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Trump and Africa: Imagining a positive legacy
The contours of Trump’s Africa policy are emerging, although key appointments, such as the assistant secretary of state for African affairs, have yet to be made.
On February 13, President Trump had telephone conversations with President Muhammadu Buhari of Nigeria and President Jacob Zuma of South Africa – his first with leaders from sub-Saharan Africa. The calls, which appear to have gone well, emphasized Trump’s two core foreign policy priorities: security and commerce.
According to Nigerian officials, Trump commended the government’s progress against Boko Haram, invited Buhari to Washington, and expressed U.S. readiness “to cut a new deal” for arms in the battle against terrorism. The conversation with Zuma reaffirmed “already strong bilateral relations” and noted that there are 600 U.S. companies in South Africa.
At the same time, the Trump administration’s controversial “travel ban” against seven Muslim-majority countries is sending mixed signals about U.S. intentions. The ban includes Somalia – where a naturalized American citizen just won a presidential election running on a strong anti-corruption and anti-terrorism platform – and Sudan – where, just before leaving office, the Obama administration lifted comprehensive economic sanctions in place for 20 years, in part due to increased cooperation on counter-terrorism. There are reports that the White House budget office could eliminate funding for the U.S. Export-Import Bank and the Overseas Private Investment Corporation. These two agencies generate U.S. jobs and profits and provide critical assistance to small, medium and large American companies competing for market-share across the continent.
Africa is on the back burner: The phone calls and other actions notwithstanding, Africa appears to be on the back burner for this administration. At a time when Germany plans to prioritize Africa in chairing the G-20 this year, the U.K. is developing a new trade agenda for the region, and China’s engagement in Africa is unflagging, it is fair to ask what the Trump administration policy might look like.
As Trump works to assemble his Africa team and translate his objectives into a policy toward the region, here are some ideas about advancing core U.S. objectives in Africa:
Infrastructure first: Increasing exports to the continent is one way to spur job creation in the U.S. In 2015, exports to Africa totaled $18 billion. These exports support more than 120,000 American jobs. Giving priority to the development of Africa’s transportation, health, and energy infrastructure could lead to a significant increase in the export of U.S. goods, services, and components. Not only could an “Infrastructure first” initiative enhance important programs such as Power Africa, but it would increase U.S. prestige by responding to Africa’s most immediate needs.
To implement such an initiative, the U.S. should consider creating a U.S. Development Finance Corporation (as outlined by the Center for Global Development), or a Development Finance Bank (recommended by the President’s Global Development Council). The U.S. needs a new instrument that more effectively utilizes and coordinates the resources of agencies such as USAID, the Overseas Private Investment Corporation, the U.S. Export-Import Bank (Ex-Im) and the Millennium Challenge Corporation in support of U.S. companies. An African infrastructure initiative can be structured to benefit economic development across the continent while returning a profit to the U.S. Treasury.
Zero tax: American companies generally perceive the risk of investing in Africa as extremely high. One approach to mitigating risk would be to allow U.S. companies to repatriate profits at a zero tax rate from investments in those countries that are eligible for benefits of the African Growth and Opportunity Act (AGOA). A zero tax on repatriated earnings would lower the risk and increase the returns for American companies investing in Africa. It would also help to make American companies more competitive in a market that increasingly favors companies from the European Union and China.
In fact, as part of his comprehensive tax reform package, Speaker of the House Paul Ryan has proposed the introduction of a “territorial” system of international taxation that would effectively eliminate all taxes on income earned overseas. Given the chances that comprehensive tax reform could be delayed, fast tracking the zero tax as it relates to profits from investments in Africa would ensure that it is implemented as soon as possible.
Executive African Leaders Program: One of the Obama administration’s most innovative programs was the Young African Leaders Initiative (YALI). Over the course of four years, YALI has created a network of more than 350,000 of the continent’s best and brightest, and involved more than 40 U.S. universities and hundreds of partners from the private sector, civic organizations, and state and local governments. Given that 60 percent of Africa’s population is below 35, an extension of YALI’s funding for four years would continue to provide training for Africa’s future leaders while strengthening U.S. ties with the continent.
One improvement on YALI would be to provide executive training to emerging professionals on the continent in areas such as health, education, energy, transportation, logistics, finance, and others central to Africa’s priorities. As part of this executive-level initiative, one major innovation could be the creation of a network for female executives, pairing executive women from the continent with their counterparts in the U.S.
The security dialogue: In his calls with the leaders of Nigeria and South Africa, Trump committed the U.S. to work “for peace and stability” on the African continent. Indeed, this has been an enduring objective of previous administrations.
Elevating the security dialogue with African leaders, especially Africa’s defense ministers, should continue to be a priority for the United States. Already, American officials, business leaders, and civil society representatives have achieved a greater understanding of African markets by meeting annually with African trade ministers and businesses at the AGOA Forum. Participation by Secretary of Defense James Mattis and other senior officials in similar meetings, such as the Tana High-Level Forum on Security in Africa, could help deepen U.S. understanding of security challenges on the continent. The time could be propitious for the creation of an Africa security dialogue like the one that takes place at the Munich Security Conference and the Shangri-La Dialogue in Asia.
The U.S. engagement in Africa is based on a commitment to good governance, accountability, and respect for human rights. Deepening this commitment will be central to the Trump administration’s ability to leave its own positive legacy on the continent, especially as it relates to infrastructure development, trade and investment, and security.
Witney Schneidman is a Non-resident Fellow at the Brookings Institution – Global Economy and Development and the Africa Growth Initiative.
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Aviation experts brainstorm on how airlines can keep afloat, in business
For two days, last week, Kigali hosted a continental aviation forum that brought together over 500 delegates from over 50 institutions and firms with multiple conversations about the industry’s growth on the continent.
As participants noted the growth potential of the industry on the continent, most had concerns of multiple bottlenecks that need to be addressed.
The gathering came at a time when national carrier RwandAir is working on an expansion drive that has seen the airline acquire new fleet and enter new markets.
With most countries registering economic growth in recent years and consequently expanding their middle classes, experts say that presents chances for airlines growth due to an increase in disposable incomes.
For the airlines to grow, however, African countries ought to liberalise and deregulate their airspace to make it more attractive for operators within the continent.
At the moment, only about 17 countries have opened up their skies, which limits the expansion of regional carriers across the continent, the experts noted.
Dr Elijah Chingosho, the secretary general of African Airlines Association, said liberalisation of airspaces will see African airlines serve more destinations as they will not be hindered by national barriers.
A number of countries prefer to open up their skies to non-African countries as opposed to African countries which has seen the African aviation market taken up by European and Asian players.
For example, Turkish Airlines serves 51 African destinations, which is far beyond any African airline.
This hesitance to open up airspace, Chingosho said, saw African airlines report a loss of about $800 million against a global profit of $35.6 billion.
“If we open up our airspaces, African airlines will be able to serve more destinations, increase competition against the international airlines. We will no longer see cases where one has to travel outside the continent to connect to another African country as is the case now,” he said.
At the moment, travellers on the continent often have to connect to African destinations via Paris, Dubai and Qatar.
Another factor that could see the growth of African airlines, according to the experts, is visa regimes that allow for easy movement of Africans across the continent. This easier movement of people across Africa they say would create demand for travel across the continent, putting airlines in business.
Free trade area
Chingosho noted that the operationalisation of the continental free trade area would create demand for air travel as Africans do business with each other.
“If we walk the talk by implementing the continental free trade area and create a larger trading bloc, there would be a necessity for people on the continent to travel, meaning more business for airlines,” he said.
To increase their profitability, experienced industry players say that the airlines also ought to have multiple revenue streams beyond passenger travel.
Girma Wake, the chairperson of Board of Directors of RwandAir, and former chief executive of Ethiopian Airlines, said the airline business being a costly venture often has very small profit margins.
This, he said, requires airlines to mull multiple avenues of income generation with options such as aviation training, catering among others.
This would supplement their incomes and keep them profitable in the long run.
Wake also observed that emerging airlines ought to have cost discipline as they go about their expansion plans so as to save and avoid unnecessary expenditure.
The former Ethiopian Airlines chief executive expressed concern in the business models of a number of airlines, saying a number of operators on the continent were not worth the name ‘airline’.
“The problem is that most carriers are started by people who do not understand aviation, simply because they have money they start an airline. The airline business is for somebody who has long term view. Any airline that has under 10 aircraft, most of them small airline is similar to a taxi business. Just because they are not worth the name airlines,” he said.
To remedy this, Wake said it was time to consolidate small airlines through mergers and acquisitions which would guarantee African airlines a place in the market.
“Gradually they should be forced to consolidate, buy into one another, they should work with each other and consolidate for the future. If they do not do that, carriers from outside will take the whole market as the African operators die one by one,” Wake explained.
Raphael Kuuchi, the vice-president of the International Air Transport Association (IATA) for Africa, said as the operators seek to grow, they ought to conduct due diligence including during acquisition of planes and other investments.
Kuuchi said that investments ought to reflect long term ambitions of the airlines and take into account the findings of comprehensive assessments.
“The airlines ought to look at their markets and ambitions. It’s never a decision about today, it’s about the future,” he said.
Citing an example of national carrier RwandAir, he said the airline seemed to be making calculated investments as it seeks to go from a regional airline to serving intercontinental operations.
“RwandAir began as a regional airline then expanded to the West African market. Now they want to venture into intercontinental operations, you need the right aircrafts. That is the kind of assessment and right economics one needs to take into account,” Kuuchi.
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tralac’s Daily News Selection
Diarise:
Trade Out of Poverty @APPG_TOP: Next month, we’re partnering with @DFID_UK to host a high level roundtable on “Africa & the TFA: from ratification to implementation”
Prospects for SADC regional integration through industrialization and the role of China: The seminar (20-21 April, Johannesburg) will examine the China-SADC relationship in the context of SADC’s new industrialization policy and its Revised Regional Indicative Strategic Development Plan.
The 2nd high-level East African Manufacturing Business Summit and Exhibition, organized by the EAC, is scheduled to take place 23-25 May, in Kigali. The 2nd EAMBS is expected to create greater awareness about the opportunities and challenges arising from the Common Market Protocol for the regional manufacturing sector.
EU trade and investment in Southern Africa: Business Climate Survey 2016 (EU)
Economic contributions: With regards to operations in SA, Figure 7 shows that SA is a preferred destination for regional headquarters (68%) and sales offices (54%) of EU companies. This means that in spite of satisfaction levels, SA remains an attractive and stable hub for the EU and EU-associated companies for establishing their presence in the Sub-Saharan Africa. Trade: In relation to the future trade conditions, Figure 18 shows that there is no unanimity among the respondents. There is a similar number of respondents expecting an improvement as there are expecting a worsening situation. A clear majority of 50% have mixed expectations. Border protection against counterfeit and substandard goods stands out among the other variables as only 10% have positive expectations. Respondent’s profile: Most respondents are from the four largest EU economies (62%): 22% from Germany; 15% from France; 15% from Italy; and 10% from the United Kingdom. Of the smaller economies, 9% of the respondents are from Austria and 5% from Finland. This suggests that smaller EU economies are also important stakeholders in the SA economy. [Download, pdf]
Namibia: draft Fifth National Development Plan 2017-2022 (pdf, National Planning Commission)
Section 2.6 Strengthened export capacity and greater regional integration: Desired Outcome: Double the level of export from the 2015 levels and diversify the export of manufactured goods to 60% of the total exports. How we are getting there: (i) Increase export potential by focusing on greater industrialization through innovation and technology. (ii) Leverage Namibia’s membership within SACU and SADC in order to seek opportunities to pool resources and provide a framework for the regional management of infrastructure, such as transportation corridors. (iii) Collaborate with regional neighbors on common environmental challenges such as droughts in order to advance adaptation and resilience across the regions. (iv) Harmonize technical standards and regulations trans-region. This strategy aims at standardizing customs procedures with regional neighbors to facilitate trade. This will also have a beneficial impact on the investment climate in the country.
Ron Sandrey: ‘Issues for CFTA negotiators to consider’ (tralac)
In order to achieve a successful outcome to the negotiations, there are three crucial issues that we believe negotiators and African policy makers need to be clear about: Firstly, that the modern free trade agreement is not overwhelmingly or even importantly about comprehensive free trade or the elimination of import tariffs. It is about the reduction of tariffs over time that aim, to the extent possible, towards their elimination (or more realistically, mitigation) and trade facilitation. Secondly, the corollary of the first, is that several issues are at least as important as tariff elimination, and this paper will discuss some of these issues. And finally, acknowledging the realities of African politics, there needs to be a recognition in Africa that not all countries are ready or able to join an FTA at this stage. Arrangements to recognise and accommodate this while still moving ahead with the FTA need to be found. If these arrangements are not found, the several failed or semi-failed states in Africa will ensure the dream of African integration is never realised.
Related, from tralac: Willemien Viljoen discusses what the Continental Free Trade Area negotiations can learn from the Regional Comprehensive Economic Partnership negotiations in Asia; Nicholas Aris Charalambides provides a legal and economic assessment of South Sudan’s possible accession to the EAC.
Christopher Wood: ‘A practical agenda to reducing technical barriers to trade in SADC’ (TIPS)
This policy brief provides context for technical regulation in the region. It then offers some cross-cutting solutions for developing monitoring mechanisms that can allow policymakers to identify problem areas, and some specific interventions for the Standards, Accreditation and Metrology functions that can build capacity at low cost. It provides some recommendations for a practical agenda on reducing Technical Barriers to Trade in the Southern African Development Community – ones that can be executed with minimal cost, and that improve the institutional capacity of regional organisations to grapple with the complexity inherent to the field. Above all, these regulations will need to be carefully attuned to assure that they provide the maximum protection for the region from dangerous substandard imports, while still allowing for a dynamic, mutually beneficial trading relationship.
Dr Patrick I. Gomes: ‘Securing ACP economic interests after BREXIT’ (IDN)
While the full implications of BREXIT will not be known for some time, the ACP believes that it is important to engage with both the EU and the UK to convey our expectations, and possibly fears, now that BREXIT is on the path to the trigger of Article 50 and a 2-year period to complete a negotiated exit. It is for this reason that both the ACP Secretariat and the Ramphal Institute agreed to commission a study, the outcome of which is the book we are about to launch. Let us briefly highlight some significant aspects of the study: [The author is ACP Secretary-General]
Zimbabwe’s trade deficit narrows to $126m in January (Zimbabwe Daily)
Zimbabwe’s trade deficit narrowed to $126m in January, compared to $146m in the same period last year, official figures show. Figures released by the Zimbabwe Statistical agency on Wednesday revealed that Zimbabwe imported goods worth $385m in January, against exports of $259m. Major exports during the month under review included flue cured tobacco worth $2.02m, granite ($29.3m), nickel ($7.5m), chrome ($8.55m), gold ($56.71m) and ferrochrome ($26.12m). Imports from South Africa, Zimbabwe’s biggest trade partner, declined 30% to $146 million in January 2017 against exports of $214m as the trade balance between the two countries normalised. Other import source markets in the period under review were Singapore ($69m), China ($58m) Zambia ($10m) and Mauritius ($10m).
Angola: South African group Distell starts beverage production (Macauhub)
The group invested US$20 million in the construction of the plant, which at an early stage will produce 10 million litres per year, with revenues in kwanzas used to expand production to bottled drinks and gradually replace exports to that market. Until the construction of the plant, the group, which produces and sells wine, brandy, cider and other alcoholic beverages, supplied the Angolan market with goods produced in South Africa.
Kenya, Zambia in fresh bid to resolve long standing trade barrier (COMESA)
Kenya and Zambia have launched a fresh bid to unlock a long standing non-tariff barrier affecting trade in milk and palm oil. A Kenya government delegation led by Dr Chris Kiptoo, the Principal Secretary, Ministry of Industry and Cooperatives was in Zambia for three days this week for bilateral talks with Zambian counterparts. Kenya’s milk and palm oil products cannot access the Zambia market owing to conflict on standards. With regard to milk, Zambia’s standard allows total bacteria count (TBC) of 200,000 while Kenya’s follows the international benchmark of one million TBC. “We need COMESA standard so that we can start trading”, Dr Kiptoo said when he visited the COMESA Secretariat for a courtesy call. He attributed the 13 year stalemate to the absence of a common COMESA standard that would guide the import and export of the various commodities across borders in the region. COMESA Director of Trade, Dr Francis Mangeni, said the milk and palm oil hurdle was the last two of the remaining four unresolved NTBs in the region.
SADC needs $100bn to recapitalise railways (The Herald)
SARA executive director Mr Babe Botana said the rehabilitation of the North-South Corridor and many others in the region would also help regional railways reclaim their market lost to road network. The railway infrastructure plays a key role in promoting the region’s re-industrialisation. “The North South Corridor ferries minerals from DRC, the Copperbelt, Zimbabwe and Botswana into the ports in South Africa, that is why it is the mostly talked about corridor,” said Mr Botana. “We need to rebalance most of the infrastructure on the railway side; change the rails and replace them with those that can accommodate high speed (trains). Some of them are worn out, we really need to do something. At SADC level we call it recapitalisation, and if nothing is done eventually there will be no rail infrastructure because this will also have an impact on our road networks as traffic will increase on roads.”
Mining in Africa: are local communities better off? (World Bank)
This study focuses on the local and regional impact of large-scale gold mining in Africa in the context of a mineral boom in the region since 2000. It contributes to filling a gap in the literature on the welfare effects of mineral resources, which, until now, has concentrated more on the national or macroeconomic impacts.
Regional police chiefs meet over cross-border crimes (New Times)
A meeting of the Eastern Africa Police Chiefs Cooperation Organisation started yesterday in Kigali with heads of criminal investigations, counter-terrorism, gender and legal departments discussing how to foster cooperation to combat transnational organised crimes in the region.
Emerging policy issues: measures affecting trade in government procurement processes (pdf, Working Party of the Trade Committee, OECD)
A number of countries used discriminatory government procurement policies as part of stimulus packages designed to alleviate the effects of the global economic crisis. The re-emergence of these policies has caught the attention of trade policy makers and highlighted gaps in the evidence base needed for policy decisions. Government procurement information at the global level is sparse. There is a lack of statistics related to the size of procurement markets, the flows of trade in procurement, and the types of discriminatory procurement measures implemented by governments. The size of government procurement markets is estimated to be between, on average, 11% and 12% of GDP in 2011, based on a sample of 89 countries (not including China). Government procurement expenditure appears to be increasing both in terms of value and share of GDP. This paper is the first part of an OECD project to fill some of these evidence gaps:
Global Report on Islamic Finance (World Bank)
The key findings of the report include a need for sound regulatory framework for Islamic financial institutions due to the obvious differences from the conventional banks, harmonizing of Shariah standards and more discourse related to the underlying mechanism of Islamic financial products. Islamic capital markets both equity and Sukuk (Islamic bonds) are vital for the development of Islamic financial markets. Finally, instruments of Islamic social finance and redistribution could contribute further to enhance the shared prosperity.
Angola accedes to the Revised Kyoto Convention
Burundi discusses membership of Afreximbank
Tanzania demands study on impact of EU trade deal
Programme Arab-Africa Trade Bridges: Ce que recommandent les membres de l’OCI
Nigeria, Benin to implement MoU on border security, trade facilitation (ThisDay)
EU food exports hit record level
Brexit could help India-European Union FTA: report
UNCTAD, UN Women programme on gender perspectives and ‘care economy’ in macroeconomics
Is it too early to agree on SDG indicators for transport?
Next generation, ‘lightning’ fast global communication network on track for 2020 entry, says ITU
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New evidence overturns traditional approaches to agriculture investment
The majority of the world’s poor live in rural areas, with 70 percent of the rural poor working in agriculture. Ramping up agricultural productivity will be critical to lifting these households out of poverty.
“Governments in developing countries spend large amounts on agricultural extension services,” said Director of Research Asli Demirguc-Kunt at a recent Policy Research Talk on agriculture. “But there are many other constraints that impede productivity-enhancing investments. It’s quite challenging to design policies that will deliver the biggest bang for the buck.”
These constraints are most evident in Sub-Saharan Africa. While the Green Revolution has helped triple or quadruple cereal yields in most regions of the world over the last 50 years, agricultural productivity in Sub-Saharan Africa has been stagnant.
According to Florence Kondylis, a Senior Economist at the World Bank, many “big push” agriculture projects that focus on multiple constraints – from technology to finance to irrigation – have benefited farmers. But these projects often fail to catalyze a rural transformation that could significantly reduce extreme poverty and free up labor for growing industrial and services sectors. The evidence base on what works to promote agricultural productivity has been too sparse.
Fortunately, that is changing. The World Bank is currently running over 30 impact evaluations on agriculture projects, with the majority based in Sub-Saharan Africa. Most of these employ an experimental approach to ensure rigorous findings.
Agricultural extension services is one area where new evidence is upending traditional approaches. An impact evaluation in Bangladesh examined new approaches to demonstration plots designed to show farmers the benefits of a new seed or technology. The traditional approach relies on a single demonstration plot in a village, with farmers learning simply by observing. But the Bangladesh impact evaluation had farmers experiment directly with new seeds, and found considerably greater adoption of the new seeds two years later in the villages where farmers conducted their own experiments.
“This evidence invites us to break away from the traditional extension system towards a system where farmers experiment for themselves in their own conditions,” said Kondylis.
Another simple but highly effective innovation: feedback tools. An experiment conducted in Rwanda found that giving farmers the opportunity to provide feedback on extension services via a scorecard or logbook dramatically increased attendance at meetings. The effect was particularly strong for women.
Gender discrimination also plays a role in limiting the value of traditional extension services. Women are often less likely to partake in extension services, both as suppliers and as recipients. An experiment in Malawi demonstrated that while women trained as contact farmers outperformed men in mastering a new technology, their ability to spread the new technology to other farmers was limited by gender bias. However, a modest monetary incentive was enough to overcome this bias.
Irrigation is another area where on-the-ground realities have failed to live up to expectations. Irrigation holds enormous potential to increase yields and reduce risk, but only about one-third of the land in Sub-Saharan Africa equipped for irrigation is actually irrigated.
In Rwanda, an ongoing trial is testing the use of temporary irrigation fee subsidies to kick-start a move toward higher-value cash crops, with promising initial results.
Additional trials have been testing other key areas of reform, including how to better secure farmers’ property rights, provide financing, and create deeper markets for inputs such as seeds and fertilizer.
“The amount of investment that donors have put into the food security sector has really spiked over the last seven or eight years,” said Daniel Peters, Director of the Office of Development Results and Accountability at the US Treasury Department. “It’s helpful for us to have in-depth impact evaluations to understand the kind of impact we’re having.”
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Agribusiness trade as a pillar of development: Measurement and patterns
Agribusiness is en vogue, fostered by a new understanding of the agricultural sector as a major contributor to overall growth and poverty reduction and through its linkages with the manufacturing and services sector.
In order to efficiently link farmers and consumers across countries and regions, quantifying and analyzing agribusiness trade flows is key. But how can we measure international agribusiness trade flows in a systematic way to identify important patterns?
Measuring agribusiness trade flows
First, we need an economic framework to help us structure what we want to measure. Despite the recent popularity of agribusiness and its importance as a pillar for development, there is no universal agreement on what activities or products should be subsumed under the term agribusiness. According to the pioneers of agribusiness and so-to-speak creators of the term, John H. Davis and Ray A. Goldberg, it can generally be defined as “the total sum of all operations involved in the manufacture and distribution of farm supplies; production operations on the farms; and the storage, processing and distribution of farm commodities and items made from them” (Davis and Goldberg 1957).
Based on Davis’ and Goldberg’s definition, using the national accounting structure, we depict agribusiness as a set of economic activities in which the agricultural sector overlaps with the manufacturing, services, and other economic sectors. Internationally traded agribusiness relies on various services (e.g. transport, finance, communication) and involves at least basic manufacturing or processing steps. It is a subset of agribusiness.
Second, to account for the heterogeneity of the agribusiness sector, we distinguish between primary and manufacturing agribusiness products using the Standard Industrial Classification (SIC) system. Primary agribusiness includes 3 categories (agriculture; livestock; forestry), whereas manufacturing agribusiness includes 10 categories to reflect the variety of traded products (canned; cereals; drinks; leather; meat; oils; paper; tobacco; wood; other). We then use the UN Comtrade database to estimate agribusiness trade flows for the defined categories for 184 countries for the period from 1990-2014.
Patterns of international agribusiness trade flows
Our analysis reveals a few interesting patterns:
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In absolute values primary and manufacturing agribusiness trade has expanded substantially around the world from 1990 to 2014 – primary agribusiness from $195 billion to $963 billion and manufacturing agribusiness from $498 billion to $2,812 billion of constant 2010 U.S. dollars. However, the shares of primary and manufacturing agribusiness in total trade have been mostly stable during that period, shrinking from 6 to 5 percent and 16 to 14 percent, respectively.
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As countries’ income increases, the ratio of manufacturing to primary agribusiness decreases for imports and increases for exports. Therefore, this ratio can be considered as a proxy for the degree of sophistication of agribusiness trade. Whereas the share of primary agribusiness imports in total imports has been small, manufacturing agribusiness imports have played a major role, especially in low-income economies where they have accounted for almost 25 percent of their total imports from 1990 to 2014. Moreover, primary agribusiness exports have been a major component of total exports in low-income countries, greatly exceeding their manufacturing agribusiness exports.
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Trade of manufacturing agribusiness has expanded faster than primary agribusiness, especially in low-income countries. Across all income classifications, the growth rates of imports and exports of all defined categories have been positive indicating the constant expansion of the sector. However, the expansion has been uneven across the different categories and income groups. On average, growth rates in primary and manufacturing agribusiness imports and exports have been higher in low-income countries than in high-income countries or middle-income countries, and lowest in high-income countries. For manufacturing agribusiness for example, oils, meat and cereals exports have increased at annual growth rates of more than 20 percentage points in low-income countries, compared to annual compound growth rates of around 10 percentage points in high-income countries.
Studying agribusiness trade flows and their patterns across countries and regions and understanding the reasons behind those patterns can give governments some indications on major constraints as well as the potential of the sector and its components.
More empirical evidence and analytical work is needed from several angles in order to improve respective policies in the sector. This includes, for instance, the impact of the regulatory framework on agribusiness trade, the role of infrastructure and institutions on the business environment in agriculture and the effects of trade-partner diversification on trade volume and composition. The World Bank’s Enabling the Business of Agriculture (EBA) initiative is an example of an attempt to identify laws and regulations that support agribusiness.
See the recently launched Enabling the Business of Agriculture 2017 report.
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Next gen, ‘lightning’ fast global communication network on track for 2020 entry – UN agency
A working group of the United Nations agency which coordinates telecommunication operations and services throughout the world completed today a cycle of studies on the key performance requirements of the next generation mobile networks (5G technology) for the International Mobile Telecommunications (IMT)-2020 systems.
According to the UN International Telecommunication Union (ITU), 5G mobile systems would provide lightning speed, ultra-reliable communications for broadband and the Internet of Things (IoT).
“IMT-2020 will be the global cornerstone for all activities related to broadband communications and the Internet of Things for the future – enriching lives in ways yet to be imagined,” said the ITU Secretary-General, Houlin Zhao, in a news release.
The draft report – describing key requirements related to the minimum technical performance of IMT-2020 candidate radio interface technologies, including data rate, bandwidth, latency, area traffic capacity, energy efficiency and reliability – is expected to be approved at the ITU Radiocommunication Sector (ITU-R) 5G meeting in November.
Underscoring the importance of the IMT-2020 standard, François Rancy, Director of ITU's Radiocommunication Bureau said: “The standard is set to be the global communication network for the coming decades and is on track to be in place by 2020.”
“The next step is to agree on what will be the detailed specifications for IMT-2020, a standard that will underpin the next generations of mobile broadband and IoT connectivity,” he added.
According to ITU, early technical trials, market trials and deployments of 5G technologies based on the foreseen developments slated for IMT-2020 are not anticipated.
These systems may not provide the full set of capabilities envisaged for IMT-2020, but the results of these early activities will flow forward into, and assist the development of, the final complete detailed specifications for IMT-2020, noted the UN agency.
ITU added that IMT is the on-going enabler of new trends in communication devices – from the connected car and intelligent transport systems to augmented reality, holography, and wearable devices, and a key enabler to meet social needs in the areas of mobile education, connected health and emergency telecommunications.
Members of the working group responsible for IMT systems, include key actors from the technology industry, national and regional standards development organizations, regulators, network operators, equipment manufacturers, academia, research institutions and ITU member States.
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Tanzania demands study on impact of EU trade deal
Tanzania wants a study conducted on the impact of the Economic Partnership Agreement with the European Union on the East African Community, ahead of the Summit of Heads of State scheduled for next month.
The demand reiterates Tanzania’s position that Kenya and Rwanda should not have signed the EPA last year and, given the inadequate time before the summit, there won’t be much progress on the matter before April 1, when the EU expects the EAC to sign up to the accord.
In an EAC Sectoral Council of Ministers’ meeting on trade, industry, finance and investment held in Arusha this month, Tanzania demanded that the EAC Secretariat conduct an analysis on the effects of the EPA on the Community. This, Dar es Salaam said, would bring about regional perspectives on the concerns they have raised with Burundi.
“The results will guide the ministers’ and presidents’ decision on the EPA in the next summit or even at a later stage. Signing a bad EPA will set a bad precedent, which will compromise the region’s interests in subsequent Free Trade Area negotiations,” said Tanzania in the sectoral council’s meeting report.
Tanzania further asked: “What is the rationale of Burundi signing the EPA while the EU has imposed an embargo on its exports? How will EAC partner states avoid such scenarios of the EU unilaterally putting embargoes on trade under the EPA while Article 136 of the EPA still refers to the same agreement that the EU has used to put an embargo on Burundi. How will the EAC partner states operationalise the free movement of goods while there is no free circulation of goods in the region and no refund mechanism for Customs duty paid to another partner state?”
Tanzania’s concerns have been forwarded to the EAC Council of Ministers for guidance and direction at their next meeting expected at the end of this month just before the summit.
Ministers’ decision
During the meeting, Burundi cautioned that the issue relating to EU sanctions needs to be considered and resolved.
It was thus agreed that a high level political engagement between the EAC and EU be explored to address the issue of EU sanctions on Burundi.
EAC Deputy Secretary General for productive and social sectors Jesca Eriyo said that the decision on the EPA is expected to be finalised by the ministers before the next summit and that partner states were committed to doing so.
According to Betty Maina, Principal Secretary in Kenya’s Ministry of EAC Affairs, the other option for the partner states is for the summit to allow variable geometry, where countries will approach the implementation on different timeframes. This will allow the partner states that are ready to sign and implement the EPA to go ahead with the decision.
However, Article 37 of the EAC Customs Union Protocol stipulates that the partner states should sign the EPA as a bloc.
“If Tanzania doesn’t sign the EPA and others do, this means the deal cannot be operationalised. It means EAC countries shall trade with EU under different trade regimes that are unilateral and can be changed by EU any time. This is not good for attracting investors into the region,” said former EAC director of trade and Customs Peter Kiguta.
‘Most favoured nation’
The other concerns raised by Tanzania touch on the effect of the “most favoured nation” clause under the EPA on the future engagement of EAC with third parties, how the EAC partners will hold the EU party liable as one party in case of failure to implement any of the EPA provisions when Article 132 (1) of the EPA does not define the EU as one party when it comes to the definition of parties and fulfilling of their obligations.
“How will the EAC partner states bridge the gap in their balance of trade with EU while continuing trading with raw materials, taking into account that the EPA has limited EAC policy space in instituting duties and taxes on export?” asked Tanzania.
However, Tanzania is requesting the EAC to also explore how to proceed in the event that some partner states do not sign the EPA.
In November last year, Tanzania’s parliament voted for the country not to sign the EPA as it would not benefit from it. The EPA was to be signed in July 2016 but Tanzania asked the EU to extend the deadline to January this year so it could do a cost-benefit analysis of the deal.
Kenya has signed and ratified the agreement while Rwanda has only signed. Uganda has said it will sign the EPA while Burundi has indicated that it is not in a position to sign it because the EU has suspended relations with the government, but has maintained co-operation with the private sector and civil society.
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The IMF’s work on inequality: Bridging research and reality
IMF research shows that while trade and technology are important drivers of inequality, government policies also matter. The Fund is building on years of research to offer member countries concrete policy solutions.
Over the past three decades, income inequality has gone up in most advanced economies and in many developing ones as well. Why? Much of the research on inequality has focused on advances in technology and liberalization of trade as the main drivers. While technology and trade are global trends that are difficult to resist, IMF studies have shown that the design of government policies matters and can help limit increases in inequality.
Another important conclusion of IMF research: rising inequality poses risks to durable economic growth. This puts addressing inequality squarely within the IMF’s mandate to help countries improve economic performance. So, the IMF is now building on years of research into inequality to offer its member countries policy solutions, particularly on equitable ways to tax and spend.
Understanding inequality
A good example is Bolivia, which had one of the highest levels of income inequality in Latin America at the turn of the century. When prices of its commodity exports boomed early in this century, the country saw a big reduction in inequality that put it in the middle of the regional pack. Eager to preserve those gains, the government wanted to understand the causes of the decline, and to develop policies that could keep inequality from creeping back up as a result of the recent drop in commodity prices.
Against this backdrop, inequality featured prominently in the IMF’s annual consultations with the government in 2015 and 2016, which drew on a detailed study using income data for Bolivian households. This deep dive showed that inequality had declined because the wealth from commodity exports had been shared with the rest of the economy through increased public investment, social transfers, and a higher minimum wage. Another study demonstrated the key role that expanding access to financial services could play in lowering inequality.
The IMF developed a model of the Bolivian economy to simulate how inequality was likely to evolve and to test which policies could help preserve the gains. Maintaining infrastructure investment and making it more efficient and better targeting cash transfers turned out to be the best policy levers.
Ethiopia offers another example of practical IMF advice. There, the IMF reviewed the evolution of inequality and measured the distributional impact of policies to enhance growth. Its recommendations included making income-tax thresholds more progressive, promoting financial instruments for rural savers, and revamping indirect subsidies to better serve low-income households.
Causes: budget deficits, labor markets
In studying the causes of inequality, IMF economists have focused on three policy areas: reducing budget deficits through tax increases or spending cuts, liberalizing labor markets, and removing barriers to the movement of capital across borders. While these policies can be beneficial, they can also sometimes have the side effect of raising inequality.
Studies of specific countries corroborated those findings, which were based on a broad sample.
Research on Honduras, Guatemala, Republic of Congo, and Uganda confirmed that fiscal policies have a strong impact on inequality.
They also show that the size of the impact depends on how taxes are collected and revenue spent. The effects on inequality are larger when there is less recourse to direct income taxes and greater reliance on indirect taxes; on the other hand, spending on infrastructure reduces inequality.
Case studies of Ethiopia and Myanmar confirm that financial sector reforms can exacerbate inequality if access to financial services remains limited and labor mobility is constrained.
Consequences: inequality and growth
The importance that many governments are now giving to addressing inequality suggests that they feel that not doing so will have adverse socio-economic consequences. Their concerns have been bolstered by the finding of IMF research that inequality makes economic growth less durable.
This result has attracted considerable attention because it shows that high inequality imposes a direct economic cost, in addition to the costs highlighted by other (non-IMF) authors such as capture of the political process by elites, and a decline in social cohesion. The result also puts inequality within the remit of the IMF’s work: fostering sustained growth, a goal of IMF advice, requires some attention to inequality.
Why does greater inequality end up hampering durable growth? In developing economies, higher inequality has sometimes led to social or political crises, which in turn can derail growth.
In advanced economies, IMF work shows that greater inequality in incomes may lead to excessive borrowing by low- and middle-income households, which eventually triggers a crisis, a sequence of events that characterized the run-ups to both the Great Depression and the Great Recession.
The IMF’s latest review of the US economy showed that income polarization since 2000 has “had a negative impact on the economy, hampering the main engine of US growth: consumption.”
Cures for excessive inequality
Studies of the causes and consequences of excessive inequality naturally lead to discussions of possible remedies. For example, if fiscal policies contribute to inequality, the IMF’s advice on the design of these polices needs to account for that fact. This is both because the distributional consequences may be important in their own right to some governments, and because they can reduce the durability of growth.
The design of fiscal policy is critical for both redistribution and “predistribution” – improving equality of opportunity to prevent extreme inequality from arising in the first place. These policies include public spending on health and education, which can improve equality of opportunity for people from lower-income households.
In contrast, redistribution refers to actions taken after the fact so that disposable – or net – incomes are more equal than market incomes. Steps include progressive taxation, cash transfers to low-income families, and other welfare benefits. One important research finding, which has implications for the design of many policies, is that redistribution, unless extreme, does not have an adverse impact on growth.
Conclusion
To summarize, IMF work has made important contributions to the study of inequality.
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On causes, the finding that economic policies are an important determinant of inequality implies that governments can take steps to reduce inequality when it is deemed excessive;
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On consequences, inequality has been shown to have a direct economic cost in terms of reduced durability of growth – this puts it with in the remit of the IMF’s core work;
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On cures, the design of policies should take into account the distributional outcomes. This is increasingly being done in the advice that the IMF gives to it member countries.
Read also the recent IMF statement on operationalizing inequality.
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tralac’s Daily News Selection
African trade and regional integration policy issues featured in debate at yesterday’s Africa Knowledge Fest in Washington: scan @WorldBankAfrica tweets, or #AfricaKnowledgeFest
WTO’s Trade Facilitation Agreement enters into force (WTO)
Implementing the TFA is also expected to help new firms export for the first time. Moreover, once the TFA is fully implemented, developing countries are predicted to increase the number of new products exported by as much as 20%, with least developed countries likely to see an increase of up to 35%, according to the WTO study. DG Azevêdo welcomed the TFA’s entry into force, noting that the Agreement represents a landmark for trade reform. He said:
Related: Statements, commentaries by: ITC’s Arancha González, World Customs Organization, International Chamber of Commerce, Frank Appel (Deutsche Post DHL Group), ICTSD
Horizontal depth: a new database on the content of preferential trade agreements (World Bank)
This paper contributes to the literature in two ways. First, it presents a new database that offers a detailed assessment of the content of preferential arrangements, examining the coverage and legal enforceability of provisions. The database covers 279 agreements signed by 189 countries between 1958 and 2015, which reflects the entire set of preferential trade agreements in force and notified to the World Trade Organization as of 2015. Second, the paper presents some novel stylized facts on preferential arrangements based on the analysis of the data. The key insight is that preferential trade agreements became deeper over time.
China’s Belt and Road: implications for Africa (WWF)
The objective of this study is to summarize and analyze best available information on the Belt and Road Initiative in the context of China-Africa relations and develop scenarios on how the Initiative is likely to unfold in Africa. The study pursues this objective by offering a first-of-its-kind overview of key actors and institutional arrangements of the Belt and Road Initiative in China and Africa before developing a ranking of African countries that are likely to become part of the Initiative. The study finds that in addition to South Africa and Egypt, Angola, Kenya and Tanzania are likely to be immediate Belt and Road Initiative countries and the Republic of Congo, Ethiopia, Nigeria, Morocco, and Mozambique to join in the near future. [The analysts: Alex Demissie, Moritz Weigel, Tang Xiaoyang]
Arab Africa Trade Bridge: speech by ITC’s Arancha González
There are also huge opportunities for investment across the two sub-regions. Foreign Direct Investment can come with access to international supply chains, technology and know-how, and even infrastructure, with spillover benefits for local businesses. We need to change the narrative. When the trans-Saharan routes do make the news, it tends to be in the context of regional insecurity, or irregular migrants risking their lives to get to Europe. The Arab-Africa Trade Bridge has the potential to change this as increasing trade and investment across these regions would unleash growth and job creation, broadening economic aspirations for young and growing populations from Mauritania to the Gulf. An Afro-Arab trade renaissance would complement the ongoing revival of another ancient trade route: the Silk Roads linking China to the Middle East, Europe, and Africa. As part of Beijing’s ‘One Belt, One Road’ initiative, new rail links as well as road and energy infrastructure have already been constructed through Central Asia, and are extending into South Asia and the Middle East. They are being complemented with investments in maritime infrastructure from Eastern Africa to South East Asia.
South Africa: Budget 2017 (National Treasury)
Extract, Chapter 2 Economic overview (pdf): Export volumes decreased by 1% in the first three quarters of 2016. Over the same period, the value of exports increased by 8.1%, led by agricultural, manufacturing and precious metals items. Exports to Europe recorded the strongest growth in value terms, while exports to sub-Saharan Africa increased by 3% in line with the slower growth in the region. Export growth is expected to reach 5% in 2019, supported by higher global growth, fewer mining safety stoppages and sustained real depreciation of the rand. The broad decline in imports during the first three quarters of 2016 included petroleum oils, locomotives, vehicles, industrial machinery, computing equipment and electrical machinery. Over the medium term, imports are expected to recover in line with domestic demand. Higher exports will in turn boost imports, because large exporters tend to be major importers of intermediate inputs.
Export prices increased faster than import prices over the first three quarters of the year, driven by the uptick in commodity prices. This improvement in the terms of trade was reflected in higher nominal GDP and stronger growth in corporate income tax revenue. Moderate terms-of-trade gains should continue in 2017 but dissipate towards the end of the forecast period. The current account deficit is expected to remain at about 4% over the medium term. [Profiled departmental budget summaries: Trade and Industry, Economic Development, International Relations and Cooperation]
Shoprite: Non-RSA sales performance update (Shoprite Holdings)
The star performer during the reporting period was its Supermarkets Non-RSA division, which grew turnover by 32.3% to R12.88bn. Of the 14 countries in which it trades outside the borders of South Africa, Angola and Nigeria performed particularly well. The Group was able to overcome the foreign currency shortage in those countries and, unlike other traders, managed to keep shelves fully stocked. The result was that consumers flocked to its stores leading to a constant currency sales increase in Angola of 155.4% and 60.1% in Nigeria.
Museveni asks Indian automobile manufacturers to "make in Uganda" (The Hindu)
Mr Museveni did, however, put Indian automobile manufacturers on notice by announcing that the East African nation would soon be ending import of assembled automobiles. While admitting that the trade balance was in favour of India (Indian exports are projected to stand at $326.67 million this year compared with Ugandan exports to India at $46.7m), Mr. Museveni was keen that automobile manufacturers assembled vehicles in Uganda, creating the much-needed jobs. “It is true that bilateral trade is in favour of India, but that will now change. I have already held talks with Volvo to move their assembly plant from Mombasa to Uganda, and have also initiated talks with Mercedes. In today’s talks, I have asked Vice-President Ansari to alert Indian automobile manufacturers that they can get in early,” he said. [India to manufacture in Uganda with its skills, expertise, Rwanda, India and Africa: imperatives for cooperation]
Egypt: Suez Canal revenues decline in wake of sluggish global trade (Daily News)
Suez Canal revenues declined by 4% in January, compared to the same period in 2016. The total revenues registered at $395.2m in January versus $411.8m in the same month in 2016. Egypt recently expanded the Suez Canal by creating a second lane in the canal to reduce waiting times; the total investments of the project were around $8.2bn. In order for Egypt to gain a return on the Suez Canal expansion project investment, global trade volume would need to rise by around 9% a year for the canal to reach its traffic goal, according to a Capital Economics report.
11% growth: West Africa agricultural trade reaches $29.8m
The total value of agricultural commodities and livestock traded within the ECOWAS sub-region hit $29.8m as at 31 December 2016, Permanent Interstate Committee for Drought Control in the Sahel study has shown. The figure represents an 11% growth in intra-regional trade flows compared to $26.9m recorded in November of that same year. The study titled: “Intra-Regional Trade Flows of Agricultural Products and Livestock in the Sahel and West Africa”, covered eight countries namely Benin, Burkina Faso, Cote d’Ivoire, Ghana, Mali, Niger, Nigeria and Togo. The report showed that trade in the major staple crops of millet, sorghum and maize all saw significant increase over the previous month’s figures.
Agriculture in Africa – telling myths from facts: a synthesis (World Bank)
In a special issue of Food Policy, 12 papers revisit conventional wisdom on African agriculture and its farmers’ livelihoods using nationally representative surveys from the Living Standards Measurement Study-Integrated Surveys on Agriculture Initiative in six African countries. At times, the findings simply confirm the common understanding of the topic. But the studies also throw up several surprises, redirecting some policy debates while fine-tuning others. Overall, the project calls for more attention to checking and updating the common wisdom.
India’s exports: what is behind the slowdown? (IMF)
India’s exports have done remarkably well since the early 2000s, but export growth has slowed in recent years. This chapter [pp 34-41] analyzes India’s export competitiveness and explains the slowdown of India’s exports. Key factors underpinning the slowdown include weak trading partners’ demand and real appreciation of the Indian rupee, while India’s high tariffs and trade costs could also affect its export performance. Going forward, steps to further reduce barriers to trade and facilitate a focus on higher value-added products, as well as continued supply-side reforms, are vital to unleash India’s export potential. [Companion analysis: 2017 Article IV Consultation]
Trade in information and communications technology goods fell in 2015 (UNCTAD)
For the first time since 2009, the value of global imports of information and communications technology goods declined in 2015 by 3.6% in current prices to just over $2 trillion. Whereas the 2009 decline was connected to the 2008 global economic crisis, the 2015 slump came amid overall economic growth, and the appreciation of the US dollar. However, imports of ICT goods declined significantly less than international trade as a whole. This dipped by 10% in 2015, on the back of a manifest fall in commodity prices and currency fluctuations. Communications equipment was the only category of finished ICT goods that continued to record positive growth. Global imports of such equipment exceeded those of computers and peripherals for a second consecutive year. In developing countries, the trend was even more pronounced. For every dollar’s worth of imported computers and peripherals, developing countries spent $1.5 on imported communication equipment. This means that developing countries accounted for as much as 45% of global communications equipment imports in 2015. This share has been steadily increasing since the launch of smartphones in 2007.
The importance of manufacturing in economic development: has this changed? (pdf, UNIDO)
Manufacturing has traditionally played a key role in the economic growth of developing countries. It has been argued in recent years that the importance of manufacturing has diminished over the last 20-25 years, resulting in premature deindustrialization or non-industrialization in developing countries. This study explores whether the low levels of industrialization in developing countries are attributable to long-term changes in the development characteristics of manufacturing or to the manufacturing sector’s general global prospects. The study’s findings indicate that the decline in both manufacturing value added and manufacturing employment shares in many developing countries has not been caused by changes in the manufacturing sector’s development potential, but is primarily caused by the failures of manufacturing development in a large number of developing countries against the backdrop of rapid manufacturing development in a small number of countries, thus resulting in a concentration of manufacturing activities in developing countries. [The analysts: Nobuya Haraguchi, Charles Fang Chin Cheng, Eveline Smeets]
DHL Express launches On Demand Delivery for the sub-Saharan Africa region
Committee of Directors General of National Statistics Offices and the Committee on Statistics: report
Barclays seals divorce agreement with African subsidiary
Enterprise Florida jetting off to South Africa
US and East African states ink trade deal
Morocco king signs 19 deals in Zambia
Israel, World Bank to increase joint work in Africa: water, cybersecurity, agriculture
Brazil: Agribusiness exports reach $5.87bn in January
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South Africa Budget Speech 2017/18: Transformation for Inclusive Growth
South African Finance Minister Pravin Gordhan delivered the national Budget Speech for 2017/18 on 22 February in Pretoria. Below are extracts from his speech.
I have the privilege to present our Government’s budget for the fiscal year 2017/18, and the framework for the next three years.
In the words of the Freedom Charter, “South Africa belongs to all who live in it.” In drafting our Constitution, this was a central foundational principle, and so the values of freedom, dignity and equality are embedded in our law and our polity.
This is also why our Constitution requires that all who live in our country should have access to housing, medical care, social security, water and education, There should be a progressive realisation of access to tertiary education and other elements in a comprehensive set of social entitlements. Wealth and economic opportunities must be equitably shared.
These commitments impose obligations on government – and have implications for the business sector and all stakeholders. We have a shared responsibility to address the social and economic challenges before us.
These South African realities are known to all of us.
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Income growth has been uneven – the bottom 20 per cent have benefited from social grants and better access to services, the top 20 per cent have benefited from the rising demand for skills and pay increases. Those in the middle have been left behind.
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Wealth remains highly concentrated – 95 per cent of wealth is in the hands of 10 per cent of the population.
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35 per cent of the labour force are unemployed or have given up hope of finding work.
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Despite our progress in education, over half of all children in Grade 5 cannot yet read adequately in any language.
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More than half of all school-leavers each year enter the labour market without a senior certificate pass. 75 per cent of these will still be unemployed five years later.
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Our towns and cities remain divided and poverty is concentrated in townships and rural areas.
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Our growth has been too slow – just 1 per cent a year in real per capita terms over the past 25 years, well below that of countries such as Brazil, Turkey, Indonesia, India or China.
These are our realities. They mirror the stresses of poverty and vulnerability in many developing countries, and the inequality between rich and poor throughout the world.
Even in the developed world, there are serious faultlines and uncertainty:
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Citizens lack of trust in elites
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Growing inequality
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Globalisation benefitting a few
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Stagnant and falling incomes of the middle class.
These, among other factors, are also driving a case for radical transformation of economic models, and a call for inclusive growth.
President Zuma has rightly emphasised that the requirements for transformation and change in South Africa are wide-ranging. Laws and regulations, policies and their implementation, initiatives of national, provincial and local government, our black economic empowerment charters and the engagement of business, organised labour and civil society partners are all critical levers of change. So is our budget.
This is not a transformation to be achieved through conquest, conflict or extortion, as in our past. We do not seek to reproduce the racial domination that was the hallmark of apartheid nationalism. Our transformation will be built through economic participation, partnerships and mobilisation of all our capacities. It is a transformation that must unite, not divide South Africans. This is the task entrusted to us by Oliver Tambo, Helen Josephs, Walter Sisulu and Rolihlahla Mandela.
We find ourselves at a conjuncture which requires the wisdom of our elders to help us make the right choices and keep the trust of our citizens.
Summary of the 2017 Budget
Today’s Budget message is that we are once again at a crossroads. Tough choices have to be made to achieve the development outcomes we seek:
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Economic growth is slow, unemployment is far too high and many businesses and families are under stress.
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We face an uncertain and complex global environment.
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At the same time we face immense transformation challenges – we must overcome the inequalities and divisions of our society. All South Africans must share in a more prosperous future.
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We have a plan for a more inclusive, shared economy. Its implementation requires greater urgency and effective collaboration among all social stakeholders.
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Change is difficult, and often contested. In these tough times we draw strength from the resilience and the diverse capabilities of our people, our business sector, our unions and our social formations.
The key features of the framework for the 2017 Budget include the following:
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Expenditure is within the envelope projected in last year’s budget.
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An additional R28 billion will be raised in taxes.
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The budget deficit for 2017/18 will be 3.1 per cent of GDP, in line with our fiscal consolidation commitment.
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Government debt will stabilise at about 48 per cent of GDP over the next three years.
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Redistribution in support of education, health services and municipal functions in rural areas remains the central thrust of our spending programmes.
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Government’s wage bill has stabilised. Procurement reforms continue to improve the effectiveness of public spending and opening opportunities for small business participation.
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Our state-owned companies and finance institutions play a substantial role in infrastructure investment and financing development. Their borrowing requirements are taken into account in the overall fiscal framework.
Our growth challenge is intertwined with our transformation imperative. We need to transform in order to grow, we need to grow in order to transform. Without transformation, growth will reinforce inequality; without growth, transformation will be distorted by patronage.
Global economic outlook
After several years of tentative economic growth, there are signs that a more sustainable recovery might be under way.
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Growth in the United States and Europe is steady, although at low levels.
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India and China remain comparatively buoyant, and economies such as Russia and Brazil are set to recover from recessions.
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The International Monetary Fund projects that the world economy will grow by 3.4 per cent in 2017 and 3.6 per cent in 2018.
Many countries face the challenge of ensuring that as growth picks up, its benefits accrue to all in society. The 2008 financial crisis and its aftermath exposed deep fault-lines in the world economy and in the distribution of income. Economic recovery has been slow. In several countries affected by unrest or war, there has been great hardship and dislocation of people. The impact of trends in trade, technology and commodity markets has been uneven. These forces have heightened social and political pressures for change. Global strains manifest in various ways, including the rise of strident economic nationalism and protectionist policies.
Government and business leaders throughout the world have had to reflect on the deficit of trust and loss of social solidarity in their societies. Policies and programmes that strengthen economic inclusion are being prioritised everywhere. In the words of Pope Francis, “Reforming the social structures which perpetuate poverty and the exclusion of the poor first requires a conversion of mind and heart”.
We therefore welcome Germany’s commitment to highlighting Africa and its infrastructure financing requirements as a priority of its term in chairing the G20 countries.
We operate within a connected global economic system. South Africa’s economic performance is affected by global economic trends. We rely on global cooperation to address trade imbalances, the abuse of tax havens and the coordination of financial stabilisation efforts.
South Africa, and the entire African continent, stand to gain from expanding global trade within what Minister Davies has described as a “more inclusive progressive multilateralism, characterised by real cooperation and solidarity,… sensitive to the needs of the poorest.”
South Africa’s growth and transformation
Moderate GDP growth recovery
Our expectation at this stage is that GDP growth will increase from 0.5 per cent last year to 1.3 per cent in 2017, and will continue to improve moderately over the medium term.
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The services sector was the main contributor to growth in 2016, bringing nearly 120 000 new work opportunities.
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Mining continued to underperform while manufacturing output was supported by buoyant sales in petrochemicals, food and beverages and motor vehicles. Mining and manufacturing employment declined by 80 000 jobs in 2016.
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Weak business confidence and low levels of profitability weighed on investment across all sectors.
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Though the policy interest rate has increased by 2 percentage points since 2014, inflation ended the year above the target, with food prices continuing to reflect the impact on agriculture of poor rainfall.
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Lower growth in our trading partners in Africa and elsewhere has contributed to sluggish export earnings.
We expect somewhat higher growth in the coming year on the strength of a number of favourable trends:
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Commodity prices have rebounded
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The exchange rate has recovered from its rapid depreciation last year, which bodes well for capital flows, inflation and business and consumer confidence
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Drought conditions have abated in most of the country
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Production stoppages associated with industrial disputes have been comparatively low
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Electricity supply has improved, allowing new connections and industrial demand to be accommodated.
But the projected rate of growth is not sufficient to reduce unemployment or impact significantly on poverty and inequality. It falls well short of our NDP goals.
In order to boost investment in the short term, there are several specific imperatives:
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Finalising legislation relating to mining development and land redistribution.
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Implementing the transition from analogue to digital television, which will release spectrum for broadband services.
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Continuing our independent power producer programme, both in renewables and to take advantage of gas investment opportunities.
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Further strengthening of economic regulatory functions and streamlining investment approval processes.
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Production-friendly industrial relations and prompt resolution of disputes.
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An enabling environment for small enterprises and support through leveraging both public and private sector procurement budgets.
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Focused support on labour-intensive sectors, including agriculture, agro-processing and tourism-related services.
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Strengthening regional ties and trade links.
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Safeguarding South Africa’s investment-grade credit rating.
The Budget and transformation
The budget gives effect to our transformation action agenda by financing government programmes which:
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Ensure that many more people live in dignity every year,
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Radically improve access to services and economic participation across all racial lines,
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Energise growth and create jobs,
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Increase investment and development – at national, provincial and local level – mobilising resources across government, business and other sectors.
A growing economy makes more rapid transformation possible, but it is the fiscal system that is the most direct vehicle for redistribution and inclusivity. The South African budget finances the construction of houses and schools, the education of young people, care for the elderly and incomes of the most vulnerable. About two-thirds of the Budget is dedicated to realising social rights. We have programmes that build infrastructure, support new businesses, empower small farmers, develop human capabilities and incentivise job creation.
The budget is highly redistributive to poor and working families. It also redistributes substantial resources from the urban economy to fund services in rural areas. The formulas used to distribute resources to provinces and municipalities are governed by transparent rules in which equity and needs are the primary consideration.
But budgets alone cannot achieve our transformation goals. We need a powerful combination of:
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Effective and targeted government delivery of economic programmes,
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An energetic coalition with labour, business and civil society,
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A consensus on a transformation programme – with each of us clear about the contribution and sacrifices we have to make to ensure optimal inclusivity,
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A commitment to eradicate gross inequality and share the benefits of growth and restructuring of the economy.
Government can be an important catalyst. But it cannot carry all of the responsibility for ensuring that every citizen experiences a palpable change in wealth, dignity and well-being.
This has to be our collective choice.
Towards a transformation action agenda
Transformation is in part about overcoming the legacy of exclusion and inequality of the past, but it is also about restructuring the economy to take advantage of new technology, market access and investment opportunities.
It is about investing in social capabilities, through better outcomes in health and education and skills development, and through inclusive and responsive institutions.
Allow me to emphasise five critical priorities in which government is committed to work with the private sector and social stakeholders to propel inclusive growth.
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Improved education is a central priority, and particularly the quality of basic literacy and numeracy achieved in the first phase of schooling. We must increase funding for proven interventions.
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Reform of technical and vocational education and training programmes is vital, so that they effectively meet occupational and industrial needs. We must strengthen collaboration between employers and TVET colleges.
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We must accelerate development of our cities, housing investment, improved public transport and urban enterprise and industrial development.
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South Africa’s integration and linkages with its regional neighbours offers significant opportunities for enterprise growth, agricultural development and new industrialists.
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Reform of domestic market structures, promotion of competition, deconcentration of monopolised industries and greater private-sector participation in sectors dominated by public enterprises: these are structural reforms that will bring opportunities for business development, modernisation and a more balanced distribution of wealth and opportunities.
In regard to market concentration, Honourable Members, I need to commend the work of our competition authorities under Minister Patel’s leadership. These are difficult regulatory issues, particularly where the activities in question involve large institutions operating in internationally integrated and complex markets.
If we transform competitive markets effectively, we will see more rapid growth. If we achieve faster growth, we will see greater transformation, enterprise development and participation.
Financial sector transformation and regulation
Since the global financial crisis in 2008, we together with our partners in the G-20, have been on a long journey to make the banking system safer, and prevent the type of economic crisis that systemically important banks can trigger. We responded with a series of substantial, intrusive and intensive regulatory reforms. Cabinet approved the shift to the Twin Peaks regulatory system to make the financial sector safer and serve SA better, introducing the following structural reforms to our regulatory system:
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In 2012, the new Financial Markets Act introduced a framework for unlisted derivatives, which caused so much damage in the 2008 global financial crisis.
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In 2013, the Banks Amendment Act brought in requirements for increased capital and better liquidity management.
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In 2013, Government took steps to deal with household over-indebtedness starting with abuses in emolument attachment orders, also known as garnishee orders.
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In 2015, Minister Nene tabled the Financial Sector Regulation Bill to give effect the Twin Peaks system. As soon as this bill is enacted, we will be able to establish a fairly.
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Earlier this year, together with Minister Davies, new restrictions on credit life insurance were implemented, preventing the sale of retrenchment insurance to people without jobs, for example.
As an employer, National Government has investigated 135,000 emolument orders against state employees and reduced the number of deductions by 49,000. We hope all employers will assist their employees in the same way.
As we have seen recently with the Competition Commission investigation, there is evidence of a collusive culture at trading desks in banks. It is precisely to deal with such abuses that we have proposed a dedicated market conduct regulator, and we hope Parliament will pass this Bill as soon as possible. Collusion must be stamped out whether it is in banking, construction or the bread industry. But banks need tougher rules to cover financial market abuses, and the Reserve Bank and National Treasury have initiated work on a more comprehensive Financial Markets Review under the leadership of former Deputy Governor James Cross, to build on the Review conducted in 2014.
Although progress has been made in transforming the financial sector, more needs to be done to broaden access through more affordable financial services, improve market conduct, ensure employment equity at top management levels, provide procurement opportunities and transform ownership.
We live in an era of rapid technological change. Three new banks have been granted provisional licences, including the PostBank, and two new stock exchanges. Their business models are based on technological innovation with potential to bring services more cost-effectively to more people.
I am pleased to announce that we will work with partners at NEDLAC who have requested that a Financial Sector Summit take place in 2017 to consider transformation in this sector.
Partnership for transformation and inclusive growth
The 2017 Budget has been prepared with a view to strengthening both our economic growth and the transformation of our society. This year’s Budget Review sets out our point of departure:
“To achieve the vision of the Constitution, South Africa needs transformation that opens a path to inclusive economic growth and development.
Transformation without economic growth would be narrow and unsustainable.
Growth without transformation would only reinforce the inequitable patterns of wealth inherited from the past.”
Although our own transformation imperative derives from a particular historical trajectory, many analysts have pointed to similarities with social fragmentation and inequality challenges elsewhere in the world.
On one important reform, we have taken a giant step forward. We have agreed to implement a minimum wage of R20 an hour with effect from next year. Its implementation will require complementary measures to support workers and employers in vulnerable and low-wage sectors, and enhanced assistance to young and unskilled work-seekers. We also need to seek progress on social security reform alongside phasing in the minimum wage.
Our past efforts have come short of delivering either adequate growth or the social transformation we need. We are at a crossroads now. We need to act urgently to build confidence and support investment. We need to bring all stakeholders onto an inclusive growth and transformation path.
We have proved that we can change course through negotiation, participation and partnership. We have the resilience needed to more forward confidently even in uncertain times.
Last year, impetus was given to several initiatives under Mr Jabu Mabuza’s business sector leadership:
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A fund to support small and medium enterprises has been established,
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A youth employment service programme has been initiated, with the aim of creating a million work opportunities over the next three years,
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Strategic interventions to support black participation in agriculture have been developed.
In the year ahead our focus must be on inclusive growth and a transformation action plan. Bold and ethical leadership is needed from all sectors of society.
In this way we can all embrace a vision of substantive meaningful transformation which will allow us to say we all own our economy.
Obstacles there will be many. Overcome them. Detractors abound. Disprove them.
Negativity inspired by greed and selfishness will obstruct us. Defeat the bearers of this toxic ethic.
So, what are the main elements of this budget:
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While global growth is slightly better, geo-political and economic uncertainties have increased.
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Our low growth trajectory provides a major challenge for government and citizens.
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We need to radically transform our economy so that we have a more diversified economy, with more jobs and inclusivity in ownership and participation.
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Our financial situation is difficult, but we have still produced a credible budget.
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We need to prioritise our spending better, implement our plans more effectively and make a greater impact.
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We need to build the widest possible partnership to promote consensus and action on a programme for inclusive growth and transformation.
I paraphrase what I said in October last year,
Fellow South Africans, if we make the right choices and do the right things we will achieve a just and fair society, founded on human dignity and equality. We will indeed transform our economy and country so that we all live in dignity, peace and wellbeing.
This is the time for activists, workers, businesspersons, the clergy, professionals and citizens at large to actively engage in shaping the transformation agenda and ensuring that we do have a just and equitable society.
We also need to consider, in the face of such intractable economic hardships and disparities, whether we should supplement our Constitutional Bill of Rights with a “Charter of Economic Rights” – a charter that would bind all of us to an economy which:
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Provides access to decent and well remunerated jobs,
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Facilitates training and retraining of citizens in the face of technological change, and
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Creates a supportive environment for micro, small and medium businesses and co-operatives.
We can draw inspiration from Inkosi Albert Luthuli, when he says: “I believe that here in South Africa with all our diversities of colour and race, we will show the world a new pattern for democracy. There is a challenge for us to set a new example for all. Let us not side-step this task.”
In his tribute to the South African soldiers who lost their lives with the sinking of the SS Mendi, the poet S.E.K Mqhayi wrote: “Kukhonza mnye ukuze kuphile abanye,” Somebody has to serve, so that others can live.
Can we, in this spirit, say: we have built a better South Africa, with a more inclusive economy, and all citizens living in dignity, advancing economically, over generations to come.
Ke-a-leboha Na Khensa Ndi-a-livhuwa Ngiyathokoza
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Arab-Africa Trade Bridges Program: Speech by ITC Executive Director Arancha González
Speech delivered by ITC Executive Director Arancha González at the Arab-Africa Trade Bridges Program Launching Forum in Rabat, Morocco on 22 February 2017
It is a pleasure for me to be back in Rabat and I want to thank the Kingdom of Morocco, the Islamic Development Bank Group and the International Islamic Trade Finance Corporation, for inviting ITC to participate in the launch of this important initiative.
Fostering greater economic ties between the Arab States and Sub-Saharan African countries members of the Organisation of Islamic Conference is politically expedient but more importantly, makes smart economic sense.
Africa is the market of the future. It is a hub of untapped innovation. Merging this with the expertise, demand and market opportunities in the Arab region can create a powerful new economic force going forward.
This initiative, in part, will revitalize the historic trade routes that linked the Arab countries to what are now Niger, Mali, Ghana, Tanzania, Kenya and of course, Morocco. The caravans that traversed the Sahara did not just carry goods like gold, salt, and ivory. They brought with them powerful ideas, a religion, a language, and legal codes that facilitated long-distance trust and financing that made even more trade possible.
Today, interregional trade volumes are relatively low. But a recent research by ITC entitled “Export Opportunities for the Arab-Africa Trade Bridge” has identified an untapped trade potential of over US$ 20 billion as a low hanging fruit.
Opportunities are in sectors ranging from agriculture, food and agri-business, to chemicals, and services. These opportunities are there to be seized, but companies, governments, and the Aid for Trade community each have a role to play in converting them into real business transactions.
There are also huge opportunities for investment across the two sub-regions. Foreign Direct Investment (FDI) can come with access to international supply chains, technology and know-how, and even infrastructure, with spillover benefits for local businesses.
We need to change the narrative. When the trans-Saharan routes do make the news, it tends to be in the context of regional insecurity, or irregular migrants risking their lives to get to Europe. The Arab-Africa Trade Bridge has the potential to change this as increasing trade and investment across these regions would unleash growth and job creation, broadening economic aspirations for young and growing populations from Mauritania to the Gulf.
An Afro-Arab trade renaissance would complement the ongoing revival of another ancient trade route: the Silk Roads linking China to the Middle East, Europe, and Africa. As part of Beijing’s ‘One Belt, One Road’ initiative, new rail links as well as road and energy infrastructure have already been constructed through Central Asia, and are extending into South Asia and the Middle East. They are being complemented with investments in maritime infrastructure from Eastern Africa to South East Asia.
The Arab-Africa Trade Bridge seeks to address the challenges preventing businesses in the region from taking full advantage of existing trade potential.
According to the ITFC, some of these challenges spring from a lack of information: about market opportunities, about trade laws and regulations, and about companies that could be trading partners. An additional challenge it identifies is insufficient cooperation among trade-related institutions.
These needs align well with ITC’s mandate to help SME’s in developing countries participate in trade, which is why we are so keen to support the implementation of this initiative, starting with a Memorandum of Understanding (MOU) with ITFC.
SMEs employ the vast majority of people and since firms that trade tend to be more productive and pay higher wages, an internationally integrated SME sector translates into inclusive growth.
Many barriers stand between SMEs and international markets, starting with difficulties in accessing trade and market intelligence, which is an area where ITC’s suite of free online tools can help businesses access markets.
But SMEs need more than information. They need a favourable policy environment and institutional support. This is why supporting governments in building a pro-trade business climate – including reforms to improve trade facilitation, and working with a wide network of trade and investment support institutions to help them better serve their clients must be a priority.
Finally, SMEs must also be supported in improving their competitiveness and connecting to value chains. This is what ITC is doing here in Morocco in the agro-business, fisheries and leather sectors, in Tunisia in textiles and clothing companies, in Western Africa in mangoes and in Eastern Africa in IT, to name a few. And later this week in Istanbul, at our flagship annual international event on women’s economic empowerment, we will organize B2B sessions where women-owned businesses in the tech, tourism, and textile and clothing sectors will be carefully matched with potential big buyers such as Microsoft and General Electric.
Before closing, I would like to thank the IDB Group and ITFC for their continued cooperation with ITC. Together we are working to deliver trade impact for good on the ground.
Allow me once again to congratulate you for embarking on this initiative. At the International Trade Centre, we stand ready to accompany you in any way we can to maximize the Arab-Africa Trade Bridge’s contribution to inclusive and sustainable growth.
I look forward to your discussions.
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China’s Belt and Road initiative and its implications for Africa
According to the Chinese Foreign Minister Wang Yi, the Belt and Road Initiative is the most important feature of China’s foreign policy. The Initiative aims to interconnect countries in Asia, Europe and Africa through an ambitious vision for infrastructure, economic and political cooperation.
Since China’s President Xi Jinping first proposed the Initiative in 2013, it has mainly focused on Asia and Europe where it has unfolded at a breathtaking speed through the signing of dozens of bilateral agreements and the implementation of first large scale infrastructure projects. It is only now that it starts to become clear how Africa will participate in the Initiative with first bilateral agreements signed with South Africa in 2015 and Egypt in 2016.
The objective of this study is to summarize and analyze best available information on the Belt and Road Initiative in the context of China-Africa relations and develop scenarios on how the Initiative is likely to unfold in Africa. The study pursues this objective by offering a first-of-its-kind overview of key actors and institutional arrangements of the Belt and Road Initiative in China and Africa before developing a ranking of African countries that are likely to become part of the Initiative. The study finds that in addition to South Africa and Egypt, Angola, Kenya and Tanzania are likely to be immediate Belt and Road Initiative countries and the Republic of Congo, Ethiopia, Nigeria, Morocco, and Mozambique to join in the near future.
China and African countries have agreed on various occasions that China’s initial development approach of ‘pollute first, clean up later’ should not be replicated on the African continent. It is therefore paramount to ensure that Belt and Road Initiative activities support the sustainable development of African countries.
The study reviews potential positive and negative impacts of the Initiative and concludes that negative impacts can be managed by focusing on implementing respective provisions that African countries have agreed to in the African Union Agenda 2063’s First Ten-Year Implementation Plan (2014-2023) as well as by building on provisions of the Belt and Road Initiative vision document and the Forum on China-Africa Cooperation Johannesburg Action Plan (2016-2016).
The study concludes by offering specific recommendations for WWF on how to support Chinese and African partners towards ensuring that the Belt and Road Initiative will foster sustainable development in Africa as well as on urgently required further research and assessment work.
tralac’s Daily News Selection
Arvind Subramanian: The WTO reborn? (Project Syndicate)
For too long, the World Trade Organization has languished, to lift a reference from T.S. Eliot, by the “waters of Leman” (Lake Geneva). Once the world’s preeminent multilateral trade forum, the WTO has been steadily marginalized in recent years, and recent rebukes of globalization, such as the United Kingdom’s Brexit vote and the election of Donald Trump as US president, suggest that this trend will accelerate. But these outcomes may actually have the opposite effect, owing to three key developments that could enable the revival of the WTO – and of the multilateralism that it embodies. [The author is Chief Economic Adviser to the Government of India]
Trade Developments in 2016: policy uncertainty weighs on world trade (World Bank)
In this edition of Trade Watch, we address three questions concerning recent trade developments: What is happening? Why? Does it matter? Global Trade Watch: Trade Developments in 2016 (pdf) uses manufacturing data by country and year to show a link between labor productivity and GVCs. An analysis that covers 13 sectors in 40 countries over 15 years finds that participation in GVCs is a significant driver of labor productivity. A 10% increase in GVC participation increased productivity by close to 1.7%. World trade grew at about 3% per year from 2012-2016, lower than the pre-crisis average of 7% per year for 1994-2008. Productivity growth also declined to 1% per year post-crisis from an average of 2% during 1994-2008. If the development of GVCs is considered over approximately the same period, data point to a stalled growth in vertical specialization since 2011 while world GVC participation was increasing throughout the 2000s. [Companion analysis: Does vertical specialization increase productivity? (pdf)]
Trade in services and economic transformation: a new development policy priority (ODI)
This set of essays (pdf) analyses the role of services, and especially trade in services, in economic transformation. The essays are divided into three parts. The first set of contributions is about understanding the role of services in economic transformation and what the donor community could do over the next few years to support increases in economy-wide productivity and employment by focusing more on services policies and the performance of services sectors. The second part discusses the need to improve data on trade in services and where the focus should be. The third and final part examines ways to support developing countries through trade agreements and preferential access to markets, and help poorer countries benefit from greater trade opportunities. What should be the priorities for promoting services trade and providing services preferences for developing countries? [The editors: Bernard Hoekman, Dirk Willem te Velde]
Illicit financial outflows: proposal for the establishment of the Africa Integrity Fund (AfDB)
In response to the challenges facing Regional Member Countries in the fight against prohibited practices and illicit financial outflows and in line with the institution’s priorities, the Integrity and Anti-Corruption Department proposes the establishment of the Africa Integrity Fund to extend grants to eligible recipients in order to finance measures which contribute to the prevention, the detection, the investigation and the sanctioning of prohibited practices, which support the repatriation of stolen assets, which alleviate the financial drain from illicit outflows on the Bank’s RMCs and which strengthen transparency and accountability in the management of public resources. [Botswana: ‘More work needed to combat money laundering’]
SACU members need to harmonise border control policies (Swazi Observer)
Ministry of Commerce Industry and Trade International Trade Department Senior Trade Policy Analyst Mluleki Dlamini said currently, SACU does not have common policies and furthermore the regional bloc does not have common institutions. Dlamini was speaking yesterday during a workshop organised by the Global Economic Governance Africa in conjunction with the Federation of Swaziland Employers and Chamber of Commerce (FSE&CC) held at the Royal Villas in Ezulwini. “The supra regional organisations would aid trade development in the region which is critical for the growth of the private sector. Common policies would decrease duplication of processes which can be seen to be barriers to trade,” he said. Dlamini said another fact worth noting was that SACU trade only applies to goods and not services.
SACU revenue pool improves: Elago (LeLa)
Executive Secretary, Paulina Elago, further noted that the SACU Council of Ministers are busy reviewing the revenue formula which is intense and involve many scenarios. Elago said the review of the formula will further be discussed during the Council of Ministers’ meeting scheduled to take place at the end of March in Namibia. “The council of ministers will review certain principles of revenue sharing formula and one of them is that no country will be worse off,” she said. Elago added that the meeting will agree on the guideline to regional integration, industrialisation and tariff setting mechanisms that will be applicable to all member states.
Development of a SADC Simplified Trade Regime: consultancy opportunity
It is against this background that SADC Ministers mandated the SADC Secretariat to develop a Simplified Trade Regime for intra-SADC trade in accordance with the WTO Agreement and the Kyoto Convention. The draft proposal, informed by a thorough best-practice and cost/benefit analysis, will then be considered by SADC Structures for final approval by SADC Ministers. GIZ is seeking a firm of consultants to develop a WTO compatible proposal for a SADC STR with different scenarios/options to be considered by SADC Member States, following a thorough assessment of options and best practices, and of stakeholders’ needs and preferences in the SADC region.
Zimbabwe: ‘2017 trade deficit to fall 35%’ (The Chronicle)
The Government is anticipating a 35% decline in the country’s trade deficit to $1,537bn by the end of this year. The 2016 trade deficit figure reached $2,833bn, which was higher than previously estimated despite a number of interventionist measures implemented during the course of last year. The Ministry of Macroeconomic Planning and Investment Promotion says the improved rains this season, industry supportive measures and an anticipated growth in beneficiation will boost export receipts this year. [Retailers revert to old prices]
Rwanda: Govt starts process to raise AU funding quota (New Times)
Members of Parliament have approved the relevance of the Bill establishing the levy on imported goods for the financing of African Union operations. The Bill, if enacted into law, will help the Government collect around Rwf1.5bn annual dues to sponsor AU affairs as the continent seeks to get rid of donor dependence. At least $1.2bn (about Rwf898bn) is expected to be raised by all African states to cater for the ongoing reforms that seek to address a budget deficit of more than 76% so far funded by donors.
IGAD: Regional Infrastructure Master Plan appraisal report (pdf, AfDB)
Presently, IGAD has no regional infrastructure Master Plan, nor a programme of prioritised regional infrastructure development projects built on a regional consensus of the 8 member countries. Analysis and studies by the Bank especially through initiatives such as the Programme for Infrastructure Development in Africa (PIDA) have revealed lack of adequate and regionally integrated infrastructure as one of the binding constraints to unlocking Africa’s vast productive capacities and therefore, Africa’s sustainable development. Although the region is making major strides in the development of new regional infrastructure projects under programmes such as the continental infrastructure Master Plan PIDA; with projects such as the Ethiopia-Djibouti railway, Ethiopia-Kenya Power Interconnector and others, underdeveloped infrastructure still remains a major constraint the IGAD region, and it has no regional master plan of priority projects built on the consensus of its member countries. The project will therefore address the problem of inadequate and poor regional infrastructure networks, connectivity and efficiency.
Orange-Senqu River Basin gets R48.6m for water security (Infrastructure news)
The African Water Facility and the NEPAD Infrastructure Project Preparation Facility have signed an agreement with the Orange Senqu River Basin Commission to launch the Climate Resilient Water Resources Investment Strategy and Multipurpose Project Preparation. ORASECOM said that with the funding of the new agreement, it will develop an optimised water resources investment plan and select a priority transboundary project which will be prepared at feasibility level.
WCO participates in Global Illicit Trade Summit
On 21 February, WCO Secretary General Kunio Mikuriya participated in the Global Illicit Trade Summit, an event organized in Brussels, Belgium, by The Economist, which brought together more than 100 policymakers, regulators, government officials, lawyers, academics, researchers and brand owners. The WCO Secretary General opened the first panel session, which touched on reducing the appeal of illicit trade, by explaining the different types of illicit trade as well as emerging and evolving threats, such as those linked to the development of e-commerce and the challenges it poses in terms of controlling a growing amount of small packages and parcels, or those linked to free trade zones (FTZs) when they are located outside Customs controls. He also highlighted the work of the OECD on measuring the impact of counterfeiting on the economy, and the cooperation between the WCO and the OECD in this area.
Agriculture and food global value chains in Sub-Saharan Africa: does bilateral trade policy impact on backward and forward participation? (pdf, Repec)
Our results show that, despite their low world trade shares, GVC participation in SSA economies is increasing over time, mainly upstream as suppliers of unprocessed inputs. Furthermore, we show that the value added demand for SSA agricultural products primarily originates from the EU and emerging countries rather than from regional partners. Finally, by making use of a “gravity-like” identification strategy, we also find evidence that bilateral trade protection significantly affects GVC backward and forward participation in agriculture and food. These results call for a refinement of trade policy priorities in SSA.
The future of food and agriculture: trends and challenges (FAO)
The core challenge is to produce more with less, while preserving and enhancing the livelihoods of small-scale and family farmers, and ensuring access to food by the most vulnerable. For this, a twin-track approach is needed which combines investment in social protection, to immediately tackle undernourishment, and pro-poor investments in productive activities – especially agriculture and in rural economies – to sustainably increase income-earning opportunities of the poor. The world will need to shift to more sustainable food systems which make more efficient use of land, water and other inputs and sharply reduce their use of fossil fuels, leading to a drastic cut of agricultural green-house gas emissions, greater conservation of biodiversity, and a reduction of waste. This will necessitate more investment in agriculture and agrifood systems, as well as greater spending on research and development, the report says, to promote innovation, support sustainable production increases, and find better ways to cope with issues like water scarcity and climate change.
Nigeria, South Korea trade volume fall on investors’ confidence
Kenya, Egypt agree to eliminate double taxation on imports
Lobby seeks laws to regulate EA clearing and forwarding industry (Business Daily)
Chatham House interview with Rob Davies, South African Trade Minister
Mozambique to start issuing dual-entry tourist visas on arrival
The evolving EU-Nigeria social, economic alliance
Japan donates CHF 200,000 to help developing countries enhance trade negotiation skills
Japan steps up support for ITC
The end of the TransAtlantic trade consensus?
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WTO’s Trade Facilitation Agreement enters into force
A major milestone for the global trading system was reached on 22 February 2017 when the first multilateral deal concluded in the 21 year history of the World Trade Organization entered into force. In receiving four more ratifications for the Trade Facilitation Agreement (TFA), the WTO has obtained the two-thirds acceptance of the agreement from its 164 members needed to bring the TFA into force.
Rwanda, Oman, Chad and Jordan submitted their instruments of acceptance to WTO Director-General Roberto Azevêdo, bringing the total number of ratifications over the required threshold of 110. The entry into force of this agreement, which seeks to expedite the movement, release and clearance of goods across borders, launches a new phase for trade facilitation reforms all over the world and creates a significant boost for commerce and the multilateral trading system as a whole.
Full implementation of the TFA is forecast to slash members’ trade costs by an average of 14.3 per cent, with developing countries having the most to gain, according to a 2015 study carried out by WTO economists. The TFA is also likely to reduce the time needed to import goods by over a day and a half and to export goods by almost two days, representing a reduction of 47 per cent and 91 per cent respectively over the current average.
Implementing the TFA is also expected to help new firms export for the first time. Moreover, once the TFA is fully implemented, developing countries are predicted to increase the number of new products exported by as much as 20 per cent, with least developed countries (LDCs) likely to see an increase of up to 35 per cent, according to the WTO study.
DG Azevêdo welcomed the TFA’s entry into force, noting that the Agreement represents a landmark for trade reform. He said:
“This is fantastic news for at least two reasons. First, it shows members’ commitment to the multilateral trading system and that they are following through on the promises made in Bali. Second, it means we can now start implementing the Agreement, helping to cut trade costs around the world. It also means we can kick start technical assistance work to help poorer countries with implementation.
“This would boost global trade by up to 1 trillion dollars each year, with the biggest gains being felt in the poorest countries. The impact will be bigger than the elimination of all existing tariffs around the world.
“But this is not the end of the road. The real work is just beginning. This is the biggest reform of global trade in a generation. It can make a big difference for growth and development around the world. Now, working together, we have the responsibility to implement the Agreement to make those benefits a reality.”
The Agreement is unique in that it allows developing and least-developed countries to set their own timetables for implementing the TFA depending on their capacities to do so. A Trade Facilitation Agreement Facility (TFAF) was created at the request of developing and least-developed countries to help ensure they receive the assistance needed to reap the full benefits of the TFA and to support the ultimate goal of full implementation of the new agreement by all members.
Developed countries have committed to immediately implement the Agreement, which sets out a broad series of trade facilitation reforms. Spread out over 12 articles, the TFA prescribes many measures to improve transparency and predictability of trading across borders and to create a less discriminatory business environment. The TFA’s provisions include improvements to the availability and publication of information about cross-border procedures and practices, improved appeal rights for traders, reduced fees and formalities connected with the import/export of goods, faster clearance procedures and enhanced conditions for freedom of transit for goods. The Agreement also contains measures for effective cooperation between customs and other authorities on trade facilitation and customs compliance issues.
Developing countries, in comparison, will immediately apply only the TFA provisions they have designated as “Category A” commitments. For the other provisions of the Agreement, they must indicate when these will be implemented and what capacity building support is needed to help them implement these provisions, known as Category B and C commitments. These can be implemented at a later date with least-developed countries given more time to notify these commitments. So far, notifications of Category A commitments have already been provided by 90 WTO members.
As of today, the following WTO members have accepted the TFA: Hong Kong China, Singapore, the United States, Mauritius, Malaysia, Japan, Australia, Botswana, Trinidad and Tobago, the Republic of Korea, Nicaragua, Niger, Belize, Switzerland, Chinese Taipei, China, Liechtenstein, Lao PDR, New Zealand, Togo, Thailand, the European Union (on behalf of its 28 member states), the former Yugoslav Republic of Macedonia, Pakistan, Panama, Guyana, Côte d’Ivoire, Grenada, Saint Lucia, Kenya, Myanmar, Norway, Viet Nam, Brunei Darussalam, Ukraine, Zambia, Lesotho, Georgia, Seychelles, Jamaica, Mali, Cambodia, Paraguay, Turkey, Brazil, Macao China, the United Arab Emirates, Samoa, India, the Russian Federation, Montenegro, Albania, Kazakhstan, Sri Lanka, St. Kitts and Nevis, Madagascar, the Republic of Moldova, El Salvador, Honduras, Mexico, Peru, Saudi Arabia, Afghanistan, Senegal, Uruguay, Bahrain, Bangladesh, the Philippines, Iceland, Chile, Swaziland, Dominica, Mongolia, Gabon, the Kyrgyz Republic, Canada, Ghana, Mozambique, Saint Vincent & the Grenadines, Nigeria, Nepal, Rwanda, Oman, Chad and Jordan.
The acceptance process involves WTO members ratifying a Protocol of Amendment to insert the TFA into Annex 1A of the WTO Agreement. Members who have not done this are still required to do so.
Trade Facilitation Factsheet
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Major global agreement comes into force making trade cheaper, easier and faster
Members of the World Trade Organization (WTO), supported by UNCTAD, commit to streamlining procedures that will significantly increase international trade, reduce corruption and boost development.
Waiting times at customs points for trucks bringing goods into the East African nation of Rwanda dropped from an astonishing 11 days in 2010 to 34 hours in 2014 thanks to an automated “single window” system. The benefits to Rwanda’s economy from such streamlining are clear – an estimated 27,060 trucks entered Rwanda with imports in 2014 and, with running costs of $225 a day per truck, importers and consumers saved $6 million in that year alone.
Red tape, incompatible systems across borders, opaque ways of collecting revenue and ensuring other compliance controls, lengthy waiting times that leave food rotting before it can be traded – not to mention poor roads and crumbling ports – all hamper international trade, wasting billions of dollars and exacting a heavy price on those developing and least developed countries that can least afford it.
The cost of trade for developing countries is estimated to be on average 1.8 times higher than for developed countries.
But members of the World Trade Organization, representing the majority of the world’s trading nations, struck a deal in 2014 that obliges them to tackle these problems head on. That deal, known as the Trade Facilitation Agreement, has now come into force.
“We welcome the entry into force of the Trade Facilitation Agreement as a huge step forward in making trade around the world cheaper, easier and faster,” UNCTAD Deputy Secretary General Joakim Reiter said.
Help for developing countries to do this, provided by UNCTAD and others, is among the provisions of the deal. The Automated System for Customs Data (ASYCUDA) that helped Rwanda to cut down on waiting times was, for example, supplied by UNCTAD.
“New technologies and institutional reforms can improve governance, reduce entry barriers and pull the informal sector into the formal sector. And with less paperwork to dodge, and fewer palms to grease, public revenues go up. This generates new resources for spending on essential services,” Mr. Reiter said.
“We work with developing countries to identify compliance gaps and design projects aimed at closing those gaps,” Shamika Sirimanne, Director of the Technology and Logistics Division of UNCTAD, added. “We offer advisory services for countries that face specific legal or technical barriers in complying with the agreement. And we help to establish and maintain national trade facilitation committees that bring public and private sector to work together.”
UNCTAD has supported the successful establishment of more than a dozen national trade facilitation committees in Africa, South America and Asia. The programme for the East African Community (of which Rwanda is a part) offers a good example of how this can work for other regions under the Trade Facilitation Agreement.
Indeed, fifteen developing countries and least developed countries have so far taken part in UNCTAD’s Empowerment Programme for National Trade Facilitation Committees, which was launched in 2016 to provide intensive professional training in implementing the agreement.
The WTO has estimated that the Trade Facilitation Agreement could reduce trade costs between 9.6 and 23.1% for its members worldwide. This means export gains of between $750 billion and $1 trillion.
Between now and 2030 this would add 2.7% a year to world export growth at a time when world trade desperately needs a boost and add more than half-a-percent to growth of world GDP providing crucial additional resources for the international development agenda.
But developing countries stand to gain the most. Some of the world’s 48 least developed countries can expect to see an increase in the export of traditionally exported products to existing markets of between 13 and 36%.
As doing business gets easier, the range of goods exported by the world’s poorest countries will increase, lessening commodity dependence and strengthening vulnerable economies.
See the press release from the WTO: WTO’s Trade Facilitation Agreement enters into force
Related News
Trade in services and economic transformation: A new development policy priority
Services play a vital role in economic transformation and job creation in poor countries, but the effects are different from those in agriculture or manufacturing. While much of the discussion on economic transformation centres on transforming agriculture and moving into manufacturing, services are an under-explored component of economic transformation strategies.
This set of essays analyses the role of services, and especially trade in services, in economic transformation. The essays are divided into three parts. The first set of contributions is about understanding the role of services in economic transformation and what the donor community could do over the next few years to support increases in economy-wide productivity and employment by focusing more on services policies and the performance of services sectors. The second part discusses the need to improve data on trade in services and where the focus should be. The third and final part examines ways to support developing countries through trade agreements and preferential access to markets, and help poorer countries benefit from greater trade opportunities. What should be the priorities for promoting services trade and providing services preferences for developing countries?
Key findings and policy suggestions
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While much of the discussion on economic transformation centres on transforming agriculture and moving into manufacturing, services are an underexplored component of economic transformation strategies.
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Services play a vital role in economic transformation and job creation in poor countries, but the effects are different from those in agriculture or manufacturing. Services affect developing countries, directly in the form of significant shares in gross domestic product, trade and foreign exchange, but also indirectly through productivity growth and enabling linkages with other sectors.
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Trade in services can support economic transformation. Notable examples of successful expansion of trade in services include the development of diversified financial services hubs in Kenya, health and business tourism in Mauritius, information and communication technology services in India, air transport in Ethiopia, and hydropower transmission services in Lesotho.
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Donors should focus more on enhancing their knowledge and understanding the relevance of a competitive services sector for the achievement of development goals, specifically through economic transformation and job creation. They can do this by supporting improvements in market intelligence, trade and regulatory data related to services; developing national export strategies in services; building a conducive policy environment in developing countries, including by setting up public-private dialogue and coalitions supporting services reform; and strengthening country capacity to collect data on services.
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The lack of quality data is a particular hindrance to policy-making in the area of services. Some data have begun to be available, including through recent support by donors, but further improvements on trade in services should focus on:
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capturing all the modes of trade in services;
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tracking south-south trade in services;
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reconciling firm-level and national-level data; and
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improving information on applied services policies.
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Trade policy is important. Openness leads to higher productivity in services firms, especially in least developed countries (LDCs), especially with appropriate domestic regulation. International negotiations in services can also support services trade in the poorest countries, including by giving preferential access to LDC exports (for example, facilitating market access by reducing the cost of visas and putting in place domestic support mechanisms to assist LDC providers to deal with administrative requirements). However, very few meaningful preferential trade measures have so far been offered in areas of comparative advantage of LDCs such as tourism, travel, construction and Mode 4.
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Aid for Trade for services is generally limited as a share of total aid. Targeting more aid to facilitate trade in services has great potential to be effective.
Background
This essay collection follows a working paper on services trade and economic transformation and a roundtable event held at the London office of the Department for International Development in November 2016.
The aim of the roundtable, organised in collaboration with the Department for International Development (DFID), the Supporting Economic Transformation (SET) team at the Overseas Development Institute (ODI), was to unpack key challenges and opportunities for trade in services in developing countries and identify what DFID could do to support services.
This collection has been edited by Professor Bernard Hoekman (European University Institute) and Dr Dirk Willem te Velde (ODI; Director of the SET programme). All views expressed are those of the authors alone and do not reflect the views of DFID, ODI or indeed all the organisations represented.
Download the SET Essay Series here: Trade in services and economic transformation: A new development policy priority (PDF)
Policy uncertainty weighs on world trade
New report links increased policy uncertainty and maturing global value chains to weakened trade growth in 2016
Global trade growth continued to be slow for the fifth consecutive year, with 2016 showing the weakest trade performance since the 2008-2009 global financial crisis. According to a new paper, preliminary data suggest that world merchandise trade grew by a little more than 1 percent in 2016 compared to 2 percent in 2015 and 2.7 percent in 2014.
Nevertheless, the growth of services trade continued to be relatively resilient and recovered slightly following a decline in 2015.
While in previous years the sluggishness in trade growth had been concentrated in either high-income or developing countries, the weak trade growth seen in 2016 was characteristic of both types of economies.
The latest annual paper, Global Trade Watch: Trade Developments in 2016, points to a surge in economic policy uncertainty as a contributor to the 2016 decline in world trade growth.
The paper, which analyzed a broad sample of 18 countries over 30 years, found that the increase in uncertainty in 2016 may have reduced trade growth by 0.6 percentage points, which accounts for about 75 percent of the difference between trade growth rates in 2015 and 2016.
“Policy uncertainty in Europe and the United States had a negative impact on trade by reducing overall global growth,” according to the paper’s authors, World Bank Group Economists Cristina Constantinescu, Aaditya Mattoo and Michele Ruta. “In a more uncertain environment, firms may choose to postpone investment and export decisions and consumers may cut back spending. The threat of unraveling trade agreements may also hurt trade growth by adding to policy uncertainty”.
The paper also offers new evidence linking slowing trade growth to slowing productivity growth.
Sluggish trade reflected the stagnation of global value chains (GVCs), which diminished the scope for productivity growth through a more-efficient international division of labor and diffusion of technologies.
“We are witnessing a decline in the growth of trade as well as productivity, and the slowing expansion of global value chains can help to explain both,” the authors said.
Global Trade Watch: Trade Developments in 2016 uses manufacturing data by country and year to show a link between labor productivity and GVCs. An analysis that covers 13 sectors in 40 countries over 15 years finds that participation in GVCs is a significant driver of labor productivity. A 10 percent increase in GVC participation increased productivity by close to 1.7 percent.
Global value chains boost productivity growth
World trade grew at about 3 percent per year from 2012-2016, lower than the pre-crisis average of 7 percent per year for 1994-2008. Productivity growth also declined to 1 percent per year post-crisis from an average of 2 percent during 1994-2008.
If the development of GVCs is considered over approximately the same period, data point to a stalled growth in vertical specialization since 2011 while world GVC participation was increasing throughout the 2000s.
The report further investigates whether these changes in vertical specialization, as revealed in GVCs, explain the current productivity slowdown. While there are many factors that determine the rate of productivity growth, the evidence found suggests that the slower pace of GVC expansion is contributing to the slower world productivity growth.
The rise of GVCs was facilitated by the deepening of trade agreements that reduced trade costs and provided the institutional infrastructure for smooth cross-border functioning. Preserving and expanding the reach of trade agreements will help to sustain productivity growth.
The Global Trade Watch series is a joint product of the Trade & Competitiveness Global Practice and the Trade & International Integration Team of the World Bank Group’s Development Economics Research Group. It provides up-to-date data from various sources along with analysis of recent trade developments.
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SACU members need to harmonise border control policies
There is need to harmonise all the border control polices amongst the different Southern Africa Customs Union (SACU) member states to promote regional trade.
Ministry of Commerce Industry and Trade International Trade Department Senior Trade Policy Analyst Mluleki Dlamini said currently, SACU does not have common policies and furthermore the regional bloc does not have common institutions.
Dlamini was speaking yesterday during a workshop organised by the Global Economic Governance Africa in conjunction with the Federation of Swaziland Employers and Chamber of Commerce (FSE&CC) held at the Royal Villas in Ezulwini.
“The supra regional organisations would aid trade development in the region which is critical for the growth of the private sector. Common policies would decrease duplication of processes which can be seen to be barriers to trade,” he said.
Dlamini said another fact worth noting was that SACU trade only applies to goods and not services.
“This is something worth looking into as there are numerous services which are conducted in the various countries which are not included under SACU,” he said.
He was responding to a question asked from the floor to ascertain the level of trade amongst SACU member states when it comes to services as opposed to goods.
Coordination
He said coordination amongst the member states should be improved to increase the level of trade amongst member states.
“There needs to be more discussions amongst policy makers from member states at a regional level so as to ensure members concerns are articulated so they can be addressed within the structures of the body,” he said.
Dlamini said this was especially true when it came to the border posts, as it has been identified that the different boarder polices amongst member states was a significant barrier to trade.
He noted the duplication of costs at the border posts were amongst the main problems of cross border trade barriers.
“An example to this is that, you find that in one country a certain regulation is mandatory and everyone has to abide by it, however in the neighbouring country you find that the regulation is voluntary and it’s up to the firm owner to decide to adhere to it,” he said.
Dlamini said this causes confusion for the private sector whereas they are the sector which should be driving trade amongst states.
World’s future food security “in jeopardy” due to multiple challenges, report warns
Without additional efforts, the target of ending hunger by 2030 will not be met
Mankind’s future ability to feed itself is in jeopardy due to intensifying pressures on natural resources, mounting inequality, and the fallout from a changing climate, warns a new FAO report out today.
Though very real and significant progress in reducing global hunger has been achieved over the past 30 years, “expanding food production and economic growth have often come at a heavy cost to the natural environment,” says The Future of Food and Agriculture: Trends and Challenges.
“Almost one half of the forests that once covered the Earth are now gone. Groundwater sources are being depleted rapidly. Biodiversity has been deeply eroded,” it notes.
As a result, “planetary boundaries may well be surpassed, if current trends continue,” cautions FAO Director-General José Graziano da Silva in his introduction to the report.
By 2050 humanity’s ranks will likely have grown to nearly 10 billion people. In a scenario with moderate economic growth, this population increase will push up global demand for agricultural products by 50 percent over present levels projects The Future of Food and Agriculture, intensifying pressures on already-strained natural resources.
At the same time, greater numbers of people will be eating fewer cereals and larger amounts of meat, fruits, vegetables and processed food – a result of an ongoing global dietary transition that will further add to those pressures, driving more deforestation, land degradation, and greenhouse gas emissions.
Alongside these trends, the planet’s changing climate will throw up additional hurdles. “Climate change will affect every aspect of food production,” the report says. These include greater variability of precipitation and increases in the frequency of droughts and floods.
To reach zero hunger, we need to step up our efforts
The core question raised by today’s FAO publication is whether, looking ahead, the world’s agriculture and food systems are capable of sustainably meeting the needs of a burgeoning global population.
The short answer? Yes, the planet’s food systems are capable of producing enough food to do so, and in a sustainable way, but unlocking that potential – and ensuring that all of humanity benefits – will require “major transformations.”
Without a push to invest in and retool food systems, far too many people will still be hungry in 2030 – the year by which the new Sustainable Development Goals (SDG) agenda has targeted the eradication of chronic food insecurity and malnutrition, the report warns.
“Without additional efforts to promote pro-poor development, reduce inequalities and protect vulnerable people, more than 600 million people would still be undernourished in 2030,” it says. In fact, the current rate of progress would not even be enough to eradicate hunger by 2050.
Where will our food come from?
Given the limited scope for expanding agriculture’s use of more land and water resources, the production increases needed to meet rising food demand will have to come mainly from improvements in productivity and resource-use efficiency.
However there are worrying signs that yield growth is levelling off for major crops. Since the 1990s, average increases in the yields of maize, rice, and wheat at the global level generally run just over 1 percent per annum, the report notes.
To tackle these and the other challenges outlined in the report, “business-as-usual” is not an option, The Future of Food and Agriculture argues.
“Major transformations in agricultural systems, rural economies and natural resource management will be needed if we are to meet the multiple challenges before us and realize the full potential of food and agriculture to ensure a secure and healthy future for all people and the entire planet,” it says.
“High-input, resource-intensive farming systems, which have caused massive deforestation, water scarcities, soil depletion and high levels of greenhouse gas emissions, cannot deliver sustainable food and agricultural production,” adds the report.
More with less
The core challenge is to produce more with less, while preserving and enhancing the livelihoods of small-scale and family farmers, and ensuring access to food by the most vulnerable. For this, a twin-track approach is needed which combines investment in social protection, to immediately tackle undernourishment, and pro-poor investments in productive activities – especially agriculture and in rural economies – to sustainably increase income-earning opportunities of the poor.
The world will need to shift to more sustainable food systems which make more efficient use of land, water and other inputs and sharply reduce their use of fossil fuels, leading to a drastic cut of agricultural green-house gas emissions, greater conservation of biodiversity, and a reduction of waste. This will necessitate more investment in agriculture and agrifood systems, as well as greater spending on research and development, the report says, to promote innovation, support sustainable production increases, and find better ways to cope with issues like water scarcity and climate change.
Along with boosting production and resilience, equally critical will be creating food supply chains that better connect farmers in low- and middle-income countries to urban markets – along with measures which ensure access for consumers to nutritious and safe food at affordable prices, such as such as pricing policies and social protection programs, it says.
Trends and challenges
Today’s report identifies 15 trends and 10 challenges affecting the world’s food systems:
15 trends
- A rapidly increasing world population marked by growth “hot spots,” urbanization, and aging
- Diverse trends in economic growth, family incomes, agricultural investment, and economic inequality.
- Greatly increased competition for natural resources
- Climate change
- Plateauing agricultural productivity
- Transboundary diseases
- Increased conflicts, crises and natural disasters
- Persistent poverty, inequality and food insecurity
- Dietary transitions affecting nutrition and health
- Structural changes in economic systems and employment implications
- Increased migration
- Changing food systems and resulting impacts on farmers livelihoods
- Persisting food losses and waste
- New international governance mechanisms for responding to food and nutrition security issues
- Changes in international financing for development.
10 challenges
- Sustainably improving agricultural productivity to meet increasing demand
- Ensuring a sustainable natural resource base
- Addressing climate change and intensification of natural hazards
- Eradicating extreme poverty and reducing inequality
- Ending hunger and all forms of malnutrition
- Making food systems more efficient, inclusive and resilient
- Improving income earning opportunities in rural areas and addressing the root causes of migration
- Building resilience to protracted crises, disasters and conflicts
- Preventing transboundary and emerging agriculture and food system threats
- Addressing the need for coherent and effective national and international governance
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Chatham House interview with Rob Davies, South African Trade Minister
The head of South Africa’s Department for Trade and Industry speaks about his country’s post-Brexit trading relationship with the UK and how it is responding to global economic changes.
This interview was conducted during the speaker’s visit to Chatham House for an expert roundtable on 23 January 2017.
Q: What do you see as the trajectory for the historical and strategic trade and investment relationship between South Africa and the UK post-Brexit?
A: Our trade with the UK over the last three years has expanded, and there’s a small surplus in our favour. Of course there are opportunities to move further, but I think our first priority is to make sure there is no interruption. I think that the way our conversations have gone so far […] is that the Economic Partnership Agreement (EPA) that we have signed recently with the EU ought to be the basis on which we continue our relationship [with the UK], at least in the immediate future. Within that EPA we have a number of quotas which apply across the EU, so we need to decide how that’s going to work in relation to a partner arrangement with the UK only.
Q: Critics have described South Africa as seeing its neighbours as simply a ‘marketplace for exports’. As neighbours’ trade deficits with South Africa widen, what is your response to such criticism and what is South Africa doing to strengthen bilateral trade with its neighbours?
A: It is not the case that we are trying to just use our neighbours as undifferentiated markets for our products. Southern Africa and indeed the continent is a major marketplace for value added products from South Africa, but we have been supporting the industrialization of the African continent and we are major champions of the programme of regional integration. We want to see the development of value chains on a regional basis, in SADC [the Southern African Development Community] in the first instance, but also elsewhere on the continent. We see ourselves repositioning as other countries begin to develop more significant and serious manufacturing sectors themselves. We always had a large trade deficit with our neighbours; in some places that trade deficit has reduced over the years.
Q: How is South Africa prepared to react to changes in the global economy? And what is South Africa doing to diversify its trade relations?
A: We are learning from what is happening in the large emerging economies. China has recognized that, even though it achieved a significant boost to its own industrialization from access to the US market, it has to move to its own domestic consumption. But it’s got a large population and large internal market. The African integration effort is partly predicated on the understanding that we need a large regional market on the continent that will support diversification, not just in South Africa but in other countries as well. It’s a very important part of our efforts to support industrialization.
We are looking to promote value added products. That also means higher quality agricultural products. Regional integration on the African continent is very important to us, and probably our first priority. But we are also looking to consolidate and strengthen relations with markets in the developed world and open up new markets. Some of the new markets that are opening up for us are in the Gulf for example, and Russia. China is our largest individual trading partner and India is number six. But in both cases we are looking to move our export basket from one largely concentrated around primary products and primary mineral commodities, to more value-added products.
Q: The world economy is seeing radical changes in methods of production. What does this mean for South Africa?
A: We need to understand what is happening in terms of technological changes, what is called the fourth industrial revolution: the advance of robotics and 3D printing; new technologies and digitized technologies. I think that we can already see that beginning to shape production processes in industry and manufacturing. Where we have increase in output in manufacturing, not just in South Africa but across the world, we don’t have corresponding growth in employment because these technologies are less labour intensive than before.
People are talking about disruptive change. This is major revolutionary change in production, not just in manufacturing but many service sectors are going to be radically different. In South Africa we have the ability to be able to manage those processes. Our workers can operate those processes, but they do have social consequences that have been felt by established people who are in employment, more so in the developed world.
Young people in our country who are aspiring to get into decent work are finding that there are new requirements, new skills, new qualifications that are required to enter production. So I think that not just on the national scale but on the global scale we’ve got to think much more boldly about the social models that go along with this. If there is a move to a world where much of the routine human labour is going to be replaced by artificial intelligence-driven or robotic processes, that has the potential, within an inclusive growth model, to raise living standards and improve human welfare. But if it happens in a model that is winner-takes-all and ‘devil takes the hindmost’ then we could have increasing polarization and increasing instability. We need much more bold thinking about the social measures that are required to go along with that.
Q: The ANC (African National Congress) is holding a National Conference at the end of 2017 to elect a leader to lead the party in the national election in 2019. Many observers, including businesses, are viewing these as big political risks. As the politics of party and national elections play out, especially in the context of alleged deep factionalism within the ruling party, what guarantees are there that there will be policy consistency, certainty and clarity from key economic ministries and the government overall?
A: The current president is not eligible to be president of the country after 2019. We have a two-term constitutional limit. So there will be a new president in 2019 and the ANC’s position is that the president of the ANC is its candidate for president of the country. So there will be a new ANC president by the end of the year.
There will be a contested process. It has not started formally, but we already know that people are throwing their hats into the ring, so there will be a lively discussion. I think that we’ve got institutions in the country which are strong and stable, we’ve got a clear understanding of the imperatives that are before us, and I don’t think this is going to lead in the direction of policy changes that are going to be unforeseen or unforeseeable by people outside. The greater uncertainty arises on the world scale rather than from the South African domestic scale.