in transit (removal in transit – RIT) to neighbouring countries, yet they would be offloaded in Zimbabwe. Ms Jambwa said as a result of such activities, the country was losing a lot of potential revenue to criminals. Ms Jambwa said Beitbridge Border Post handled an average of 200 transit vehicles per day destined for countries north of the Zambezi River, including Zambia, Malawi and the Democratic Republic of Congo.
Malawi Socio Economic Forum showcases growth prospects (BizNis Africa)
Policy certainty and an increasingly benign interest rate and macro-economic environment, “presented the best opportunity in decades to deal with the country’s now well documented youth challenges,” said Andrew Mashanda, Standard Bank Limited Malawi Chief Executive Officer. With 90% of the Malawian economy based on agriculture, food production, processing, marketing, distribution and export, Mashanda said this presented a huge opportunity to, “develop value chains and innovate youth-driven digital services and solutions harnessing agriculture for national development, skills creation, employment and global earnings.”
Tony Carroll: Barring pharmaceutical imports will not heal Africa’s economy (Business Day)
The EAC recently stated its intention to implement a plan to foster local production of drugs and protect domestic markets through high tariff walls against imports. Ethiopia has followed a similar strategy and the director of the West Africa Health Organisation recently visited Ghana to encourage newly elected President Nana Akufo-Addo to implement a local manufacturing plan. If the track record for such measures was different, I would not be so alarmed. But these measures are just another chapter in the woeful saga of African import substitution. Whether it be steel or consumer goods, the effect of import substitution has been higher prices, lower quality and the creation of economic oligarchies often utilising nefarious tools to lock up their market share. [The author is senior associate at CSIS and vice-president of Manchester Trade]
Tunisia trade deficit expands 57% in first quarter (Reuters)
The State Statistics Institute said the deficit widened to 3.87 billion dinars ($1.67bn)for January, February and March, from 2.46 billion dinars ($1.06bn) in the same period last year. Imports in the three first months this year soared 20.3% to 11.4 billion dinars ($4.93bn). Exports rose by 7.4% to 7.5 billion dinars ($3.24bn). Tunisia wants to take advantage of the large African market to increase its exports. [Related: Tunisia says central bank to gradually weaken dinar, lift exports, Ekurhuleni Business Initiative strengthens business ties with Tunisia]
Morocco’s trade deficit rose 20.6%, to 45.47 bln dirhams, in 1st quarter (Reuters)
Rwanda – Djibouti trade updates: Rwanda, Djibouti sign five bilateral agreements (New Times), Rwanda, Djibouti remove visa fees for some travellers (KT Press)
Trade between China and Portuguese-speaking countries grows 32.64% in January/February (Macauhub)
Trade with Angola reached $3.489bn (+42.40%), with China selling goods worth $252m (-7.72%) and buying of $3.237bn (-48.69%). Trade with Mozambique amounted to %270m (-1.44%), with China selling products worth $164m (-10.30%) and buying goods worth $105m (+16.51%).
Nigeria’s states target economic boost through trade relations with China (The Guardian)
The economic challenges confronting state governments in the country may witness drastic reduction if the current efforts of the Nigeria Governors’ Investment Forum, to foster transnational investments, particularly between Nigeria and China are sustained. Speaking at the first edition of the event, which was held in Guangzhou, China, Vice Mayor of Guangzhou, Cai Chaolin, said Nigeria as Africa’s largest economy, and Guangdong are highly complementary to each other in areas like manufacturing, agriculture, cultural exchanges and infrastructure development. Vice Mayor of Guangzhou, Cai Chaolin was optimistic the Chinese automobile maker headquartered in Guangzhou, a subsidiary of Guangzhou Automobile Industry Group, GAC Motors would boost Nigeria’s economy through the national automotive policy.
China, India top queue for Kenya’s oil exports (Business Daily)
China and India have emerged as the main buyers of the Turkana crude oil that Kenya plans to export under a test programme beginning June, contrary to an earlier announcement that buyers had been found in Europe. Petroleum principal secretary Andrew Kamau said the first sea tankers will dock at the Mombasa port in June to pick up the consignment transported from northern Kenya by road and stored at the Mariakani refinery tanks. British oil explorer Tullow, the developer of the Turkana oilfields, has already pumped out and stored 60,000 barrels of crude in Lokichar in readiness for transportation to Mombasa. [KPA expands Nairobi dry port to boost trade] [Jaindi Kisero: Why top Chinese contractors are forging political alliances]
New import measures in China to benefit African, Southeast Asian exporters (China Briefing)
The Administrative Measures of the PRC Customs on Rules of Origin of Imported Goods from the Least Developed Countries Entitled to Special Preferential Tariff Treatment, which became effective 1 April, is the latest action taken by the General Administration of Customs of China to improve the administration of the origin of the import goods. The GACC made two major changes in the new measures: (i) They expanded the criteria that determine the national source of a product, allowing more products to be regarded as originating from a beneficiary country; (ii) They streamlined the consignment process, making the export process more efficient than before.
BRICS: Statement by Ambassador LIU Jieyi during the High-level SDG Financing Lab
The global trade and investment are in stagnation and the multilateral trade system is being affected. Economic globalization has suffered setbacks and we have witnessed the rise of inward-looking and protectionist tendencies in some countries’ policies and the growth of “anti-globalization” thinking. International cooperation for development is faced with daunting challenges of declining political will, dwindling resources and fragmentation of efforts. Financing for development is confronted with ever greater difficulties. [UN forum highlights importance of stronger partnerships for financing sustainable development]
Today’s Quick Links: Trade: Museveni off to Qatar Namibia: PM wants value addition to local produce Standards Organisation of Nigeria, UNIDO strategise to remove export barriers ECOWAS Parliament members reaffirm commitment to fight counterfeit medicines AGRF 2017 (4-8 September, Abidjan): preview |
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IGAD State of the Region Report 2016
Formulation of IGAD Strategy and Medium-Term Implementation Plan 2016-2020
Baseline Studies at the National Level on IGAD Priority Sectors
IGAD is committed to the vision of an integrated region that is prosperous and peaceful for the enjoyment of its population. The Popular Version of the Report is expected to help translate this vision into regionally shared hope and action within the Member States, and the populace of the region at large. It aims to supplement the State of the Region Report with a less-detailed overview of the IGAD Region. It is hoped that an increased understanding among the citizens of the Member States and other actors will improve the dialogue on regional integration and accelerate the realisation of the vision of IGAD.
In 2016, IGAD will launch a new generation of strategy and implementation plans for 2016-2020. Informed by more than 104 sectoral and country level studies, the State of the Region Report portrays the increasing dynamism and ongoing transformation in the IGAD region. It presents an array of opportunities and threats, successes registered and challenges faced by IGAD as a Regional Economic Community (REC) and one of the building blocks of the African Union.
Comparing the region’s current state of affairs with previous decades, the Report tracks the progress and envisages the desired state of affairs for the region. The progress in the region has to be seen as generational progression rather than a revolutionary transformation. As elucidated in this Report, IGAD has contributed to the overall improvement of the quality of life of the population in the region.
The Report assesses the performance of the region in six key sectors, namely Agriculture, Livestock, Fisheries and Food Security (ALFS); Natural Resources and Environmental Protection (NREP); Regional Economic Cooperation and Integration (RECI); Social Development (SD); Peace and Security (PS); and Gender Affairs (GA). In terms of inter-linkages and synergies, the Report examines the policy coherence within sectors and with each other, institutional collaboration and programme coordination of the various programmes under each sector. The Report further looks at IGAD’s corporate governance. Furthermore, looking ahead with foresight, the Report takes the implications of mega trends in the region into account and aims to offer scenarios for the strategic planning.
Executive Summary
Despite possessing all natural and human resources that could propel the region toward self-reliance, the IGAD region remains one of the world’s poorest regions. Aggregating the World Bank data of 2013, IGAD’s regional per capita income is much lower than the Sub-Saharan African average of US$1,624. Covering an area of 5.2m square km, and with about 80 percent of the IGAD region classified as Arid and Semi-Arid lands (ASALs), more than 40 percent of the total landmass is considered economically unproductive. With a total population of well over 226 million people, nationals of IGAD MSs earn USD 1000 less than their African brothers and sisters in the remaining Sub-Saharan countries. The IGAD region (particularly Somalia, Ethiopia, South Sudan) is one of the highest recipients of international aid. With severe climatic changes and environmental degradation and heavily dependent on agriculture and livestock, the region is very prone to persistent extremes of severe droughts and flooding. Due to protracted conflicts and unresponsive governance, the populations in the IGAD region have faced and continue to face grave food insecurity and famine. In the arid borderlands of IGAD, droughts are frequent and often devastating and can cause communal clashes over scarce pasture and water resources. Periodic drought in 2011 affected 12 million people in the IGAD region, with an estimated death toll of 250,000 in Somalia alone, which caused massive displacement, often into resources-scarce border areas. As a result, in terms of the UNDP’s Human Development Index, all IGAD MSs are listed as exhibiting low human development. Half of the population lives below the poverty datum line of one US Dollar (USD) per day. Resource scarcity, displaced communities, poverty and underdevelopment in the border areas are exacerbating both communal conflict and civil wars. By 2050, the population of IGAD will be 400 million; a substantial increase from today’s 226 million. More than 55 per cent of this population will then be at a relatively young age (below 20 years). With the current promising economic development and overall improvement in governance, there will be an increase of income, and an emerging middle class. The population growth of the region will become an asset or liability depending on the transformation that the region adapts in terms of inclusive development, governance, and food security. Peace and security at national and regional level will be vital ingredient in this regional transformation.
The major social development indicators and gender equality indicators in the economic, social and political realms of the IGAD region show significant improvements. The overall proportion of the region’s population living below the poverty line has declined. Nevertheless, with such positive mega trends, there are also negative developments, that might portend a more negative scenario in the region. With an increasingly highly connected, conversant, mobile and vocal but unemployed young population, social unrest could unfortunately outpace reform. The shortage of fresh water, gaps between supply and demand for food, energy and electricity, and a widening income gap, as well as associated social unrest may increase vulnerabilities of communities to extremist ideologies, international crime and transnational threats. While violence could become increasingly localized, its impacts will tend to be global with transnational implications in the form of resultant forced migration of populations, spill over impact on neighbouring kin communities and impact on economic activities. With the development of cities that will increasingly prove difficult to govern and provide with basic services the surge in the income gap, associated social unrest and criminal activities may increase. With more extractive exploration and exploitation of natural resources in peripheral areas, more localized conflicts over land use may also increase. The peripheries are increasingly becoming centres of oil and mineral exploration and exploitation thus intensification of tension and conflicts between the traditional centres and peripheries may escalate.
With increasing mobility as well as the consequences of push and pull factors due to social networking and technological and transportation advancement, thousands of nationals from the IGAD region are on the move through dangerous routes. They have become victims of human trafficking, illegal mobility and smuggling along very dangerous routes to the Middle East (Gulf of Aden), Southern Africa, and North Africa (Mediterranean and Lampadusa). This has become the daily experience of many citizens of the region. With the surge of economic growth in the IGAD region, business transactions, foreign investment, transfers of remittances, passenger and freight volumes and the speed of air and other transportation, the region is increasingly becoming vulnerable to money laundering, drug trafficking and other trans-national financial criminal acts. Despite limited research, reports indicate that terrorism is also being increasingly funded by drug trafficking, poaching and human trafficking, using these routes. With fast growing services several major airlines in the region, and expanding aviation traffic to and from the region, drug trafficking can certainly be expected to increase.
IGAD is an agrarian region in which agriculture, including both crop production and livestock remains the backbone of the economy. Employing an overwhelming majority of the population, and contributing almost half of the overall GDP, exports of agricultural (primary) commodities still constitute more than 60 percent of export earnings. The opportunity for the expansion of agricultural products and livestock remains untapped. With an estimated livestock population of hundreds of millions, the IGAD region has not adequately made use of its resources. The Security nexus of water security, food security and energy security will increasingly be pronounced in the Arid and Semi-Arid Lands (ASALs) of IGAD as demand for water exceeds that available for people and livestock. This problem has been compounded by weak support from government and competition for resources amongst water users, which creates the potential for armed conflict. Most water-related interventions are short term and target a single problem, rather than the entire complex set of problems that communities face. Looking at the individual performance of the import and export trade regimes in Member States (MSs), the export sector reflects significant growth. Nevertheless the diversifications of export items as well as their export destinations have not increased. Due to poor manufacturing sector performance, the balance of trade remains negative and may continue as such for the near to medium future. Agri-processing and non-traditional commodities such as horticultural crops (including flowers) and meat products have increased in recent years but the share of these commodities in total export earnings is quite low.
The transformation of the economy of the IGAD region is unthinkable without also transforming the agricultural sector. Poverty eradication and overall food security could not be achieved without higher productivity in agriculture. Increased productivity in agriculture would directly improve the livelihood of 80 percent of the inhabitants of the IGAD region. More importantly, the main inputs for transforming the IGAD region’s economy would be agricultural products that feed into the industrial sector. The various policies and strategic frameworks of IGAD and MSs also recognize and help to underpin this vital role of the agricultural sector.
With the exception of Eritrea which does not yet have a constitution, all MSs have progressive constitutions with a varied degree of successful implementation of constitutional democracy. Nevertheless, institutional and societal practices remain regressive in terms of good governance, accountability, democracy, elections and transparency in public sector. While some MSs (Ethiopia for example) have standalone policies on foreign policy and security, others have included their policies and laws in vision statements such as Djibouti‘s Vision 2035, Ethiopia’s Growth and Transformation Plan and Foreign Affairs and National Security Policy and Strategy, Kenya’s Vision 2030, Somalia’s Vision 2016, and Uganda’s Vision 2040.
The IGAD region has invested extensively in building transport corridors. Of the road, air, marine and rail transportation sectors, the road sector has been the most dominant. There are more than thirteen transport corridors that link the IGAD region in Ethiopia, Kenya, Somaliland, Sudan, South Sudan, and Djibouti. These transport corridors are instrumental in promoting economic efficiency as they link several economic centers through various modes of transport. With the highest share of public expenditure, the lion’s share of the region’s current transformation of the region comes from the transportation sector. Despite being in its infancy, the railway corridors are growing and are expected to continue growing in the next decade. For example, covering 4,744 kms, railway construction between Djibouti and Ethiopia is planned to be completed in 2015. The airline carriers in the IGAD region such as Ethiopian Airlines and Kenyan Airways have linked the region by air. The maritime sector enjoys similar importance. Over the years its capacity has grown considerably while piracy and illegal activities have seriously affected the sector. With more regional stability, the economic contributions of the ‘Blue Economy’ associated to the maritime will increase and enhance the integration with land-linked countries. Despite recent growth and given its potential to contribute to economic development, the tourism sector is not contributing as expected. Similarly in spite of the recent massive expansion in the quantity of services, the ICT sector suffers from infrastructure and quality related challenges, lack of skilled manpower and a deficiency of regulatory frameworks.
Development in the region also has brought demands for certain skills such as those in construction, transport, service, manufacturing etc. So far the informal sector and the public service remain the main sources for employment opportunities. The private sector is not yet meeting expectations in generating jobs and reducing unemployment. Thus, in a bid to help the informal economy and the private sector to contribute their fair share to the development of the region, IGAD has established the Business Forum to addressing constraints that are hampering the informal sector and the growth of the private sector such as challenges in relation to procedures and attempts to licence and tax the informal sector, infrastructure, credit, work premises, extension services, and market linkages.
Examination of the major gender equality indicators in the economic, social and political realms show that significant improvements have been registered in the region over the years. A three-pronged approach that targeted the setting up of necessary legal and policy frameworks, the establishment of institutional structure/s and delivery of packages of services aimed at empowering women has succeeded in bringing about positive results in terms of gender equality indicators in IGAD. Gender equality and empowerment are conceived as functions of political economy and social status in each country. Thus gender equality and empowerment are expressed through their place in, and the benefits of women from, the various sectors. These include in politics and decision making, legal and policy frameworks, and institutional frameworks for gender equality.
IGAD has successfully developed more than 32 policy related documents and studies detailing with aspects of all the sectors. IGAD and MSs have policies, strategies and plans that focus on various issues including stability, poverty eradication, resilience, sustainability of governance of natural resources, and protection of the environment, pro-poor economic development among others. In the past strategic periods, nonetheless the policies have lagged behind the actual changes in integrative opportunities, peace and security efforts and bilateral cooperation. In order to ensure the ownership of the transformation agenda in the region, IGAD needs resources matching up with the challenges it is facing. Excessive dependence of IGAD member states on donors to meet the basic needs of the population and particularly their inherent state functions remains a serious setback both in terms of value system and the actual setting national priorities. A major lesson for the IGAD MSs is that public revenues need to match the population growth rate if a country is to sustainably meet its social demands. In this regard, reform in the revenue collection capabilities of states will be a determining factor.
To effectively respond to the challenges besieging the region and to meet the human security needs of the population, IGAD has to transform further. The State of the Region Report focuses on all the six priority sectors of IGAD, namely i) Agriculture, Livestock, Fisheries and Food Security (ALFS), ii) Natural Resources and Environmental Protection (NREP), iii) Regional Economic Cooperation and Integration (RECI), iv) Social Development (SD), v) Peace and Security (PS), and vi) Gender Affairs (GA). After providing a brief sector introduction, each section of the Report focuses on an individual sector and provides a situation analysis of the sector, the root causes and effects of the challenges facing the sector, major opportunities for the development of the sector, current national and regional level policies, strategies and institutional frameworks. It further identifies the gaps and opportunities for the development of the sector. The mega trends in the region (also each sector) have been included. While identifying and addressing the regional and national implications and consequences of the development of each sector, the Report also explores the IGAD region’s cooperation, coordination, and collaboration with regional and international actors.
Furthermore, IGAD’s work is informed by the various continental frameworks, mainly AU, major initiatives and basic documents such as Agenda 2063, Constitutive Act, APSA and AGA, PIDA, CAADP, and that of the on-going consultations on Common African Positions related to Migration, Humanitarian System, SDGs, FDD etc. The recommendations are also prioritised based on the strategic importance and urgency and above all their return and multiplier effect on impact. In this regard, each section also provides complementarities between the three levels of governance (national, regional and continental). The normative (policy and legislations), institutional (decision making and implementing organs), collaborative (institutional working procedures and mechanisms) frameworks as well as resources (both human and financial) aspects of complementarities of efforts are also discussed. By identifying the key lessons learnt and best practices, the report also provides substantive sectorial recommendations. It also examines both the inter-sector linkages and synergies and institutional corporate development. Furthermore, it provides a list of areas of reform required for better inter-sectorial and corporate governance within IGAD and other entities including MSs, other RECs and the AU.
The recommendations for IGAD refer mainly to the overlapping consensus and commonalities identified under the country and regional Sectorial reports. Thus, the recommendations focus on all organs of IGAD including but not limited to the Secretariat. It is clear that these recommendations will not be implemented, nor the desired status achieved in one strategic period of four years. Hence, the need to visualise the strategic planning and implementation within IGAD and Member States in continuum, which the implementation of many of the recommendations will not to be completed with one strategic planning period. In order to determine the recommendations to be taken first and allocate resources according to importance and urgency, prioritisation becomes critically necessary. Continuous progressive adjustment of prioritisation will also be needed within the next strategic periods. To help the determination of prioritisation and allocation of resources, the Report provides principles for prioritisation, which should constitute principles for the determination of priorities even with the new strategic plan. The details of the principles for the determination of priorities of the recommendations are provided under second set of recommendations to the Strategic Planning Process.
Accordingly, the Report advances recommendations from both MSs and IGAD.
Recommendations to the MSs:
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States need to be transformed into agents of human security, which should be their ultimate purpose, through undertaking reforms in the following five functions:
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Delivery of basic services where extreme poverty is reduced progressively, and where development outpaces various stressors (demographic, climate change, conflict, etc);
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Capable and responsive governance that enables and accelerates the delivery of developmental services through substantive community participation, and robust contributions from non-state actors;
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Legitimacy of government through an authority emanating from popular legitimacy not only through participatory, but also competitive elections, and exercised through accommodation of diversity, as well as democratic constitutionalism that collectively balances delivery and democracy;
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Inclusive development that addresses the risk of social unrest due to unjustifiable inequality in income and the absence of decent living conditions for people, through distributive social development including pro-poor policies;
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Revenue generation and collection in order to fund the vital core functions inherently of the state (such as essential legitimately expected public services that include public law and order, national defense and security, health and education, strategic installations and infrastructure etc) through internal resource mobilization mechanisms including taxation, resource extraction and public contributions.
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States need to focus on building the following four capabilities:
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Predictive capabilities related to early warning = function of scientific and communication capacity;
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Preventive capabilities related to the proactive developmental early intervention = function of socio-economic capacity, pro-poor policy, governance with foresight and the application of the principles of subsidiarity at national and regional level through decentralization, devolution or federation;
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Responsive capabilities related to the reactive intervention including relief = function of socio-economic capacity, governance for effective delivery of basic legitimately expected services to the population; and
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Adaptive capabilities related to the abilities and coping mechanisms of societies, communities, state and non-state institutions to ‘bounce back’ after facing adversity, shocks and changing environments = function of socio-cultural traits, social innovative, traditional structures such as the informal economy, small scale cross border trade, cross border spontaneous nobilities and migration, and natural resources sharing.
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Target poverty as the number one threat to the regional peace and as a barrier to integrative opportunities through a sustained and continued socio-economic development. The above-mentioned capabilities (the predictive, preventive, responsive and adaptive capacities of IGAD countries) are certainly a function of resilience in the face of vulnerabilities to internal and external factors and shocks, which would also most often be a function of their socio-economic development status. Thus, sustainable peace, integration and prosperity will require the acceleration of the fight against poverty.
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Ensure the implementation of the principle of subsidiarity at national level that the ultimate aim and end state of government policies and institutions are to capacitate local communities and local authorities to govern and run their public affairs for the greater food of the community.
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Empower democratic citizenry as the last guarantor of good governance, development and peace by ensuring accountability of officials to be responsive to the need for good governance and including in the fight to combat corruption.
Recommendations to the IGAD:
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Shift of Mission within IGAD: From Norm-Setting to Norm-Implementation, Advance towards the norm-implementation phase of existing treaties and policies. Progress in the implementation of existing policies will ultimately determine whether the IGAD and its MSs will effectively respond to peoples’ demands and reduce natural and man-made disasters.
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Take draft IGAD Treaty ratification, domestication and effective implementation as priority of this shift within IGAD. The draft Treaty will provide entry point that relies on the new mandate, legitimacy, expertise, competencies and success stories of IGAD. Once ratified and enters into force, the Treaty puts IGAD’s next generation strategies on strong legal standing and political footing with claimable mandate and rights vis-à-vis MSs and other actors in the region. However, like all other normative frameworks, the Treaty will only bestow IGAD the mandate, and its effective implementation remains in the hands of the IGAD organs, IGAD Secretariat, Partners and above all the MSs. Thus, the Treaty will need a special implementation roadmap with necessary resource to create an enabling environment for its speedy ratification, domestication and implementation.
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Overhaul the ‘engine’ of IGAD – the Secretariat in order to effectively discharge IGAD’s responsibility of delivering a peaceful, integrated and prosperous region. For this, purpose IGAD needs to remove the following five constraints that have bound the IGAD Secretariat since its creation: 1) radical internal reforms of the Secretariat by bestowing a more extensive more mandate through the speedy adoption and ratification of a revised draft Treaty and other instruments; 2) providing IGAD with more human and financial resources including the implementation of the recommendations of recent external and internal evaluations; 3) recruitment of more competent staff members based on meritocracy and to a limited degree representation; 4) ending norm-setting and utilising all resources for norm-implementation; and 5) increasing contributions and collection from MSs and seeking alternative sources of funding.
This publication has been republished with permission from IGAD.
IGAD Regional Strategy 2016-2020
The IGAD Regional Strategic Framework and Implementation Plan 2016-2020 provides the overall framework to guide IGAD in delivering its mandate. The region is going through rapid and tough new challenges and obstacles including climate change, resource scarcity, economic shocks from global economic crises, security threats, fragility and conflicts among others. These challenges will shape the lives of current and future generations of this region. This strategic document appeals to these new dynamics and takes into account new initiatives and frameworks such as the African Union’s Agenda 2063 and its 10-Years Implementation Plan, the new global Sustainable Development Goals (SDGs), the IGAD Drought Disaster Resilience and Sustainability Initiative (IDDRSI) and the IGAD CAADP Compact among others.
IGAD perceives the Strategy first and foremost as a tool to guide her in the implementation process of her mandate, owned by the Member States and supported by the IGAD Development Partners who finance most of the programmes. It brings our programs together in one single and coherent strategy – speaking with one voice; and positions our brand identity as a Regional Economic Community (REC). It strengthens our effectiveness and relevance as a regional cooperation and integration community that addresses the challenges of the 21st century. Finally, it holds us accountable and tracks our progress against our strategic priorities. The Strategy is not an end by itself but a process that will be followed by a comprehensive 5-year implementation plan. Similarly, annual operational plans outlining the activities, financial and human resources as well as organisational and technological requirements will be elaborated for each year. An appropriate Monitoring and Evaluation system with a set of simple and agreeable indicators that measure the impact that our activities have on the populations we serve across all our countries of intervention will be established.
Furthermore, the Strategy envisages that:
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The IGAD Member States address common development problems more efficiently and effectively through joint efforts in agricultural development and environment protection; economic cooperation and integration as well as peace and security.
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The IGAD Secretariat, national institutions and other organisations in the Member States have enhanced capacity to deliver the IGAD mandate.
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The Member States and the Development Partners Partners use IGAD as a development vehicle especially on the basis of its experiences and knowledge on trans-boundary issues.
IGAD believes that this new generation of the Strategy for the next five years will make substantial difference because of the available opportunities for access to resources for development. There is increasing momentum for developing countries to grow their economies and attain SDGs and meet AU Agenda 2063 obligations. This momentum will be further ensured as the Strategy has taken appropriately into account existing sectoral strategies, the ISAP, IDDRSI and CAADP frameworks which are fostering enhanced partnership in resourcing for capacity development and drought resilience and economic growth.
Downloads
IGAD Regional Strategy, Volume 1: The Framework (PDF, 2.9 MB)
IGAD Regional Strategy, Volume 2: Implementation Plan 2016-2020 (PDF, 1.75 MB)
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Economic growth in Africa is on the upswing following a sharp slowdown
Economic growth in Sub-Saharan Africa is rebounding in 2017 after registering the worst decline in more than two decades in 2016, according to the new Africa’s Pulse, a bi-annual analysis of the state of African economies conducted by the World Bank.
The region is showing signs of recovery, and regional growth is projected to reach 2.6% in 2017. However, the recovery remains weak, with growth expected to rise only slightly above population growth, a pace that hampers efforts to boost employment and reduce poverty.
Nigeria, South Africa, and Angola, the continent’s largest economies, are seeing a rebound from the sharp slowdown in 2016, but the recovery has been slow due to insufficient adjustment to low commodity prices and policy uncertainty. Furthermore, several oil exporters in the Central African Economic and Monetary Community (CEMAC) are facing economic difficulties.
The latest data reveal that seven countries (Côte d’Ivoire, Ethiopia, Kenya, Mali, Rwanda, Senegal, and Tanzania) continue to exhibit economic resilience, supported by domestic demand, posting annual growth rates above 5.4% in 2015-2017. These countries house nearly 27% of the region’s population and account for 13% of the region’s total GDP.
The global economic outlook is improving and should support the recovery in the region. Africa’s Pulse notes that the continent’s aggregate growth is expected to rise to 3.2% in 2018 and 3.5% in 2019, reflecting a recovery in the largest economies. It will remain subdued for oil exporters, while metal exporters are projected to see a moderate uptick. GDP growth in countries whose economies depend less on extractive commodities should remain robust, underpinned by infrastructure investments, resilient services sectors, and the recovery of agricultural production. This is especially the case for Ethiopia, Senegal, and Tanzania.
A stronger-than-expected tightening of global financing conditions, weaker improvements in commodity prices, and a rise in protectionist sentiment represent downside external risks to the outlook. On the domestic front, risks to the current recovery stem from an inadequate pace of reforms, rising security threats, and political volatility ahead of elections in some countries.
“As countries move towards fiscal adjustment, we need to protect the right conditions for investment so that Sub-Saharan African countries achieve a more robust recovery,” says Albert G. Zeufack, World Bank Chief Economist for the Africa Region. “We need to implement reforms that increase the productivity of African workers and create a stable macroeconomic environment. Better and more productive jobs are instrumental to tackling poverty on the continent.”
The environment of weak economic growth comes at a time when the continent is in dire need of necessary reforms to boost investment and tackle poverty. Countries also have to undertake much-needed development spending while avoiding increasing debt to unsustainable levels.
In this environment, fostering public and private investment, notably in infrastructure, is a priority. The region experienced a slowdown in investment growth from nearly 8% in 2014 to 0.6% in 2015.
Why we need to close the infrastructure gap in sub-Saharan Africa
In this issue of the Africa’s Pulse, a special section is dedicated to infrastructure in the region, a sector in which investment could become a strategic tool for poverty reduction and economic development. Infrastructure is particularly important since the continent ranks at the bottom of all developing regions in nearly all dimensions of performance.
The report analyzes trends in infrastructure quantity, quality and access; explores the relationship between infrastructure growth and economic growth in the region; documents stylized facts on public investment in the region; and examines the quality of infrastructure spending.
“With poverty rates still high, regaining the growth momentum is imperative,” says Punam Chuhan-Pole, World Bank Lead Economist and the author of the report. “Growth needs to be more inclusive and will involve tackling the slowdown in investment and the high trade logistics that stand in the way of competitiveness.”
On the positive side, Sub-Saharan Africa has made great progress in telecommunications coverage in the past 25 years, expanding at a fast pace across both low- and middle-income countries in the continent. Access to safe water has also increased, from 51% of the population in 1990 to 77% in 2015.
But the challenges that remain are vast and deeply ingrained. For example, little progress has been made in per capita electricity-generating capacity in over two decades. Only 35% of the population has access to electricity, with rural access rates less than one-third urban ones. Transport infrastructure is likewise lagging with Sub-Saharan Africa being the only region in the world where road density has declined over the past 20 years.
The growth effects of narrowing Sub-Saharan Africa’s infrastructure quantity and quality gap are potentially large. For instance, growth of GDP per capita for the region would increase by an estimated 1.7 percentage points per year if it were to close the gap with the median of the rest of the developing world.
Closing the infrastructure quantity and quality gap relative to the best performers in the world could increase growth of GDP per capita by 2.6% per year. The largest potential growth benefits would come from closing the gap in electricity-generating capacity.
Public capital spending levels are too low to address the region’s infrastructure needs. According to granular budget data collected by the BOOST initiative for 24 countries in Sub-Saharan Africa, annual public spending on infrastructure was 2 percent of GDP in 2009-15. Roads accounted for two-thirds of overall infrastructure investments in the region. Capital spending on electricity and water supply and sanitation each accounted for 15% of total capital expenditures.
When analyzing public spending in infrastructure, the report found that countries spend significantly less money than they actually allocate to projects. This reduces the execution of projects earmarked for investment each year, a clear sign of the inefficiencies pervasive in the sector.
Public-private partnerships in Sub-Saharan Africa remain a very small market, with projects concentrated in only a few countries, namely, South Africa, Nigeria, Kenya, and Uganda.
“The analysis shows that the impact of public investment on economic growth can be improved if countries implement policies that make public investment more efficient,” says Chuhan-Pole. “There is evidence that countries with sound public investment management systems tend to have even more private investment.”
Improving the institutions and procedures governing project appraisal, selection, and monitoring are among the policies countries should implement to ensure they have a sound public investment system.
Overall, the report calls for the urgent implementation of reforms to improve institutions that foster private sector growth, develop local capital markets, improve infrastructure, and strengthen domestic resource mobilization.
» Download: Africa’s Pulse | April 2017 (PDF, 7.14 MB)
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UN forum highlights importance of stronger partnerships for financing sustainable development
Underlining the importance of sustainable finance for the implementation of the 2030 Agenda for Sustainable Development, senior United Nations officials on Tuesday called for stronger partnerships with a diverse range of stakeholders to ensure that resource requirements are met.
In her opening remarks at the high-level event, SDG Financing Lab – How to finance the SDGs, Deputy Secretary-General Amina Mohammed recalled the Addis Ababa Action Agenda, which was adopted in 2015 at the UN Third International Conference on Financing for Development.
She said the agreement – which sets out a series of bold measures to overhaul global finance practices and generate investments for tackling a range of economic, social and environmental challenges – is a key component of the 2030 Agenda.
“The Action Agenda provides the framework for global cooperation to finance and implement the Sustainable Development Goals (SDGs) by mobilizing public and private sources,” said Ms. Mohammed.
The deputy UN chief also noted that in addition to prioritizing domestic resource mobilization, aligning public spending with sustainable development and partnership with the private sector and businesses is equally important.
“It is in the interest of all countries, companies and people to tap the wealth of good that sustainable development will bring in environmental, economic and social terms,” she added.
In her remarks, Ms. Mohammed also noted that financial flows and investments are increasingly being aligned with the SDGs and said that with mobilization of large pools of capital such as pension funds and the insurance sector, “greater wins” for everyone can be realized.
“The dividends will reverberate far and wide […] success on the SDGs will trigger beneficial results that will feed project pipelines leading to progress on gender, economic growth and climate action,” she added, noting examples from around the world that have shown such benefits.
Mobilizing the ‘right mix’ of resources vital – General Assembly President
Also speaking at the opening, the President of the General Assembly, Peter Thomson said that financing the SDGs could require some $90 trillion over the next 15 years and called for “exponential transformation” in the global financial system that taps into all sources of funding.
“We are at a time when we must foment a global conversation bringing all stakeholders together to discuss how we can mobilize the right mix of resources to achieve the SDGs,” he said.
“We must distinguish between the various sources of capital and asset classes that they represent, and recognize their varying spheres of operation and influence – from multinational corporations through to grassroots small-holder farmers.”
Mr. Thomson also said that efforts by governments, central banks and financial regulators are already leading to positive developments but multiplying these efforts to reach the scale needed to achieve the global goals remains the main challenge.
In particular, he underlined the need for reforming existing policy and regulatory frameworks to leverage public and private financing for the SDGs, and to contribute to sustainable development, including through local and regional capital markets.
“If we are to succeed, today’s discussions cannot be a one-off occurrence. [It] will have to represent the start of an extended dialogue,” the President of the General Assembly said.
In addition to senior UN officials, Mahmoud Mohieldin, the Senior Vice President for Partnerships at the World Bank Group, also spoke at the high-level event, which also featured a panel discussion on sustainable development financing, an inter-governmental plenary debate, and workshops showcasing approaches to finance specific groups of SDGs.
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‘Modest recovery’ for SA economy likely
The International Monetary Fund (IMF) has predicted that South Africa’s economy would stage a modest recovery.
The IMF said in its latest outlook for 2017 released on Tuesday that South Africa’s gross domestic product (GDP) growth would be 0.8 percent and 1.6 percent next year as commodity prices rebound, drought conditions eased and electricity capacity expands.
The forecast contrasts with the SA Reserve Bank GDP forecast in March of 1.2 percent this year and 1.7 percent next year.
In sub-Saharan Africa, the IMF said the region would also experience a modest recovery. “Growth is projected to rise to 2.6 percent in 2017 and 3.5 percent in 2018, largely driven by specific factors in the largest economies, which faced challenging macroeconomic conditions in 2016,” it said.
But the IMF warned that the outlook for sub-Saharan Africa remained subdued and said many commodity exporters needed to adjust fully to structurally lower commodity revenues because commodity prices, despite the recent rebound, remained low.
“Many of the largest non-resource-intensive countries will find it increasingly hard to sustain growth through higher public capital spending, as they have done in the past, in the face of rising public debt and a slowing credit cycle,” it said.
The IMF said a resilient China, rising commodity prices and sturdy financial markets offered a sunnier outlook for the global economy which could dispel the gloom that had lingered since the Great Recession ended.
Slight upgrade
It predicted that the world economy would grow 3.5 percent this year, up from 3.1 percent last year. The outlook is a slight upgrade from the 3.4 percent global growth it had forecast in January. The IMF said it expected the US economy to grow 2.3 percent, up from 1.6 percent in 2016; the 19-country eurozone to expand 1.7 percent, the same as last year; Japan to grow 1.2 percent, up from 1 percent; and China to expand 6.6 percent, down from 6.7 percent in 2016.
The outlook comes in advance of spring meetings in Washington this week of the IMF, the World Bank and the Group of 20 major economies against the backdrop of a gradually strengthening international picture, especially in many emerging economies, despite resistance to free trade and political unrest in some countries.
For years after the 2008 financial crisis and the Great Recession ended, the global economy remained trapped in what IMF managing director Christine Lagarde termed “the New Mediocre”. Banks were weak and reluctant to lend, and deeply indebted governments made growth-killing budget cuts.
The once super-charged Chinese economy began a long slowdown, driving down global commodity prices and hurting countries from Australia to Zambia that fed raw materials to the world’s second-biggest economy. Plummeting oil prices forced energy companies to slash production.
Now, Lagarde and others say, the outlook was brightening as China’s economy had steadied, thanks to government spending and an easy-money credit boom.
On Monday, Beijing said its economy grew at a 6.9 percent annual pace from January to March, the fastest in more than a year. Oil prices have surged nearly 40 percent in the past year, partly because oil-producing countries agreed to curb production.
Financial markets have marched upward. Investors expect the Chinese government to continue supporting economic growth. They also expect President Donald Trump to deliver tax cuts and infrastructure spending that could help boost US economic growth.
The IMF does warn of downside risks to its optimistic forecast, including “the threat of deepening geopolitical tensions”, the possibility rising US interest rates will squeeze economic growth and rattle financial markets and the threat that protectionist measures will damage global trade.
Wealthy economies also face deeper problems, in particular chronically weak growth in productivity – the output produced per hour of work – and ageing workforces.
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MEPs in Ghana and Ivory Coast to monitor EPA implementation
MEPs from the European Parliament’s International Trade Committee are in West Africa this week, to monitor the implementation of Economic Partnership Agreements.
A team of six MEPs, headed by Bernd Lange (S&D group), will be in Ghana and Ivory Coast, meeting politicians, business leaders and civil society from Tuesday to Thursday, finishing with a press conference in the Ghanian capital Accra on the final day.
However, the trip comes against a backdrop of mounting scepticism on the EPAs, with Angela Merkel’s Special Representative for Africa, Günther Nooke, last week calling them “no success story, neither for Africa nor for Europe”.
Nooke is part of the German government team organising the upcoming G20 summit in Hamburg in June, the special focus of which is on Africa.
He went on to say that he agreed with the sentiment that EPAs “are not an agreement, and it’s not a partnership” and said Africa-EU trade was currently “almost irrelevant”, except from coffee, cocoa and diamonds from Botswana.
Although the EU is the world’s largest donor, both in absolute terms and to Africa in particular, the EPAs only date back to 2002.
However, they had a troubled birth, with negotiations not finalised by 2008, as originally planned, and so temporary interim agreements have been made, first stretching to 2014, then extended to October 2016.
The 16 heads of state of ECOWAS (the Economic Community of West African States) endorsed the EPAs in 2014 but the signature process is still in progress.
Nigeria and Ghana have refused to sign up, while Ghana signed an interim EPA in August 2016 in order not to lose preferential access to EU markets.
Under first the Lome Convention of the late 1970s, then the Cotonou Agreement of 2000 (which expires in 2020), all 79-members of the ACP (African, Caribbean and Pacific) nations, enjoy free access to the European market under the ‘Everything But Arms’ (EBA) criteria.
According to a statement from the MEP committee, the visit this week “will focus mostly on the implementation process of recently concluded interim EPAs, regional integration of Western Africa and business and investment environment in those countries”.
Lange’s team will meet with government, parliamentarians, the private sector and civil society and NGOs during the trip.
However, prior to departure, the committee posted a study on possible means of suspending EPAs with ACP states if they are deemed to break human rights, democratic principles or the rule of law, following the expiry of the Cotonou Agreement in three years time.
Current progress on the post-Cotonou agreement appears to be sluggish, if not stalled, following talks in Dakar, Senegal last year.
The 16 members of ECOWAS comprise Benin, Burkina Faso, Cape Verde, Ivory Coast, Gambia, Ghana, Guinea, Guinea Bissau, Liberia, Mali, Niger, Nigeria, Senegal, Sierra Leone and Togo.
Both Sudan and Equitorial Guinea have refused to ratify even the 2000 Cotonou Agreement, after a 2005 amendment recognised the jurisdiction of the International Criminal Court.
The current EU European Development Fund (EDF) of aid for ACP countries runs at €29.1bn, of which €24.3bn goes on national and regional cooperation programmes, €3.6bn on intra-ACP cooperation and €1.1bn on the ACP Investment Facility.
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tralac’s Daily News Selection
Vera Songwe, a Cameroonian economist and banking executive, is the new UNECA Executive Secretary. Ms Songwe has been working as the International Finance Corporation’s regional director for Africa covering West and Central Africa since 2015.
Event postings:
Tomorrow, in New York: the UN-AU Annual Conference
World Bank-IMF Spring Meetings week: a note on the AfDB’s participation. Profiled events: The challenge and logic of greater financing for Africa (19 April, CGD), State of the Africa Region (22 April, World Bank). Profiled commentary, by Shawn Donnan: How a Trump presidency poses big questions for IMF and World Bank (FT)
Review of the implementation of the commitments made towards Africa’s development: a OSAA/NEPAD Stakeholder consultation (20-21 April, Midrand). OSAA aims to further the link between the United Nations Monitoring Mechanism, the 2030 Agenda and the AU’s Agenda 2063 follow-up and review framework at the regional and global levels, particularly through more interaction and alignment with the High-level Political Forum on Sustainable Development and the Africa Regional Forum on Sustainable Development. The UNMM could also facilitate the collection, compilation and analysis of data. The third report, which will be submitted to the 73rd session of the General Assembly in October 2018, will focus on the following themes, and five cross-cutting issues: Inclusive and sustainable industrialization and regional integration; Health, water and sanitation; Climate change; Finance and partnerships; Cross-cutting issues. Profiled thematic focus: Inclusive and Sustainable Industrialization and Regional Integration (pdf). Proposed structure: (i) Key African initiatives on industrialisation; (ii) Key related initiatives on regional integration; (iii) Partner financial support and investment in industrialisation, (iv) Related policy wider partnership issues including trade and technology transfer; (v) Overall assessment of progress and key challenges, including related peace and security issues.
ONE World No Hunger – future of the rural world (27-28 April, Berlin). One of the conference’s key elements will be the “Berlin Charter”. This document can serve as important political impetus and as guidance for decision-makers from the worlds of politics, business and civil society, with a view to boosting their involvement in efforts to foster rural development and youth employment. The document will be drafted in the run-up to the conference by an international advisory committee that will consult widely with non-governmental groups. The Charter will then be discussed at the conference before being officially presented to Federal Minister Gerd Müller. [Download: draft of the Berlin Charter (as at 16 March)]
Profiled commentaries:
(i) Nancy Birdsall, Ngozi Okonjo-Iweala: A Big Bond for Africa (Project Syndicate). But there may be a solution that helps Africa recover its growth in a way that Western leaders and their constituents find acceptable. We call it the “Big Bond” – a strategy for leveraging foreign aid funds in international capital markets to generate financing for massive infrastructure investment. Specifically, donors would borrow against future aid flows in capital markets. That way, they could exploit current low interest rates at home, as they generate new resources. With 30-year US Treasury rates of about 3%, donors would have to securitize only about $5bn to raise $100bn. That money could come from the $35bn in annual official development assistance (ODA) to Africa (which totals about $50bn) that takes the form of pure grants.
(ii) Carlos Lopes, Aliko Dangote, Tony Elumelu: Powering Africa’s transformation (New Times). Policymakers should take a few key steps to help transform Africa’s energy sector and boost long-term economic growth. For starters, making it easier, safer, and more financially attractive for private investors to enter power markets would boost competition, thereby spurring innovation and lowering costs. Moreover, African countries should seek opportunities to share infrastructure and create cross-border power pools. nother important step is to invest in renewable energy. Africa has an exceptionally rich portfolio of clean-energy assets, including almost nine terawatts of solar capacity, more than 350 gigawatts of hydropower capacity, and more than 100 GW of wind-power potential. This is more than enough to meet the continent’s future demand.
(iii) Amadou Sy, Amy Copley: Closing the financing gap for African energy infrastructure - trends, challenges, and opportunities (Brookings). Yet, aggregate figures like these obscure understanding of which actors are financing energy infrastructure, how, and where across the continent. The following paper analyzes the trends, strengths, and weaknesses of various sources of energy infrastructure financing in Africa—including domestic public domestic investment, PPI, ODF, and Chinese financing. Furthermore, it contends that although lack of both capital and bankable projects poses a significant obstacle for expanding infrastructure financing in the continent, particularly for renewable energy projects, a solution involving a greater participation of development banks in the earlier stage of projects and leaving private funds to finance the less risky, latter stages of projects should be explored.
BREXIT and Mauritius: PM chairs Ministerial Committee to review recent developments (GoM)
The Joint Working Group submitted a report on the impact of BREXIT on our economy with particular focus on three strategic thrusts, namely support to vulnerable companies; addressing the potential threats with regard to trade relations with United Kingdom; and seizing the new opportunities that may emerge. With regard to emerging opportunities, Government will pursue its diversification strategy and, in particular, capitalise on the strengths in the financial sector such as: (i) Position Mauritius as an attractive choice for asset managers to house their activities, (ii) Develop synergies between Mauritian services providers and new European Access Centres such as Luxembourg and Malta to set up support units in Mauritius, (iii) Market Mauritius as an ‘Insourcing Centre’ for UK banking and insurance institutions, (iv) Attract High Net Worth Individuals to shift part of their wealth to be managed from Mauritius. [Simon Fraser: Bracing ourselves for Brexit(Chatham House)
Anne Kiruku: A common market? First get leaders with a common purpose (IPPMedia)
There have been complaints that EAC integration is state-owned and presidents-led. This fact cannot be far from the truth going by the foregoing couple of incidents. The anger and vitriol that was spewed by Kenyans on social media opposed to the Kenyan government’s plan to hire Tanzanian doctors and the violent eruption of chaos due to orders to repatriate Kenyans from Tanzania do not portray countries that are on a path to integration. The ignorance of common citizens on the agreements signed by their leaders should be blamed on regional leaders, who sit in boardrooms and sign protocols without consulting their countrymen and women. Neither do they make efforts to inform and educate their citizens on the agreements reached. Under the EAC Common Market Protocol that came into force in 2010 and which enables free movement of all factors of production, there is supposed to be free movement of persons, services, workers, goods, and capital. The right of establishment and residence in any other partner state is also enshrined in the protocol. It is a shame that instead of implementing the protocols, leaders are issuing orders against the agreements.
The ECOWAS Trade Liberalization Scheme: myth or reality? (Deloitte)
Deloitte and the Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture recently organised a workshop to evaluate the realities of the ETLS. In attendance at the workshop were representatives of the ECOWAS Commission, Federal Ministry of Foreign Affairs, the Nigeria Customs Service and members of the private sector. This workshop (pdf) sought to demystify and unpack the ETLS in all its ramifications so that intended beneficiaries may be able to make more effective application of the scheme for the purposes of their businesses and thereby improve bottom line performance.
Tanzania’s oil and natural gas industry: General Report on Performance and Specialized Audit (pdf, National Audit Office)
The report gives insights based on individual performance audit reports on the extent to which government entities manage the oil and natural gas sector and ensure that there is effectiveness in execution of its interventions and risk management in oil and natural gas operations for the public sector. Main audited entities were the Ministry of Energy and Minerals, Ministry of Education Science and Technology, Vice President’s Office, Tanzania Petroleum Development Corporation and National Environmental Management Council. In general, the audits recognized government’s efforts in developing and managing oil and gas sector in the country through the Ministry of Energy and Minerals which is the parent organ accountable for the success of the entire sector. However, there are areas for improvement which MEM as principal ministry, should take charge and lead other government organs in achieving the goals set. These weaknesses are mainly found in planning, execution, monitoring and evaluation and management of risks associated with this sector.
Related AfDB oil, energy sector procurement postings:
(i) Study on the harmonisation of petroleum policies, legal, regulatory and institutional framework in the EAC: consultancy services. The scope of the study includes: (i) Review existing petroleum upstream, midstream and downstream policies, laws, regulatory and institutional framework in Burundi, Kenya, Rwanda, South Sudan, Tanzania and Uganda indicating what would need to be revised or freshly prepared in each of the countries for a harmonised set of petroleum legislation in the region, (ii) Identify within the existing petroleum policies, laws, regulations and institutional frameworks provisions that hinder the attraction of investments.
(ii) Study on value chain analysis of the oil sector and potential contribution to African national economies. The specific objectives of the study includes: (i) Evaluation of entry barriers to the different components of the value chain for both private firms and governments, (ii) Development of a tool to avail options and permit assessment of possible policy trade-offs, (iii) Rigorously analyze value chains for oil to determine the type, inputs and scale of economic benefits feasible. This study will be part of the Centre’s contribution to the Bank’s “enabling environment” work streams for the industrialize Africa strategy.
Malawi: Is smuggling of maize necessarily bad? (IFPRI)
In recent days, Malawi Defence Force troops have been deployed to the northern border to prevent the smuggling of maize into Tanzania and Zambia. While this action seems a natural response during a year of national food shortage, four factors should give us pause for thought. [The author, Dr Bob Baulch, directs the Malawi Country Strategy Support Programme] [Related: Council urges EAC nations to lift ban on grain exportation, Robert Shaw: Worrying scenario as bigger national food crunch looms]
Call to harmonise seed regulatory framework in COMESA region (New Times)
According to Argent Chuula, the chief executive officer of the Alliance for Commodity Trade in Eastern and Southern Africa at COMESA, lack of quality seed contributes significantly to food insecurity and nutrition deficiency in the region as only a handful of countries are food secure. Access to quality seed and animal breeds by smallholder farmers in the COMESA region is at only 20%, she added, saying most of the seed is imported from outside the COMESA region. Dr Charles Mukama, the Uganda COMSHIP Focal Point, said it is imperative for member states to harmonize rules surrounding this particular trade to help improve the livelihood of the small-scale farmers and production of more food at regional level.
Scaling-up the Purchase for Progress (P4P) Model of pro-smallholder market development in Africa: the vital role and impact of the public sector (pdf, WFP/AERC)
Extract from declaration: Recognizing that because agriculture will continue to underpin a majority of African livelihoods in the coming decades, inclusive growth in Africa cannot be achieved without a fundamental transformation of African agriculture – a transformation that must itself be inclusive; Further recognizing that because smallholder farmers will continue to dominate African agriculture long into the future, a central challenge facing policy makers in Africa today is how to promote inclusive and self-sustaining processes of growth fueled by technological advances in smallholder agricultural production and trade; Comprehending the large body of evidence generated by researchers in Africa and beyond showing that deeper market participation and engagement by smallholders are vital to agricultural transformation, but that such participation and engagement are constrained by a range of structural factors inherent to smallholder systems – e.g., the wide spatial dispersion of farms, lack of on-farm storage capacity, high risk, and thin and unstable input and output markets;
New UN guidelines to make international trade in plants and seeds safer (FAO)
Adopted last week by the Commission on Phytosanitary Measures, the governing body of the International Plant Protection Convention, the new standard (pdf) will help harmonize the ways countries deal with the complexities of the international seed trade. The efforts are also expected to facilitate trade in seeds – valued at about $12bn annually – while ensuring that such shipments safeguard food supplies for a growing global population. [Summary of outcomes: twelfth Session of the Commission of Phytosanitary Measures]
B20’s High-Level Digitalization statement
On 6-7 April, the G20 Digital Ministers met for the first time ever. On this occasion, the B20 issued the following statement co-signed by more than 50 leading business representatives. At the end of the two-day meeting, the G20 Digital Ministers presented a joint plan as an international framework for action. It includes a programme with various targets to be achieved by the G20 in the coming years. [Various downloads available]
Geneva meeting on used cars exporting pollution to developing countries (Devex)
Transport leaders from around the world have met for the first time to discuss the flood of non-fuel efficient and unsafe second-hand vehicles into developing countries, and taken the first steps toward agreeing voluntary regulations and standards on the often secretive trade. At a side meeting in Geneva - organized by the Inland Transport Committee, which is part of the the United Nations Economic Commission for Europe - delegates from 90 nations, including approximately 30 developing countries, gathered to share information. The Geneva meeting marked the first of its kind, according to Rob de Jong, head of transport at UNEP. There are currently no regional or global agreements that rationalize and govern the flow of second-hand vehicles.
Today’s Quick Links: Towards a COMESA-China Framework Agreement: update Foreign investment continues in Ethiopia’s clothing sector Botswana: Morupule B expansion stalled as Japanese contractor demands P8bn surety Kenya: Export promotion agency appoints new chief executive Tanzania: Influx of regulatory bodies burdens industrialisation India: Is our obsession with the World Bank’s ease of doing business rankings justified? Dani Rodrik: Too late to compensate free trade’s losers? ‘BRICS Plus’ can be new model of integration World Bank: Perception of political risk hurting FDI flow in Africa |
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High-level B20 Statement: Digitalization for all – Towards an inclusive interconnected world
On April 6 and 7, the G20 Digital Ministers met for the first time ever. On this occasion, the B20 issued the following statement co-signed by more than 50 leading business representatives.
The remarkable development of the digital economy has created unprecedented opportunities for growth and inclusiveness within and between countries. In our increasingly interconnected world, digitalization drives social and economic inclusion. It gives people and organizations of any size access to a global marketplace and repository of information. To the benefit of all economic sectors and consumers, it deepens and broadens trading patterns, takes productivity to a higher level, and scales up services. It allows customizing production, facilitates new forms of collaboration, accelerates access to knowledge, inspires innovation and entrepreneurship, and fosters competition. The Internet gives SMEs and firms in developing countries enhanced scalability and better access to markets, financing, labor, skills, as well as new services and products, increasing their productivity and reach. Digitalization improves product benefits, boosts consumer welfare, and facilitates both participation and equality. It is a critical cross-sectoral and cross-cutting means for achieving the Connect 2020 Agenda, the Sustainable Development Goals (SDGs), and the Addis Ababa Action Agenda – from growth, trade, and employment to health, education, energy access, infrastructure, agriculture, food security, and overall societal welfare: digital technologies are crucial catalysts of progress.
While digitalization is already significantly contributing to socioeconomic development, barriers to leveraging its full inclusiveness potential persist. By tackling existing impediments, further imbalances in implementing and applying digital technologies can be prevented.
An obvious obstacle still requiring further attention is access to the Internet. The lack of adequate and affordable Internet access is a major issue relating to development and inclusiveness in low-income countries, hindering the potential of the digital economy and increasing the risk of digital divides. But also in industrialized countries, insufficient broadband coverage diminishes economic potential. Affordable and high-quality broadband coverage is a precondition for the effective use of digital technologies, for example, in the areas of manufacturing, health care, and services. Individual households and SMEs are particularly affected by access barriers such as low availability of broadband or high costs, even more so in remote areas. To reach the goal of "Internet access for all", G20 members have to set ambitious national targets for broadband coverage and make them operative through investment-conducive policies and public-private partnerships in remote or less developed regions.
While ubiquitous ICT infrastructure is an absolute must, by itself it is not enough to increase inclusiveness and growth to the benefit of all. Governments need to enable use cases in areas that will stimulate additional broadband penetration and create positive socioeconomic impact – for instance e-transportation, e-education, e-health, e-agriculture, and e-government. Policies and regulations in vertical sectors should be assessed to make them digitalization-ready. Potential regulatory roadblocks stemming from incumbent, predigital rules and policies should be removed. Governments should not just look at how to eliminate barriers but also at how to incentivize positive action, accelerating digitalization in vertical sectors. This requires cooperation across policy silos and national borders. Multistakeholder exchanges with the private sector and users can help to inform target-oriented policies.
Without adequate and continuing capacity and skills building, innovation and the use of locally relevant contents, services, and business models will be impeded, diminishing the potential of the digital economy. Digital technologies will continuously lead to rapidly shifting skill requirements and demands. Therefore, concepts for life-long learning, professional development, and the possibility of requalification should be at the center of labor and education policies. Everyone should have the opportunity to adapt to shifting demands and reskill at any point in their life. A lack of digital literacy is not only a barrier for individuals – it also reduces economic potential.
To better prepare business and people for the digital economy, governments have to work together with the private sector to understand current and future skill needs. Curricula in schools, universities, vocational training, requalification programs, and continuing education should be regularly adjusted accordingly. All people – including girls and women – should be enabled to excel in the digital economy. Equally, companies – especially SMEs – are often unaware of digital solutions for their business. Creating awareness of use and business cases, which demonstrate the benefits of implementing new, inclusive digital technologies, can help overcome this barrier. Governments should support businesses in increasing knowledge exchange and fostering expertise on the application of digital technologies, for instance through innovation hubs or competence centers.
In a world where services, infrastructure, public administration, and households are increasingly interconnected, cybersecurity is a critical issue. Not only do cyberthreats create economic damage. Clearly, if there is lack of confidence in the safety and security of digital technologies, the adoption of new technologies – such as autonomous driving, digital health care or augmented intelligence – will falter even if they offer substantial benefits. As cyberrisks are mostly transfrontier, international cooperation among governments and private stakeholders is essential to effectively ensure security and safety in cyberspace while enhancing interoperability and manageability. Global coordination – for instance for common standards in a baseline framework – is not only indispensable for effectively tackling existing risks, but also to avoid the fragmentation of cyberspace through incompatible approaches.
The enablement of cross-border data flows is just as important to preserving the open, global, and interoperable nature of the Internet. A high level of privacy and data protection is an enabler of the digital economy. To effectively provide benefits, it has to be designed in ways that do not impede innovative business models and global interoperability. G20 members should commit to refrain from digital protectionism and should seek to find compatible standards for data protection on a voluntary basis.
As digitalization transcends borders, international cooperation becomes more and more important. With digitalization being a cross-cutting and cross-sectoral issue that touches upon all G20 topics, policy-makers can come a long way in reaching their goal of inclusive globalization to the benefit of all if they show commitment to future-oriented policies. Jointly addressing Internet access, an enabling regulatory environment, digital literacy and skills, as well as improved cooperation for cybersecurity and cross-border data flows is a vital starting point.
“Digitalisation must include everyone”
The G20 Digital Ministers’ meeting in Düsseldorf agreed on a roadmap for joint policies for a digital future. “This is a great success,” said Minister Zypries. The meeting sent out “the signal that we want to shape the digital revolution together, for the benefit of all people”.
One in two people in the world are connected to the Internet. Trade and businesses are dependent on the Internet. Therefore, the federal government has declared digitalisation to be one of the key topics of the German G20 Presidency.
At the end of the two-day meeting, the G20 Digital Ministers presented a joint plan as an international framework for action. It includes a programme with various targets to be achieved by the G20 in the coming years.
The G20 Digital Ministers met in Düsseldorf under the banner “Digitalisation: Policies for a Digital Future”, to discuss the opportunities and challenges of digitalisation with international experts from politics, business and civil society. The meeting was held in preparation for the G20 summit on 5-6 July in Hamburg.
High-speed Internet access for all by 2025
All people around the world should have access to the Internet by 2025. This is the target agreed on by the ministers at the end of their meeting. High-speed Internet should allow everyone to participate in digitalisation and the opportunities it provides. “Digitalisation must include everyone”, according to Minister Zypries.
The G20 nations want to ensure expansion of the broadband networks. This is the only way in which digital applications can be implemented at all. High-speed Internet is one of a total of ten key policy areas for which the G20 sees an urgent need for action, to drive digitalisation globally.
Digitalisation requires international standards
The ministers want to ensure the creation of similar international norms and standards worldwide as far as possible, to enable the different systems to interact with each other. This applies to Industry 4.0, online security, or even automated driving.
“In this way, not only can new intelligent products and business models be developed, but also new value-generating networks, across country and company borders,” emphasised Zypries.
Digital commerce without national models
In their concluding declaration, the G20 nations agreed to create inclusive growth and more employment through digital commerce. This also includes constructive cooperation of the G20 in negotiations with the WTO. Thinking of digitalisation in terms of national models is the primary error one could commit here, cautioned Zypries.
The agreements reached at this conference should serve as a roadmap for the coming years. Argentina, which will assume the G20 Presidency in 2018, has already announced its intention to build on the decisions taken in Düsseldorf.
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‘Brics Plus’ can be new model of integration
The expansion of Brics, known as “Brics Plus”, could become a new model of integration in the global economy, chief economist of the Eurasian Development Bank Yaroslav Lissovolik said on Sunday.
“Integration proceeded previously as a rule on a regional basis, and Brics offers a system of diversified integration that provides for a consistent movement towards rapprochement on different continents and in different regions of the world,” he said, adding that the expansion of Brics would be aimed at increasing the availability of integration processes.
According to Lissovolik, Brics Plus is an important initiative “aimed not at expanding the very core of the association and including the largest developed countries, but at increasing its openness and accessibility to integration for the states of the developing world”.
Earlier last month, Minister of Foreign Affairs of China Wang Yi said China would explore expansion modalities for Brics Plus and build a wider partnership by holding dialogues with other major developing countries and organisations, so as to turn Brics into the most-influential platform for South-South co-operation in the world.
Currently, the Brics group has five member countries: Brazil, Russia, India, China and South Africa, and potential new member countries reportedly include Mexico, Pakistan and Sri Lanka.
“The proposals of the Minister of Foreign Affairs of China, Wang Yi, regarding the expansion of the Brics partnership zone are not only timely in the light of China’s presidency in Brics, but they are also aimed at giving new impetus to integration processes in the complicated conditions of protectionism spread in the world economy,” Lissovolik said.
The expert called Brics an ideal platform for increasing the level of accessibility of integration for developing countries. “The largest countries in the developing world - Brics countries - are present in almost all key regions of the world, so the talk is about creating a platform for exchanging trade and investment preferences,” Lisovolik said.
Interact
At the same time, he believes the Brics Plus system should interact with developed countries, and in this process the role of China is paramount.
“China's role here is very important, because the Silk Road project links the developing countries with the developed ones, the East and the West, so it can become one of the key chains in terms of megaprojects linking the North, South, West and East,” he said.
While underlining that China is becoming the world economy leader in promoting openness and integration, Lissovolik pointed out that the mechanism of implementation and the principles of the Brics Plus system were not yet defined. “The principle of openness of partnerships declared within the framework of the ‘Brics Plus’ system and the role of this factor in giving greater stability to the world economic development are important.”
He noted that Brics Plus countries should form an alliance in key international organisations, including the WTO, to defend their interests and negotiate.
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World Bank Group President outlines principles to drive private investment toward development goals
Urgency for new approach driven by global “convergence of aspirations”
World Bank Group President Jim Yong Kim on 11 April 2017 called for a fundamental rethinking of development finance to achieve global goals and meet people’s rising aspirations, and he outlined a set of guiding principles to crowd in private investment and maximize resources for the poor.
“We believe that everyone in the development community should be an honest broker who helps find win-win outcomes – where owners of capital get a reasonable return, and developing countries maximize sustainable investments,” Kim said. “There’s never been a better time to find those win-win solutions. The trillions of dollars sitting on the sidelines, earning little interest, and the investors looking for better opportunities should be mobilized to help us meet the exploding aspirations of people all over the world.”
Speaking at the London School of Economics ahead of the World Bank Group-IMF Spring Meetings, Kim stated that to encourage private investment, development finance must focus on systematically de-risking countries. These private sector investments also need to be made in a way that benefits poor countries and poor people, by combining private capital with technical expertise and knowledge about the countries and the economy.
“All development finance institutions should be working to crowd in private capital through a set of principles that will maximize resources and benefits for the poor,” Kim said. “It’s easy to talk about this approach, but it’s going to be very difficult to change the global development architecture to move in this direction.”
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First, for every project we support, we have to ask the question, ‘Can the private sector finance this on commercial terms?’ “That will mean that when something is commercially viable, we have to agree across the entire international development finance system – multilaterals and bilaterals – that we will help the government negotiate a private sector deal that provides value for money, ensures good governance, and adheres to environmental and social standards.”
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Second, we have to encourage upstream reforms. “With all of our projects, especially those that are not commercially viable because of market failures or perceived risks, we will work with the government on regulatory or policy reforms to make these projects commercially viable, whenever possible. Our goal isn’t just to de-risk projects; the goal is to de-risk entire countries.”
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Third, we have to use public or concessional finance in innovative ways to mitigate risk, and blended finance to support private sector investment. “Our new tools also include the $2.5 billion IDA Private Sector Window, part of our record $75 billion replenishment of IDA. Among other things, it includes a Risk Mitigation Facility to provide project-based guarantees without sovereign indemnity, and a Local Currency Facility to mitigate currency risk when markets are not yet developed.”
Kim stated, “If we’re successful at both creating markets and following these principles, countries can use scarce public resources to invest more in people, build resilience, and respond to crises. We need to keep searching for pathways to bring the private sector into these areas as well, but only if it’s in the best interest of everyone, especially those currently excluded from the benefits of development.”
However, Kim said there are sectors that can only be funded with public financing, where objectives cannot be met by the cost recovery requirements of commercial financing.
Kim explained an emerging phenomenon that puts new urgency behind the need to reimagine development finance: a global “convergence of aspirations.”
“Someone in Butare, Rwanda can Facebook message their cousin in Kigali and become immersed in detail about life 80 miles away. Both of them can talk every day with a friend studying in Paris, and learn about life 4,000 miles away. Depending on connectivity, which happens to be excellent throughout Rwanda, they can send emails, pictures, videos, snaps, tweets and texts back and forth at lightning speed.”
“Knowing exactly how everyone else lives, in their own countries and abroad, is leading to a convergence of aspirations.”
Kim described how World Bank economists, using data from the World Values Survey and the Gallup World Poll, recently looked at how people across the economic spectrum felt about their financial situation 15 years ago and today. “This research is preliminary, but here’s what we found: Your relative happiness depends on where you are in the income distribution. It also depends on how your income compares to your reference income – the income to which you compare your own.”
Looking at the data on satisfaction, researchers found that if an individual’s reference income goes up 10 percent, his or her own income has to go up at least 5 percent to reach the same level of satisfaction. And the data suggests that people’s reference incomes will become globalized, which will mean that in order for people to feel satisfied, they will need to see significant increases in their own income.
In Africa – home to 1.2 billion people – Kim noted that 226 million smart phones were connected to the internet at the end of 2015. By 2020, that number will triple, to three quarters of a billion. “We think that as more people connect to the internet, aspirations will continue to rise.”
“It’s important to remember, rising aspirations aren’t just for things that other people have; they’re demands for opportunities that too many don’t have,” Kim said. “And with high aspirations – embodied in the Sustainable Development Goals, and evident in every country I’ve traveled to – we have to move quickly to ensure that these aspirations don’t turn into anger, resentment, and ultimately even extremism and migration.”
Kim stated that, because of rising aspirations, “the task is much more urgent than we ever thought, and we have to move at a greater scale than we ever have before.”
Kim concluded his London School of Economics speech with a challenge “to ourselves – the World Bank Group, to the entire development community, and to all the future economic and political leaders in this room – to act with the speed and the scale that these times require, and fundamentally change development.”
“Aspirations are rising all around us; let’s see if we can raise our own to meet them.”
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Making the international trade in plants and seeds a safer venture
International plant health body adopts new global standards
The international body that oversees plant health has taken a big step forward with the adoption of a new global standard to help ensure that the international trade in plants and seeds, while very profitable, is also safer.
The International Plant Protection Convention (IPPC)’s governing body, the Commission on Phytosanitary Measures (CPM) adopted the standard during its 12th session in Incheon, South Korea, which wrapped up on 12 April 2017.
In this globalized world, food and agricultural products are continuously on the move. Ships are constantly underway from port to port, each year ferrying more than 500 million large steel containers filled with all kinds of cargo to and from all corners of the planet.
Unfortunately, that cargo can sometimes hide stowaways – agricultural pests that once on shore can devastate crops – from gypsy moths to giant African snails to Argentine ants. The rapid growth in agricultural trade via online marketplaces is aggravating the situation, making it harder for countries to ensure that all shipments – big or small – are free from bugs and diseases.
And of particular concern is the threat of pest transmission posed by seeds. Unlike other agricultural products that are destined for consumption, such as wheat, barley or lentils, seeds are a cause for greater concern – being destined for planting, there is a greater risk that any pests they carry could establish themselves and spread after planting.
Addressing these risks presents a highly complex task.
Seed companies often operate breeding programmes in multiple countries so they can produce more than one crop each season. These seeds are then shipped to all corners of the globe for cleaning, treating, testing, and packaging prior to being sold and shipped again – sometimes after being in storage for long periods of time. Their final destination may not be known at the time of export from the country of origin.
All of this makes it very difficult – if not impossible – to take into account all possible phytosanitary import requirements of the countries that will eventually import the seeds.
By proposing standard approaches to risk assessment and testing, the new standard will help harmonize how countries deal with the complexities of the international seed trade, thereby facilitating trade in seeds – valued at some $US 12 billion annually – while ensuring such shipments safeguard food supplies for a growing global population.
Protecting plants vital to feeding a hungry world
FAO recognizes that the IPPC’s work is vital to achieving the world’s Sustainable Development Goals. Protecting the health of the world’s plants requires sustainable agriculture, climate change resilience, biodiversity protection, and the facilitation of safe trade.
“Because the IPPC is the only organization to set government-recognized plant health standards that facilitate international trade, the decisions made here will be essential to further protecting the world’s plant resources, the very foundation of life,” said Kundhavi Kadiresan, FAO Assistant Director-General and Regional Representative for Asia and the Pacific. “Indeed, FAO’s vision of a world without hunger can only be accomplished with healthy plants that are free from regulated pests.”
“These standards, which are built on consensus, are the most effective way to prevent the introduction and spread of plant pests to new environments, and avoid devastating impacts on plants as well as biodiversity, food security and trade,” said Jingyuan Xia, IPPC Secretary.
The CPM further considered guidelines for an import regulatory system and a series of treatments that stop pests from burrowing into wooden packaging materials and methods to stop fruit flies from attacking citrus fruits.
The Commission is also seeking approval for its proposal that 2020 be formally recognized International Year of Plant Health, after a draft resolution for IYPH 2020 was approved by the FAO Council.
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Perception of political risk hurting FDI flow in Africa
A report by the World Bank has cited actual or perceived political risk as hindering inflow of Foreign Direct Investment (FDI) to several developing countries.
The findings show that around 25 per cent of all investments in developing economies either stop increasing or totally withdraw from host countries due to political risks.
The 41-page report, which delved into strategies needed to maximise potential benefits of FDI for sustainable development of nations across the world, was released at the Annual Investment Meeting in Dubai earlier this month.
The report shows the risks stem from adverse regulatory changes, breach of contract, expropriations and problems related to transfers and currency convertibility.
Roberto Echandi, World Bank Global Lead, Investment Policy and Promotion said political risks arising from these factors worry investors more than those generated by terrorism and war.
The report puts terrorism or civil unrest at the bottom of the list with political risks potentially driving investors to withdraw or cancel investments.
“In most countries, investors are dealing with a specific agency tasked with promoting investments while over 70 per cent of the problems they face are caused by other government agencies namely subnational ones or sector-specific regulatory authorities. That’s where the challenge is,” said Mr Echandi.
World Bank experts called for suitable investment policy frameworks and refined national strategies that strengthen investor confidence to help retain and expand FDI.
They argue that the lion’s share of the total annual FDI inflows are made by investors already established in the host country, making them the best investment promotion tools to attract new FDI as they tend to diversify theiroperations while at the same time evolving from lower value-added towards higher value-added activities.
According to the report, very few investors with specific objectives and plans will bear the risks associated with malfunctioning political, regulatory and legislative systems.
“A lot of countries traditionally have been thinking that attracting FDI means automatic benefits. But, investors go to a country thinking long-term. In some countries the governance changes occur every four or five years and so, investors tend to outlive governance,” said Mr Echandi, adding that developing countries spend millions of dollars attracting investment but fail to ensure high levels of investor protection and confidence.
Experts say without risk mitigation, many investments that are commercially profitable and economically attractive do not materialise.
The report did not go into details of specific countries. It only listed over 80 countries that would receive the bank’s support to frame their investment reform proposals.
Many developing countries are said to face difficulties in investment policy formulation, co-ordination and implementation, thus undermining their competitiveness and ability to attract investments.
“A common mistake that countries make is to create investment policies that are a reaction to the challenges posed by the type of investment they are already receiving. Instead, a state needs to identify opportunities that will generate more benefits from existing investments, and consider what other types of investment the country needs in order to develop,” reads the report.
The World Bank advised countries to put up Investment Reform Maps clearly tracking and resolving key regulatory issues and designing investor aftercare programmes if they are to retain and expand FDI.
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Review of the implementation of the commitments made towards Africa’s development: Stakeholders’ consultations
The Office of the Special Adviser on Africa (OSAA) has embarked in a new series of consultations in preparation of the third review of the implementation of the commitments made towards Africa’s development.
As in the two previous reports, OSAA will work in close collaboration with the relevant UN entities through the institutional framework of the Interdepartmental Task Force on African Affairs (IDTFA), which it convenes at both principal and expert levels. It will also work with other regional and international institutions both within and outside the UN System, including:
- United Nations Development Programme (UNDP),
- United Nations Industrial Development Organization (UNIDO),
- World Health Organization (WHO),
- United Nations Population Fund (UNFPA),
- United Nations Educational, Scientific and Cultural Organization (UNESCO).
- United Nations Economic Commission for Africa (ECA),
- African Union Commission/NEPAD Agency,
- African Development Bank (AfDB),
- International Monetary Fund (IMF),
- World Bank,
- Organisation for Economic Co-operation and Development (OECD) and
- United Nations Statistics Division (UNSD).
The 2017 series of consultations for the third Secretary-General report of the UN Monitoring Mechanism will take place:
- in Midrand, South Africa, on 20-21 April (co-organizers: OSAA and the NEPAD Agency),
- in Paris, France, on 16-17 May (co-organizers: OSAA, UNESCO and OECD), and
- in Bangkok, Thailand, on 29-30 June (co-organizers: OSAA and UNESCAP).
Objective of the 2017 Consultations
OSAA aims to further the link between the United Nations Monitoring Mechanism (UNMM), the 2030 Agenda and the African Union’s Agenda 2063 follow-up and review framework at the regional and global levels, particularly through more interaction and alignment with the High-level Political Forum on Sustainable Development (HLPF) and the Africa Regional Forum on Sustainable Development. The UNMM could also facilitate the collection, compilation and analysis of data.
Thematic Focus of the Third Review
The third report, which will be submitted to the 73rd session of the General Assembly in October 2018, will be focused on the following themes, and five cross-cutting issues:
- Inclusive and sustainable industrialization and regional integration
- Health, water and sanitation
- Climate change
- Finance and partnerships
- Cross-cutting issues:
- Peace and security
- Gender and youth
- Education
- Migration
- Wider partnership issues
- Data availability and statistical capacity
The report will focus specifically of the delivery of commitments, the impact achieved and the challenges encountered and the way forward, differentiating among traditional and new and emerging partners. It will, as in previous reports, include a final section with its overall conclusions and policy recommendations delineated by actor: African countries, OECD DAC partners, and new and emerging development partners.
Thematic Focuses
Inclusive and Sustainable Industrialization and Regional Integration
Industrialisation and regional integration are key elements in Africa’s economic transformation agenda, central to its Agenda 2063 vision of ‘a prosperous Africa based on inclusive growth and sustainable development’ (Aspiration 1), and an integrated continent (Aspiration 2), and essential to enabling resource-based economies to diversify and increase value-addition. Industrialization is also the subject of SDG 9, and the UN General Assembly has since adopted a resolution specifically proclaiming 2016-25 as the Third Industrial Development Decade for Africa. There are strong linkages to the relevant UN and African follow-up processes. The inclusion of this theme thus provides an opportunity to follow up on the review of SDG 9 in the 2017 High Level Political Forum (HLPF), complementing this by adding a specific focus on Africa, ensuring synergies between the UNMM and the HLPF processes. It will also capture the outcomes of the various discussions and reviews currently underway including in ECOSOC, as well as linking with Africa’s priorities set out in Agenda 2063, and follow-up processes.
More specifically, industrialisation is part of the Agenda 2063 goal of Transformed Economies (Goal 4), essential to the attainment of many of the targets in its First-Ten Year Implementation Plan. Related continental initiatives include the Accelerated Industrial Development of Africa (AIDA). Closely related is fast-tracking the establishment of the objective of a Continental Free Trade Area (CFTA), one of the key Agenda 2063 flagship programmes, as well as the development of information and communication technology including E-education, and regional projects such as the High Speed Train.
For their part, Africa’s partners have undertaken in SDG 9 to promote inclusive and sustainable industrialisation, with related targets including facilitating access to finance and upgrading the technological capabilities of industrial sectors. They have undertaken in SDG 17 to improve access to their markets, and promote technology transfer. This theme will now address both issues specifically in relation to industrialisation. The G20 also undertook at the 2016 Hangzhou Summit to consider a range of actions to support structural transformation and industrialisation in African and other Least Developed Countries (LDCs). This section will also examine support for ICT, including e-education, and regional projects.
Finance and Partnerships
Achieving the goals of the 2030 Agenda and Agenda 2063 depends on the availability of the necessary finance from domestic and external, and public and private sources. The Inter-Agency Taskforce on the follow-up to the Financing for Development outcomes and means of implementation of the 2030 Agenda for Sustainable Development (IATF on FfD) tracks progress on all commitments under the Addis Ababa Action Agenda. The UNMM will bring a focused analysis on Africa, complementing the work of the Taskforce. The inclusion of this theme provides an opportunity to revisit the issues raised in the first biennial report, assessing progress since, and feeding into the wider reviews of SDGs 10 and 16 at the 2019 HLPF, as well as the annual reviews at each HPLF of SDG 17. It will thus ensure synergies with the HLPF process, the work of the Inter-Agency Taskforce on Financing for Development, and Africa’s priorities.
More specifically, Africa has undertaken to strengthen domestic resource mobilisation (DRM) as a key element of Agenda 2063 (Goal 20) including : public/fiscal revenue maximisation through the strengthening and broadening of the tax base, the mobilisation of private resources through increased domestic and intra-African investment, the development of capital markets, the leveraging of institutional financial resources such as pension funds, and the increased use of innovative financing including Public and Private Partnerships (PPPs), combined with measures to encourage and facilitate the flows of remittances. It has also undertaken to tackle the problem of illicit financial flows, by implementing recommendations of the High Level Panel on this issue chaired by former South African President Tambo Mbeki. There are important links to the issue of regional integration, including the development of African capital markets, and of closer regional cooperation to tackle illicit financial flows.
For their part, partners have reiterated under SDG 17 (Targets 17.2, 17.3) their earlier commitments to mobilise official resource flows including Official Development Assistance (ODA), with a specific target relating to Africa and least developed countries under SDG 10 (Target 10b). They have also undertaken under SDG 16 (Target 16.4) to reduce illicit financial flows and take stronger action to identify, recover and return stolen assets. There are also in addition various bilateral partnerships including with China (FOCAC), Japan, the US, the EU, Turkey, Brazil and India.
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tralac’s Daily News Selection
This week’s tralac Newsletter: Where do African countries stand in various aspects of the Digital Economy?
High-level meeting on the future of e-commerce in developing countries (UNCTAD)
The 2017 edition of UNCTAD E-commerce Week will be held from 24–28 April in Geneva with the theme “Towards inclusive e-commerce”. On 25 April, the high-level event Digital transformation for all: empowering entrepreneurs and small business will be the highlight of the week. An interactive dialogue with ministers and representatives of government, international organizations, captains of industry, civil society, academia and youth will take place.
WTO names Kenyan to key agriculture docket in Africa charm offensive (Business Daily)
The WTO has named five more Africans to head its key bodies in an apparent effort to boost acceptance in a continent that has lagged in global trade for decades. Kenya’s representative in Geneva, Mr Stephen Karau, will chair all the WTO’s special negotiation sessions on agriculture, a sensitive docket as the sector is the backbone of many African economies.Senegal’s Coly Seck was also named the chairperson of special sessions of the agency’s Dispute Settlement Body whileTunisia’s Walid Doudech will chair a committee on regional trade agreements. Also heading a key body is Mr Taonga Mushayavanhu of Zimbabwe who becomes chairperson of the committee on trade and development.
Francis Mangeni, Calestous Juma: The relation between the Tripartite FTA and the Continental FTA
This article is based on the forthcoming publication by Francis Mangeni and Calestous Juma, entitled Emergent Africa – the evolution of regional integration, to be published by Cambridge University Press in 2018.
New study highlights timber trade challenges in eastern and southern Africa (TRAFFIC)
A new TRAFFIC and WWF report launched today highlights the challenges facing timber trading nations in eastern and southern Africa, in particular the need for improving trade monitoring and financial integrity and addressing issues related to politics, corruption and ethics at a national and regional level. The Overview of the timber trade in East and Southern Africa: national perspectives and regional trade linkages (pdf) was launched as representatives of governments from across the region meet to discuss implementation of the Zanzibar Declaration on Illegal Trade in Timber and other Forest Products. Key among the recommendations from the new report are calls for full government participation in forest‐related multilateral agreements, such as those under SADC and EAC, to address issues undermining legal, sustainable timber production. In particular, the SADC and EAC Secretariats are urged to collaborate to capture information from government forestry, revenue collection, Customs, and ports authorities and make the data publicly available.
Guidelines on keeping illegally caught fish from global supply chains near ‘finish line’ (FAO)
An FAO-led push to establish internationally agreed standards that can guide the development of catch documentation schemes aimed at keeping illegally caught fish off store-shelves and consumers’ plates has taken an important step forward. A set of draft Voluntary Guidelines on Catch Documentation Schemes was last week unanimously adopted by a technical consultation that brought a 5-year negotiation effort to a close, and are now poised for adoption by all FAO Members at the UN agency’s upcoming bi-annual governing conference (Rome 3-8 July 2017).
Southern African regional climate information services for disaster resilience development (pdf, AfDB)
The project will improve the meteorological infrastructure and facilities in the region leading to improved weather and climate services to meet national and regional DRR needs. It will contribute to increased capability to respond to and manage climate induced disasters of SADC countries. All 15 member states will be better equipped to generate and disseminate accurate climate and weather information for climate change mitigation and early warning, food security, water security and environmental protection. The data will be utilized in disaster risk reduction and management in the region. The project will improve meteorological network infrastructure of 5 member states (Madagascar, Mauritius, Seychelles, South Africa and Tanzania) which did not receive support from the previous AfDB Institutional Support to African Climate Institution Project (ISACIP) initiative.
Climate change and trade policy interaction: implications of regionalism (pdf, Joint Working Party on Trade and Environment, OECD)
This study has sought to draw out some of the implications of regionalism for the interaction between trade and climate policy, by examining the implications of regional climate governance for international trade on the one hand, and the implications of regional trade governance for climate change on the other. It has further pointed to possible ways forward for regional approaches with a view to contributing to both trade and climate-change objectives.
Regional industrialisation: when the whole is greater than the sum of its parts (UNECA)
Between 1992 and 2013, Uganda reduced the proportion of people living in poverty by over half and has registered a strong growth performance, accompanied by a rapid reduction in poverty rates. However, the country’s economic growth has not been sufficiently inclusive and did not generate enough job opportunities for the young and rapidly growing population. Speaking at a High-Level Policy Dialogue on promoting sustainable industrialisation in Uganda, Andrew Mold, the acting Director of ECA in Eastern Africa said that a sub-regional approach to industrial development is likely to result in a significantly faster rate of industrialisation than would be the case if the process is undertaken on an individual country-by-country basis.
Uganda: Self-regulation code launched to facilitate maize trade (Daily Monitor)
Six grain warehouse hubs in Uganda will benefit from the implementation of the self-regulation code which aims at reducing post-harvest losses due to poor storage at farm level. The Grain Council of Uganda, supported by DfID, through TradeMark East Africa, has launched a warehouse code and research report on Uganda’s maize grains regional hubs. According the report, maize export in Uganda has faced challenges often due to the poor quality of grains with more than 30 to 40% of total harvest ending up as poor grain. The development of a self-regulatory code of conduct is a step in the right direction in overcoming the challenges.
Tanzania: Domestic resources mobilization and natural resources governance, 2017-2019 (pdf, AfDB)
The major gas discoveries represent a great opportunity for promoting economic development, but they also come with capacity challenges for the authorities: challenges related to effectively negotiating the various projects and delivering on the expectations they have raised. Areas where urgent capacity needs have been identified include (i) setting up the regulatory and institutional framework, (ii) negotiations and deal-making skills development; (iii) local content policies formulation, and (iv) skills for designing strategies for domestication of natural gas. Marketing the gas will also come with skills requirements:
DRC: Appraisal report of the Support Project for Consolidation of the Economic Fabric 2017-2020 (pdf, AfDB)
The private sector remains embryonic despite the enormous potential of the country. The DRC is facing persistent constraints for an increased involvement of private investment in the productive sectors. The current major challenge facing DRC is to ensure that the economic performance achieved over the past few years helps to improve the living conditions of its citizens and creates sustainable jobs through consolidation of the industrialization process, structuring of supply and entrepreneurship. The unattractive business climate continues to hamper gradual industrialization, private sector development and sustainable creation of national wealth. The direct beneficiaries of the institutional support are: the Ministry of Industry, the OCC, the Faculty of Science and 100 women entrepreneurs mainly involved in processing.
Re-emergence of armed groups among challenges facing Great Lakes Region, UN Special Envoy says (UN)
Africa’s Great Lakes region, having made some progress in implementing its 2013 Peace, Security and Cooperation Framework, still faced critical challenges, including the re-emergence of violent non-State armed groups, the Secretary-General’s Special Envoy told the Security Council during a briefing Wednesday. Said Djinnit, Special Envoy for the Great Lakes Region, presented the Secretary-General’s latest report, saying that a recent summit of the Framework’s regional oversight mechanism had generated renewed commitment among signatories.
Maritime security in the Eastern and Southern African and Indian Ocean: update (EAC)
“The recent events [with three acts of piracy off the Somali coasts after five years of calm], reminded us that maritime insecurity remains a major challenge in the Western Indian Ocean. That is why we must not slacken our efforts”. On the occasion of the opening of the fifth Steering Committee of the Regional Programme for the Promotion of Maritime Security in Mauritius, Indian Ocean Commission’s General-Secretary, Hamada Madi, enjoined the regional organizations and the countries of the Eastern and Southern Africa and the Indian Ocean, as well as the international community to “remain mobilised in our region that is strategic for world trade
Indonesia, Angola to expand trade, investment (Jakarta Post)
Industry Minister Airlangga Hartarto urged local businesses to expand trade to Angola, especially for transportation, defense and electronics equipment, expecting to see more gainful trade between the two countries that was worth about $292.8m last year. ”Angola can be the central spot for us to promote industrial products to western Africa,” he said during a meetings with Angolan Foreign Minister Georges Rebelo Pinto Chikoti and delegations on Wednesday. The ministries exchanged information on investment regulations in their respective countries. “We hope there will be further commitments to cooperate comprehensively to develop each other’s economies,” Airlangga said.
Korea-Africa Business Forum urges greater Korean private sector engagement in Africa (AfDB)
The AfDB and Busan Metropolitan City have jointly urged South Korea’s private sector to do more business with Africa. The call was made at the Korea-Africa Business Forum held at Busan Exhibition & Convention Centre (3-4 April), supported by Korean Ministry of Strategy and Finance. The event foreshadowed the Bank’s 53rd Annual General Meetings to be held in Busan (21-25 May 2018).
Qatar-South Africa Business Forum: Minister sees growth in trade relations (Gulf Times)
The Minister of Economy and Commerce stressed that the two countries have great potential to increase co-operation in various fields, pointing out that the value of Qatar’s exports to South Africa reached about $390m in 2016, while the value of South African exports of goods to Qatar accounted for $104m. The Minister noted that the current levels of trade do not reflect the real potential for co-operation between the two countries, especially as Qatar’s share of South Africa’s total exports is only about 1% and Qatar’s share of imports of fuel, chemicals and plastics in South Africa is only 2%. Qatar can be the gateway to the products of South Africa in the common market of the Gulf Co-operation Council countries as well as the Greater Arab Free Trade Area, he said, adding that Qatari nationals can invest in competitive sectors in South Africa, particularly in the areas of tourism, precious stones and agribusiness.
Kenya eyes low-cost oil, cattle market in deal with Saudi Arabia (Business Daily)
A team 30 investors accompanied Saudi Arabia’s Commerce and Investment minister, Majed bin Abdulla Alqassabi, to Nairobi to explore modalities of shipping cheaper crude oil to Kenya and exporting cattle products in exchange. ”Kenya is now going to be our strategic partner and we will work together towards the achievement of the Vision 2030,” Dr Majed. Kenya which has discovered about one billion barrel of crude oil in Turkana has already commenced its trial export of the commodity. Its interest in Saudi’s crude appears to signify a strategic move to build reserves for internal processing when it finally constructs its refinery.
Land and agronomic potential for biofuel production in Southern Africa (UNU-WIDER)
The Southern African region, from a purely biophysical perspective, has huge potential for biofuel production, especially in Mozambique and Zambia. Although many of the soils are sandy and acidic, with careful management and correct fertilization, they should be highly productive. We suggest that sugarcane is the crop most easily mobilized for biofuel. A number of other crops, such as sweet sorghum, cassava, and tropical sugar beet, have good potential but will need further agronomic and processing technology investigations. [The analysts: Michael von Maltitz, Marna van der Merwe] [Related paper: Biofuels technology in southern Africa - a look forward]
Today’s Quick Links:
Mr Charles Boamah is to succeed Dr Frannie A. Léautier as the AfDB’s Senior Vice-President
WCO reviews progress and long-term planning with Tanzania Revenue Authority
Rwanda: Why targeted support in agric sector will spur exports growth
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Please note: the next tralac daily selection will be posted on Tuesday
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tralac’s Daily News Selection
Trade recovery expected in 2017 and 2018, amid policy uncertainty (WTO)
The WTO’s more promising forecasts for 2017 and 2018 are predicated on certain assumptions and there is considerable downside risk that expansion will fall short of these estimates. Attaining these rates of growth depends to a large degree on global GDP expansion in line with forecasts of 2.7% this year and 2.8% next year. While there are reasonable expectations that such growth could be achieved, expansion along these lines would represent a significant improvement on the 2.3% GDP growth in 2016. Historically, the volume of world merchandise trade has tended to grow about 1.5 times faster than world output, although in the 1990s it grew more than twice as fast. However, since the financial crisis, the ratio of trade growth to GDP growth has fallen to around 1:1. Last year marked the first time since 2001 that this ratio has dropped below 1, to a ratio of 0.6:1 (Chart 1). The ratio is expected to partly recover in 2017, but it remains a cause for concern.
Extract (pdf): World commercial services exports were essentially unchanged in 2016 after having fallen 5.5% in value in 2015. This is illustrated by Chart 7, which shows growth in the dollar value of commercial services exports since 2013, broken down by major services categories. Total commercial services trade only grew 0.1% in 2016 and transport services fell 4.7%. Other types of services exports saw modest increases including other commercial services, a category that includes financial services. Detailed breakdowns of commercial services trade by region and country are shown in Appendix Tables 2, 5 and 6. Asia recorded the largest regional year-on-year increase in services in 2016 on both the export and import sides (0.9% and 2.6%, respectively). Meanwhile, Other regions (including Africa, Middle East and the Commonwealth of Independent States) had the largest declines (-0.6% and -7.4%). In general, trade in commercial services tends to be less volatile than merchandise trade.
Rwanda: From devastation to services-first transformation (UNU-WIDER)
Manufactured exports can be divided into two categories according to the markets they target: regional or international. The vast majority fall into the former group and, as already described, focus primarily on DRC, followed by Burundi. There are only 17 companies which export at least 2% of their output. Of the 14 for which market information is available, only one of them had its primary market outside of the region. For 11, the primary market was DRC or Burundi, and these two markets plus Uganda were the secondary market for 11 as well. Most companies have one principal export product, and these products are generally relatively low value and based on local or regional inputs. Maize flour, beer and other beverages, plastic shoes, cement rebar (reinforcing bars), and other construction materials are among the main exports. As explained above, Rwanda is well-positioned to access the DRC and Burundi markets. This has attracted investment from companies based in Kenya, Tanzania, and Uganda. Past growth in this trade has been impressive and there remains much untapped potential. That said, it is a very complex, indeed difficult, environment to work in and recent events are not encouraging. [The analysts: Kasim Ggombe, Richard Newfarmer]
Kenya Economic Update: Housing – unavailable and unaffordable (World Bank)
Is Kenya loosing competitiveness in the East African market? (Box B.1) Kenya’s merchandise trade performance has been dismal in recent years, in particular its exports to the East African Community. Kenya’s merchandise exports contracted by an estimated 23.3% in 2016. In part, this reflects weakness in global trade. In the aftermath of the global financial crisis, global trade has been subdued on account of weak demand and structural factors. Nonetheless, the contraction in Kenya’s exports is not only due to weakness among its high income trading partners. Worryingly, Kenya’s exports to the EAC saw a significant decline in 2016, a region where growth has remained relatively resilient. Of further concern is that longer term trends show that Kenya’s exports to the EAC have been on a decline for the past several years: export growth in value terms was some 29.5% in 2007 but has since contracted to a low of -8.9% in 2013. The decline in Kenya’s exports to the region in recent years has occurred despite overall growth in EAC intraregional trade, reflecting the stronger growth performance of its regional trading partners. This begs the question whether Kenya is becoming increasingly less competitive in the EAC region?
How does Kenya regain its competitiveness in its backyard? Kenya has become less competitive in the EAC due mostly to cheaper products to EAC markets from elsewhere, in particular East Asia (including China). For instance, in both Tanzania and Uganda, the share of East Asia (including China) exports has increased from some 45% to 60% over the past decade. This has not only driven down market shares of Kenya’s exports but also that of other countries. However, for Kenya, the EAC market remains an important market, and provides a good platform to be able to compete globally. Reversing the decline in Kenya’s competitiveness is of paramount importance and will require both domestic policy actions to improve the competitiveness of Kenyan firms as well as efforts on a regional level to improve market access for Kenyan products and a much freer flow of goods within the EAC.
Tanzania Economic Update: Extending financial inclusion in Tanzania (World Bank)
Brexit is expected to have only a modest impact on the Tanzanian economy. The initial impact of the UK’s vote to leave the EU turned out to be short-lived and largely localized to the UK. However, the medium- to long-term repercussions are difficult to determine, with these repercussions partly depending on how trade relations and financial flows unfold between the UK and the EU in the years to come. For example, two UK-based banks, Standard Chartered and Barclays, collectively hold roughly 15% of banking assets in Tanzania. Brexit could reduce investment and financial flows from the UK and European firms. In recent years, the UK and Switzerland accounted for more than 50% of the total FDI inflows to Tanzania. Under the unlikely scenario of a sharp Brexit-induced turbulence in the UK and other European economies, the impact on the FDI channel may be significant. [Bella Bird: Growth and financial inclusion - where is Tanzania today?]
The Joint Declaration was signed by Ethiopia’s Ministry of Industry and Ministry of Education, the Department of Commerce of Hunan Province, China, and UNIDO at an investment forum held in Addis Ababa, Ethiopia. The forum took place as part of the ongoing economic and trading cooperation between Ethiopia and the Hunan Province of China, which is also responsible for the establishment of the Ethiopia-Hunan Equipment Manufacturing Cooperation Park in Adama. The partnership will contribute to accelerating Ethiopia’s economic transformation through the establishment of industrial parks in various parts of the country and by leveraging the necessary investment for the parks themselves.
Tanzania: Standard gauge rail project set for formal launch today (IPPMedia)
The SGR is one of the current government’s flagship projects as Tanzania seeks to make optimal use of its long coastline by offering an upgraded transport network to boost trade with its landlocked neighbours. It is being built on a $7.6bn loan from China’s Export-Import Bank (Exim), with the Dar-Morogoro stretch to be constructed by a consortium of Turkish and Portuguese companies. The main project involves building a railway for an electric bullet train, along with related facilities including power infrastructure, interchange railways and station expansions. Once installed, the train is expected to travel at a speed of 160 kilometres per hour from Dar to Morogoro, making it the second fastest bullet train in Africa after one in Morocco. Officials say the stretch from Dar es Salaam to Morogoro will have a total of six passenger stations and six others for interchange railways. The government has set aside 1trn/- in the current financial year as initial cost of the project.The entire project is scheduled to be completed by September 2019. [Jaindi Kisero: Kenyan state on right track with plan to terminate rail concession]
Angola: Economist Intelligence Unit projections (MacauHub)
Angola’s budget deficit will remain high, although it is expected to decline from 5.9% of GDP this year to 4.4% in 2021, as spending pressures reduce following the 2017 general election, according to the Economist Intelligence Unit (EIU). Considering the weak results obtained so far in the process of economic diversification, GDP growth will remain dependent on the oil sector, with the EIU report predicting that it will average 2.8% in 2017/2021, a rate that compares with an average of 4.1% in the 2012-2016 period.
Zimbabwe: Importers hard hit by cash crisis (NewsDay)
Fast moving consumer goods have called for longer import licences, as the ones they have are too short, and due to the foreign currency shortages, the permits expire long before payments to suppliers are made by banks and this, they fear, could lead to shortages of basics. Importers have to acquire permits from the Industry and Commerce ministry, which are valid for two to six months depending on products. A Zimbabwe Consumer Goods Importers Trust official told NewsDay the delays in processing the foreign payments were affecting importers. [RBZ eases foreign payments bottleneck]
Botswana nudges up in tourism rankings (Mmegi)
According to the recently released Travel and Tourism Competitiveness Report for 2017, Botswana continues to improve in both the ranking and quality score with the country ranked 85th out of 136 countries compared to 88th out of 141 countries in 2016. This was an improvement of three places up in the ranking. Although Botswana’s rankings improved, it is still below South Africa (53rd), Mauritius (55th), Kenya (80th) and Namibia, which slid 12 places down the ranking to position 82. The report says Botswana went up the ranking due to the success of its specific policies and strategic aspects that impact the industry more directly. [Services pull economy out of red]
South Africa: Retailers shift away from Africa expansion (Business Day)
Africa is falling off the immediate radar of local retailers after the region posted its slowest growth rate in two decades in 2016, and with the outlook for 2017 looking as unpromising, most companies are changing their focus from expansion to improving customer experience. Speaking at the EY retail sector overview on Tuesday, Derek Engelbrecht — EY lead consumer products and retail partner — said African expansion was just not something most retailers were speaking of.
Why Nigeria experienced N290bn trade deficit in 2016 – NESG (Vanguard)
The Nigerian Economic Summit Group, yesterday, gave an insight into why Nigeria experienced trade deficit of N290 billion in 2016, even as it projected that the economy will experience a Gross Domestic Product, GDP growth rate of 0.6%. Speaking during the 21st Annual General Meeting of the NESG, chairman of the Group, Mr. Kyari Bukar, said that the lower crude oil prices and inability of the country to finance its rising import bills in the face of plummeting non-oil export led Nigeria’s trade balance to a deficit of N290 billion while balance of payment deficit climbed to N1.8 trillion in the third quarter of 2016. Bukar hinted that aside from the foreign exchange crisis, the inability of government to respond swiftly and appropriately to economic challenges worsened the situation. [Download: NESG’s 2016 Annual Report]
Nigeria: Customs restricts exit of rice from free trade zones (The Eagle)
The Nigeria Customs Service said it has restricted the exit of rice from Free Trade Zones in the country to ensure total compliance to the ban on the importation of rice. Joseph Attah, the Public Relations Officer of the NSC, told the News Agency of Nigeria in Abuja that the Service has taken its war against rice smuggling to the FTZs. [FG prohibits importation of tomato through land borders]
Kenya defies EAC recommendation to allow imports of wheat flour from Tanzania (Business Daily)
A report from the EAC Council of Ministers meeting last week indicate that Kenya ignored the technical guidance issued by the secretariat on February 6 calling on Kenya to allow imports of wheat products from Tanzania. “In that guidance, among other things, they informed partner states that where wheat flour is milled from imported wheat grain in a partner state it qualifies under the EAC Rules of Origin to be accorded Community Tariff Treatment when traded between partner states,” reads a report from EAC. However, Kenyan wheat millers have long argued that Tanzania imports its wheat products and should therefore not enjoy tax incentives under the East African Community Customs Union rule of origin, which gives preferential treatment to goods produced within the region.
Regional ministers appoint staff to EAC organs (New Times)
The EAC Council of Ministers has appointed 31 East Africans – including six Rwandans – to various positions at the EAC Secretariat. This comes after conclusion of the 35th meeting of the Council at the EAC Headquarters in Arusha, Tanzania, which started end last month and concluded last week. [Bravo for envisioned EAC passport to unite us in the bloc (editorial comment, Tanzania Daily News)]
West Africa economic bloc says rules out devaluation of CFA franc
ECOWAS Parliament Joint Committee on Health and Social Service, Trade, Customs and Free Movement: meeting update
Merkel’s ‘man in Africa’ downbeat on prospects for Africa-EU summit
Turkey-Africa 1st Agriculture Ministers Meeting and Agribusiness Forum: Side Event 4 - Agricultural trade and investment (pdf)
Mauritius: Agro-Industry workshop focuses on setting up of Regional Livestock Policy Hub
Morocco is ‘low risk’ country for free trade and business: Control Risks study
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Trade recovery expected in 2017 and 2018, amid policy uncertainty
Growth in the volume of world merchandise trade is expected to rebound this year from its tepid performance in 2016, but only if the global economy recovers as expected and governments pursue the right policy mix, WTO economists reported.
The WTO is forecasting that global trade will expand by 2.4% in 2017; however, as deep uncertainty about near-term economic and policy developments raise the forecast risk, this figure is placed within a range of 1.8% to 3.6%. In 2018, the WTO is forecasting trade growth between 2.1% and 4%.
The unpredictable direction of the global economy in the near term and the lack of clarity about government action on monetary, fiscal and trade policies raises the risk that trade activity will be stifled. A spike in inflation leading to higher interest rates, tighter fiscal policies and the imposition of measures to curtail trade could all undermine higher trade growth over the next two years.
“Weak international trade growth in the last few years largely reflects continuing weakness in the global economy. Trade has the potential to strengthen global growth if the movement of goods and supply of services across borders remains largely unfettered. However, if policymakers attempt to address job losses at home with severe restrictions on imports, trade cannot help boost growth and may even constitute a drag on the recovery,” said WTO Director-General Roberto Azevêdo.
“Although trade does cause some economic dislocation in certain communities, its adverse effects should not be overstated – nor should they obscure its benefits in terms of growth, development and job creation. We should see trade as part of the solution to economic difficulties, not part of the problem. In fact, innovation, automation and new technologies are responsible for roughly 80% of the manufacturing jobs that have been lost and no one questions that technological advances benefit most people most of the time. The answer is therefore to pursue policies that reap the benefits from trade, while also applying horizontal solutions to unemployment which embraces better education and training and social programmes that can quickly help get workers back on their feet and ready to compete for the jobs of the future,” he said.
The WTO’s more promising forecasts for 2017 and 2018 are predicated on certain assumptions and there is considerable downside risk that expansion will fall short of these estimates. Attaining these rates of growth depends to a large degree on global GDP expansion in line with forecasts of 2.7% this year and 2.8% next year. While there are reasonable expectations that such growth could be achieved, expansion along these lines would represent a significant improvement on the 2.3% GDP growth in 2016.
In 2016, the weak trade growth of just 1.3% was partly due to cyclical factors as economic activity slowed across the board, but it also reflected deeper structural changes in the relationship between trade and economic output. The most trade-intensive components of global demand were particularly weak last year as investment spending slumped in the United States and as China continued to rebalance its economy away from investment and toward consumption, dampening import demand.
Global economic growth has been unbalanced since the financial crisis, but for the first time in several years all regions of the world economy should experience a synchronized upturn in 2017. This could reinforce growth and provide an additional boost to trade.
Forward looking indicators, including the WTO’s World Trade Outlook Indicator, point to stronger trade growth in the first half of 2017, but policy shocks could easily undermine positive recent trends. Unexpected inflation could force central banks to tighten monetary policy faster than they would like, undercutting economic growth and trade in the short-run. Other factors, such as the uncertainty provoked by the United Kingdom’s withdrawal from the European Union could potentially have an effect. Meanwhile, the possibility of a rise in the application of restrictive trade policies could affect demand and investment flows, and cut economic growth over the medium-to-long term. In light of these factors, there is a significant risk that trade expansion in 2017 will fall into the lower end of the range.
The recovery of world trade this year and next is based on expected world real GDP growth at market exchange rates of 2.7% in 2017 and 2.8% in 2018. This GDP estimate assumes that developed economies maintain generally expansionary monetary and fiscal policies, and that developing economies continue to emerge from their recent slowdown. It should be noted that the WTO does not produce its own GDP forecasts, but rather uses consensus estimates based on a variety of sources including the International Monetary Fund, the Organization for Economic Cooperation and Development, and the United Nations, among others.
Historically, the volume of world merchandise trade has tended to grow about 1.5 times faster than world output, although in the 1990s it grew more than twice as fast. However, since the financial crisis, the ratio of trade growth to GDP growth has fallen to around 1:1. Last year marked the first time since 2001 that this ratio has dropped below 1, to a ratio of 0.6:1. The ratio is expected to partly recover in 2017, but it remains a cause for concern.
Outlook for trade in 2017 and 2018
Leading indicators of real trade growth are up in the early months of 2017, suggesting a strengthening of trade at the start of this year. Container throughput of major ports has recovered from its slump of 2015-16 to reach a record high level, with year-on-year growth of 5.2% in the first two months of 2017. A key index of world export orders has also climbed to its highest level in several years in February, pointing to faster trade growth in the coming months. Finally, estimates of world GDP growth at market exchange rates have risen from 2.3% in 2016 to 2.7% in 2017 and 2.8% in 2018.
Balanced against these positive indications are a number of clear and significant risks. Growing anti-globalization sentiment and the rise of populist political movements have increased the likelihood that restrictive trade measures will be employed more widely. Narrowly targeted measures would probably not have an appreciable impact on world trade and output, but across-the-board measures or abandonment of existing trade agreements could damage consumer and business confidence and undermine international trade and investment.
With inflationary pressures building gradually in developed countries, central banks could also accelerate their pace of monetary tightening, with negative consequences for economic growth and trade in the short-run. Changes in fiscal policy could also have unintended international consequences that could reduce global economic activity and trade.
In Europe, challenging negotiations between the United Kingdom and the rest of the European Union will increase uncertainty about the shape of their trade relations in the future. Sovereign debt in highly indebted EU countries is still an outstanding issue that may come to the fore once again over the next two years.
These and other risks are reflected in indices of policy uncertainty, which have increased sharply since 2015.
Assuming that developed economies maintain generally accommodative fiscal and monetary policies, that economic recovery in emerging economies proceeds gradually, and that restrictive trade measures do not proliferate, we would expect merchandise trade to grow 2.4% in volume terms in 2017. However, given the significant downside risks and the prolonged period of weak trade growth in recent years, this growth is placed within a range of 1.8% to 3.6%. World trade growth could be as low as 1.8% in 2017 if downside risks emerge, or it could be as high as 3.6% if our basic assumptions are too pessimistic, but the upside potential is less likely. In 2018 trade volume growth should be between 2.1% and 4.0%.
The approach to calculating estimates for forecast periods (2017 and 2018) has been refined to reflect the high level of uncertainty in the global economy and to mitigate problems of over-estimation that have characterized economic forecasts since the financial crisis. Despite these corrections, risks remain predominantly on the downside.
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The relation between the Tripartite FTA and the Continental FTA
This article is based on the forthcoming publication by Francis Mangeni and Calestous Juma, entitled Emergent Africa – the Evolution of Regional Integration, Cambridge University Press, 2018
Introduction
In the afternoon of 10 June 2015, in Sharm el Sheikh, Egypt, the Heads of State and Government signed the agreement establishing the Tripartite FTA and the declaration launching the FTA. Out of 26 countries, 23 signed the declaration and 15 signed the agreement. The following signed the agreement: Angola, Burundi, Congo DR, Egypt, Comoros, Djibouti, Kenya, Namibia, Seychelles, Tanzania, Malawi, Rwanda, Sudan, Uganda, and Zimbabwe. Swaziland signed the following week to bring the total to 16, followed subsequently by Zambia and Libya bringing the total to 18 by March 2017. Those yet to sign the agreement are Ethiopia, Lesotho, Botswana, Eritrea, Madagascar, Mauritius, and Mozambique.
The Tripartite FTA covers a combined population of 708 million and GDP of $1.3 trillion – half the continent. It provides a single policy and regulatory regime in an array of trade-related areas such as nontariff barriers, customs cooperation, trade facilitation, health and technical standards, and dispute settlement. This is a sizeable economic space and market by any standards.
In January 2012 the Heads of State and Government took a decision to establish the Continental Free Trade Area by 2017 and the Continental Customs Union by 2019. This decision included also the adoption of an action plan for boosting intra-Africa trade, based on seven clusters: trade policy, trade facilitation, productive capacity, trade-related infrastructure, trade finance, trade information, and factor market integration. The economic case for this action plan was sound. Analytical work done by the ECA demonstrated that intra-Africa trade would more than double from 10.2% to 21.9% by 2022 if the Continental FTA is established by 2017, accompanied by trade facilitation measures such as elimination of nontariff barriers.
Second, there was a glaring gap in the six stages for forming the African Economic Community: that is, there was no provision for a continental FTA, which should be a logical step before the 2019 continental customs union. It should be quickly added though that the a customs union conceptually entails a free trade area, as the former must have free movement of goods among the members and prohibition of non-tariff barriers. It can be added as well as that the continental common market by definition will involve free movement of goods, services, labour and capital; which covers the element of the free trade area in terms of free movement of goods. The implication therefore could be that there is ample basis for formation of the Continental FTA.
Third, the Tripartite FTA, covering COMESA, EAC and SADC (a total of 26 out of the 55 countries of the African Union), would provide a strategic launch pad for a continental FTA. Besides, experience would seem to suggest that progress on FTAs can be faster than operationalising a customs union and in light of the Tripartite FTA, strategists would see absolute sense in leveraging on this achievement and fast tracking the establishment of the Continental FTA. Following a process of consultations with multiple stakeholders including the academia and the private sector, the African Union Assembly adopted the decision.
At an event hosted by President Jacob Zuma in South Africa on 15 June 2015, AU Heads of State and Government launched negotiations for the Continental Free Trade Area. The negotiations, spanning the whole continent, were to be completed and the Continental FTA launched by December 2017. Following closely on the heels of the tripartite FTA, the momentum for regional integration in Africa is palpable.
The Continental FTA will have a combined GDP of about $2.3 trillion and a population of about one billion people, with more than half comprising the youth. It is estimated that in 2016, consumer and business-to-business spending in Africa was at $3.9 trillion and was projected to reach $5.6 trillion within eight years by 2025.3 The Continental FTA initiative therefore injects a new dimension in international relations, building on Africa’s solid record over the last decade of speaking with one voice and engaging the world actively as a united bloc, whether in seeking better representation or rules in WTO, climate change, World Bank, IMF, or UN negotiations.
The template for continental integration has been set out in the Abuja Treaty. The goal is to form the African Economic Community (AEC) by the year 2028 using the eight recognized regional economic communities (RECs) as the building blocs. The eight RECs are the Arab Maghreb Union, Sahara Sahel Community of States, Common Market for Eastern and Southern Africa, East African Community; Economic Community of Central African States, Economic Community of West African States, Intergovernmental Authority for Development, and Southern African Development Community. The economic integration initiative is a core basis for achieving Agenda 2063, which aims for a prosperous and peaceful Africa.
It will be recalled that the AEC will be achieved through six progressive stages that started in 1991 and will end in 2028, subject to the possibility of fast-tracking. The six stages are as follows: the RECs establish and strengthen FTAs followed by customs unions, the customs unions of the RECs merge to form a Continental Customs Union, which becomes an African Common Market, which in turn becomes the African Economic and Monetary Union. The African Union Heads of State and Government are to decide whether and when to move on to the next successive stage.
So far, FTAs have been established in the RECs and need to be continuously strengthened, especially those of Central and North Africa. But above all, the Tripartite FTA now covers half of the continent, through COMESA, EAC and SADC. The East African Community and the Economic Community of West African States have made good progress in establishing and operationalising their customs unions. The EAC is now working on its monetary union after having successfully launched its customs union in 2005 and its common market in 2010. This indicates that the first stage of establishing FTAs in the RECs has been substantially achieved. As indicated in the ECA’s Africa Regional Integration Index of 2016, trade integration has progressed more than other pillars of integration such as movement of persons infrastructure, industrialization and financial and macroeconomic integration – these five are key pillars of developmental integration.
What to watch
Much of the negotiation will be a technical bean counting exercise. Therefore, supportive technical institutions will need to be put in place. There will be a main technical body in which the negotiations take place, but this body will need thematic specific working groups or subcommittees, to take care of the various technical fields such as rules of origin, non-tariff barriers, customs cooperation, trade facilitation, product standards, trade remedies, and dispute settlement. Under a developmental approach to economic integration, parallel work on industrialisation and infrastructure will need to be provided for, to be undertaken by experts in those areas. Then, the overall overarching high level bodies responsible for supervising the negotiations and adopting the final deals, will need to be established.
The decision to venture into a new massive free trade area should be evidence based. A clear case should be made on the basis of demonstrable welfare gains in the context of the quest for social economic transformation. Without such a case, it would be difficult to galvanised the required support and ownership by key stakeholders on the public and private sector required.
The evidence based policy should be formulated within the broader approach of developmental integration, which is based on at least three pillars, namely, open markets, industrialisation and infrastructure development. FTAs in economic integration in Africa are much more than just trade agreements; they are foremost tools for economic development.
Enough time should be allowed for an inclusive consultative awareness creation and consensus building process involving all relevant players in policy formulation and implementation. This process should be designed to result in good appreciation of the issues at stake and understanding of the proposed ways forward in terms of vision, road map, policy thrusts and interventions, Institutional framework, resource requirements, and business processes or roles of stakeholders and drivers.
As broadly explained by Henry Etzkowitz's triple helix, key players include government at Central and local levels as well as parliaments, grassroots organisations covering the private sector and civil society organisations, and thinkers, innovators and knowledge generation and management institutions including universities and embedded research institutes.
The secretariats of regional organisations must rise to the occasion by providing technical and analytical input. This involves initiating and explaining studies and proposals to facilitate the negotiation and engagement processes, convening and organising the inter-governmental events that bring governments and other stakeholders together to transact business, as well as in-country events that contribute to the regional level outcomes.
In performing this critical role, secretariats should work closely with other relevant intergovernmental or peer organisations, including other secretariats, regional and international knowledge institutions, the media and shapers of public opinion, individual scholars and thinkers, and supportive people of good will.
The rule of thumb is ensuring adequate preparations for the negotiation sessions on the part of the negotiators and secretariats, and to get the logistics and documentation right.
There will be mundane things like choosing a convenient venue that is easy and friendly to travel to and from in terms of duration and connectivity air or surface transportation as well as the quality of the carriers, entry requirements including immigration and health, foreign exchange rules, and the hospitality infrastructure and culture. The point is to avoid having irritated or exhausted negotiators who will be destructive or eager to postpone matters.
During the negotiations, a number of challenges are bound to crop up and if not carefully addressed can fatally derail the process and lead to an outcome that misses vast opportunities for social economic transformation.
Then there will be the need to have technically adequate and user-friendly working documents for the negotiations. Having such documents good technical expertise and analytical skills in the secretariats; but also comparable skills on the part of the negotiators or at least the capacity to internalize the issues and engage in a relevant and constructive manner in line with given negotiation objectives.
Working documents have to be presented and explained in an easy manner and here is where the secretariat can greatly facilitate the negotiations. In addition, negotiators will need to have adequate national consultations before going to the negotiation sessions, and even then to have rapid response mechanisms for adjustment of positions in line with the dynamics of the negotiations. The ability to consult and get quick instructions from capitals by email or social media can come in handy and unlock last minute stalemates. In addition, the mandate given to the negotiators should be reasonably flexible or have the elbow-room to allow a negotiation to happen. Or better still, the mandate should have fall-back positions that anticipate and accommodate priorities of other parties. Working documents can indicate such Priorities and other pertinent considerations that can come into play.
The CFTA negotiations could indeed benefit from lessons learned in negotiating the Tripartite FTA. Some of these lessons included: (1) avoiding wasting time on procedural issues and giving priority to substantive negotiations regarding rules of origin, tariff elimination/reduction offers, and the text of the Agreement; (2) ensuring good analysis and working documents on key issues arising from the negotiations are complete and negotiators receive them in a timely manner well before the negotiation sessions; (3) strong political oversight at ministerial and presidential levels exercised through regular meetings to review progress, resolve sticking issues, and to maintain a high momentum; (4) drafting the emerging text early to make it usable to incrementally build up the Agreement as negotiations unfold; (5) leveraging partners that can provide technical backstopping of the negotiations such as the Economic Commission for Africa, UNDP, and UNCTAD; and (6) ensuring adequate financial resources for governments and the African Union Commission.
Other lessons included the following: (1) There should be proactive engagement with member states during the preparatory phase, to assist ensure that the time is actually used for preparations. (2) Clear political direction given upfront can assist the technical negotiators in not getting stuck in a labyrinth of their own making. (3) Meetings should allow enough time for negotiators or ministers to complete their work. (4) There should be a degree of standardization in the editorial policy, referencing, and racking of the various versions of documents, to assist record keeping and use. (5) Imagination and resourcefulness in finding the phrases and words that satisfactorily capture the varying positions and priorities in the negotiations are critical for negotiations to advance to a conclusion. (6) Technical hands-on assistance from the secretariat and other partners can enable government officials to undertake the extensive technical work required in finalizing the negotiation, for preparing the tariff offers and making sense of rules of origin. (7) For very technical areas to be negotiated, such as health and technical standards, a group of technical experts can have working sessions to produce working drafts for the negotiations. (8) Leaders will emerge in the negotiations, and this will be beneficial to the entire region if they represent the best interests of the region. Such leaders can be nurtured early on in the process and supported throughout with analytical work and guidance through the issues up for negotiation at every turn. (9) A precise timetable for the negotiations, indicating what to accomplish at each given session is absolutely critical, and needs to be adhered to. (10) Last but not least, variable geometry is the key to moving ahead.
Just as in the Tripartite, the Continental FTA is complemented by other initiatives to support industrialisation and infrastructure. A comprehensive Action Plan for Boosting Intra-Africa Trade has been adopted and is already being implemented, covering seven clusters, namely, trade policy, trade facilitation, productive capacity, trade-related infrastructure, trade finance, trade information, and factor market integration. This complementary action plan assists to ensure that benefits accrue across a wide range of sections of society and that countries can benefit from the larger market that opens up.
The African Union Commission's Department of Trade and Industry will provide the Secretariat services for these negotiations and has so far demonstrated admirable technical competence and capacity to mobilise and work closely with the secretariats of the RECs and stakeholders as well as technical partners especially the Economic Commission for Africa. Transparency in the negotiations will be key to generating ownership among stakeholders and users of the outcome of the negotiations. The Commission deserves every support.
The author, Dr. Francis Mangeni, is COMESA Director of Trade and Customs. This article has been published with permission.
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Kenya’s economic outlook to dip in 2017 – World Bank report
Kenya’s GDP growth is projected to decelerate to 5.5%, a 0.5 percentage point mark down from the 2016 forecast, according to the World Bank’s latest Kenya Economic Update (KEU) released in Nairobi today.
“Consistent with its robust performance in recent years, once again economic growth in Kenya was solid in 2016, coming in at an estimated 5.9% – a five-year high. This has been supported by a stable macroeconomic environment, low oil prices, earlier favorable harvest, rebound in tourism, strong remittance inflows, and an ambitious public investment drive,” said Diarietou Gaye, World Bank Country Director for Kenya. “Nonetheless, Kenya is currently facing headwinds that are likely to dampen GDP growth in 2017.”
Firstly, the ongoing drought which has led to crop failure, dying herds of livestock, and increased food insecurity. Further, with hydropower being the cheapest source of energy in Kenya, poor rains increase energy costs, their effects spilling over to other sectors. The rise of in food and energy prices drove inflation to a five-year high of 10.3% in March.
Secondly, Kenya faces a marked slowdown in credit growth to the private sector. At 4.3%, this remains well below the ten-year average of 19% and is weighing on private investment and household consumption. Thirdly, as a net oil importer, the rise in global oil prices compared to the lows of 2016 has a dampening effect on economic activity. However, in the medium term, economic growth is projected to rebound to 5.8% in 2018 and 6.1% in 2019, consistent with Kenya’s underlying growth potential.
But while the medium- to long-term outlook appears favorable, Kenya’s economy remains vulnerable to downside risks. These include potential for fiscal slippages, a more prolonged drought in 2017, and external risks from a weaker than expected growth amongst Kenya’s trading partners, as well as uncertainties related to US interest rate hikes and the resultant stronger dollar.
“Going forward, prudent macroeconomic policies will help safeguard Kenya’s robust economic performance, in particular fiscal consolidation consistent with the Medium Term Fiscal Framework,” said Allen Dennis, Senior Economist and Lead Author of the KEU. “Fiscal consolidation needs to be implemented in such a way so as not to compromise the development spending needed to unlock the country’s productive capacity. This will require adjustments on recurrent spending and improvements on domestic resource mobilization.”
The report recommends a number of structural reforms that could accelerate growth potential. Credit access can be supported by reducing public sector borrowing, and the transactions cost for accessing credit through better credit reporting, the creation of a central electronic collateral registry, and a framework to promote property as collateral with the automation of land registries and the implementation of the National Payments System Act.
Agricultural productivity can also be improved by increasing the competitiveness of agricultural input and output markets. New engines for economic growth need to be supported, such as unlocking the affordable housing market, which is the focus of the Kenya Economic Update.
But the special focus of the 15th edition of the KEU advocates a concerted campaign to develop the housing finance market that will present new avenues of income through the construction sector and other related industries, as stipulated in the Constitution of Kenya 2010 and the National Development Plan, Vision 2030 Strategy.
These blueprints have targeted the provision of 200,000 housing units annually for all income levels. However, the production of housing units is currently at less than 50,000 units annually, well below the target number, culminating in a housing deficit of over 2 million units, with nearly 61% of urban households living in slums. This deficit continues to rise due to fundamental constraints on both the demand and supply side and is exacerbated by an urbanization rate of 4.4%, equivalent to 0.5 million new city dwellers every year.
According to Mehnaz Safavian, Lead Financial Sector Specialist and co-author of the report, “Kenya can make housing more affordable to many more Kenyans, and in turn create new channels to boost overall economic growth both at the national and county levels.”
Numerous benefits can be attributed to improving access to housing finance, including economic growth, job creation, and deepening of the financial sector. There are various global examples supporting the “housing multiplier effect” as every dollar spent directly on a housing unit results in various indirect benefits to the country.
Kenya has the right fundamentals in place to achieve results on a significant scale. Collaborative efforts between government and the private sector are required, and a supportive policy and regulatory environment strengthened so that tools like the ones below can be leveraged:
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Narrow the affordability gap in the housing market and improved financing for both developers and users. The inaccessibility of affordable housing finance is highlighted by the fact that there are fewer than 25,000 mortgages outstanding. Mortgage debt in 2015 represented 3.15% of GDP, substantially lower than in developed countries. Banks have limited access to long-term funding and few institutions have accessed capital markets to fund mortgages. Kenya ought to explore the role of SACCOs to help bridge the gap in the housing finance market.
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Explore financing solutions can play a catalytic role in stimulating the supply and demand of affordable housing, and create momentum for other underlying reforms. Such solutions have been used in other emerging markets, including the creation of Mortgage Refinance Companies (MRCs), the provision of Housing Finance Guarantees, and developing Public-Private Partnerships (PPPs) for Affordable Housing.
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Innovative financing instruments must be accompanied by policy reform to be effective. Such reforms include the standardization of mortgage contracts, the establishment of appropriate mortgage foreclosure regulations, a clear legal and regulatory framework for mortgage-backed securities and covered bonds, and the creation of an environment conducive to mobilizing long-term domestic capital. Underpinning these is the inclusion of cooperatives and SACCOs.
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The Government of Kenya could rely on the private sector to provide financing for affordable housing, with government actively supporting the sector by creating the right environment for lenders and developers. Such support can come in the form of working with the private sector to attract financing through financing instruments, improving access to land, providing basic infrastructure, and improving the efficiency of accelerating mortgage registration and title transfers.
Outside of housing, Kenya’s economic performance is expected to strengthen once the rains return to normal, the global economy picks up, the tourism sector rebounds, and some of the underlying causes of slow credit growth are resolved, as well as the completion of major infrastructure projects.
Is Kenya loosing competitiveness in the East African market?
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Kenya’s merchandise trade performance has been dismal in recent years, in particular its exports to the East African Community. Kenya’s merchandise exports contracted by an estimated 23.3 percent in 2016. In part, this reflects weakness in global trade. In the aftermath of the global financial crisis, global trade has been subdued on account of weak demand and structural factors (Matoo et al, 2015). Nonetheless, the contraction in Kenya’s exports is not only due to weakness among its highincome trading partners. Worryingly, Kenya’s exports to the EAC saw a significant decline in 2016, a region where growth has remained relatively resilient. Of further concern is that longer term trends show that Kenya’s exports to the EAC have been on a decline for the past several years: export growth in value terms was some 29.5 percent in 2007 but has since contracted to a low of -8.9 percent in 2013. The decline in Kenya’s exports to the region in recent years has occurred despite overall growth in EAC intraregional trade, reflecting the stronger growth performance of its regional trading partners. This begs the question whether Kenya is becoming increasingly less competitive in the EAC region?
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Decomposition of Kenya’s export performance show that both agricultural and manufactured products contributed to the decline. The loss in Kenya’s exports to the region is particularly reflected in its trade with the region’s two other large economies. While Ugandan and Tanzanian imports grew at 12.4 and 16.0 percent respectively over the 2000-2015 period, their imports from Kenya only increased by 4.3 percent and 6.3 percent. Agricultural products whose exports to the EAC has weakened the most over the past 10 years include: cereals (HS10), Products of milling industry; malt and starches (HS11), lac; gums, resins & other vegetable (HS13), animal or vegetable oils (HS15), sugar and sugar confectionery (HS17). For instance, in Uganda, Kenya’s largest EAC market, the growth rate of (HS11) and (HS13) imports from Kenya declined by 25.3 percent and 11.6 percent respectively over the (2000 to 2015). Similarly, manufactured goods whose exports to the EAC has weakened the most over the past 15 years include: Chemical products (HS38), Plastics (HS39), Photographic or cinematographic (HS37), Raw hides and skins (HS41), Paper and paper boards (HS48), Glass and glassware (HS70) Iron & steel products (HS72) Electrical machinery & equipment (HS85), Motor vehicles (HS87) and Musical instruments; parts and ace (HS92). Further, in Tanzania, Kenya’s second largest EAC market, the manufacturing imports growth from Kenya has declined by 6.2 percent over the compounded annual growth of fifteen years compared to 16.8 percent of its manufacturing imports to the World over the same period. The products that contributed to this growth include: (HS 37), (HS41) and (HS92). However, it needs to be mentioned that Kenya has also gained market share in a few select dynamic export markets including European Union, Asia and America. Nonetheless, the losses far outweigh these gains, thus leading to the overall declining trend. Given the importance of manufactured exports in supporting the diversification of Kenya’s economy, the loss of market share in these products has implications for diversification of the Kenyan economy.
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How does Kenya regain its competitiveness in its backyard? Kenya has become less competitive in the EAC due mostly to cheaper products to EAC markets from elsewhere, in particular East Asia (including China). For instance, in both Tanzania and Uganda, the share of East Asia (including China) exports has increased from some 45 percent to 60 percent over the past decade. This has not only driven down market shares of Kenya’s exports but also that of other countries. However, for Kenya, the EAC market remains an important market, and provides a good platform to be able to compete globally. Reversing the decline in Kenya’s competitiveness is of paramount importance and will require both domestic policy actions to improve the competitiveness of Kenyan firms as well as efforts on a regional level to improve market access for Kenyan products and a much freer flow of goods within the EAC.
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At the domestic level, this will require policy actions to address the very low levels of labor productivity in Kenya (even compared to the Sub-Saharan African average). Labor costs in Kenya remain high relative to output and regional peers. While Kenya has invested in broadening access to education, the pay-off to educational investment has been low. Many educational assets sit idle because of mismatches, reinforcing the impression that Kenya is not making productive use of its available labor force. Several measures are needed to promote productivity. These include: (i) helping firm access skills, technology and information through, for example, technology extension or technology transfer programs; (ii) ensuring level playing field between informal and formal sector, by streamlining and reducing regulation and ensuring fair enforcement; (iii) decreasing the cost of doing business by addressing critical infrastructure gaps, especially in electricity, developing key financial infrastructure and special programs to help enterprises access financing, and accelerate and facilitate international trade; (iv) supporting firm entry and exit, which is low in Kenya, by facilitating the starting up of a business, and simplifying the insolvency framework; (v) and, streamlining revenue raising schemes that are increasing the cost of doing business unduly in Kenya.
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At the regional level, market access could be enhanced by eliminating the myriad non-trade barriers trade costs that impede on intra-regional trade. NTBs affecting intra-EAC trade include non-harmonized technical regulations, sanitary and phytosanitary requirements, customs procedures and documentation, rules of origin, police roadblocks and high costs of cross-border communications and digital transactions for the poorest citizens. A reduction in trade costs is expected to benefit all East African economies. In Kenya, it will favor its capital-intensive sector. Further, a reduction in non-tariff barriers is estimated to increase consumption of 0.16 percent in Kenya and 0.22 percent in Tanzania. Without such action, Kenya will continue to lose out on market share in EAC, and this will be particularly important for not just its exports but the diversification of its economy since, compared to its exports to advanced economies, Kenya’s exports are more diversified and include several non-agricultural or have more manufactured goods.
The KEU was prepared by the World Bank Group in consultation with the Kenya Economic Roundtable. Partnership with key Kenyan policy makers was instrumental in the production of the report. On March 9, 2017, a draft report was presented at the 21st Economic Roundtable. The meeting was attended by senior officials from the Ministry of Finance, The Central Bank of Kenya, Kenya Revenue Authority, Kenya Institute for Public Policy Research and Analysis, Ministry of Land, Housing and Urban Development and The International Monetary Fund.