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Proposal for the establishment of the Africa Integrity Fund
Introduction
There is ample evidence on the adverse impact of Prohibited Practices and illicit financial outflows on African economies and societies. A large number of studies carried out both in Regional Member Countries (RMCs) of the African Development Bank Group (AfDB) and outside show Prohibited Practices as a factor that undermines political stability, impedes economic progress and results in social discord on the continent.
The troubling effects of pervasive corruption on the performance of public institutions and development effectiveness are well documented: By distorting the allocation of resources, corruption increases the prices of public goods and services while lowering the quality of service delivery and restricting access to services to the poor who can ill afford to pay the corruption premium. It is also well established that the incidence of Prohibited Practices is affected by the probability of being caught and punished. Research has shown Prohibited Practices to be high in countries where the government system does little to deter such practices, leading lawbreakers to believe there is little chance of being caught or, if caught, of having to face the law. The negative impact of Prohibited Practices is amplified by the subsequent financial outflows of illicit funds from RMCs to financial “safe havens”, mostly in developed countries.
In response to the challenges facing RMCs in the fight against Prohibited Practices and illicit financial outflows and in line with the institution’s priorities, the Integrity and Anti-Corruption Department (IACD) proposes the establishment of the Africa Integrity Fund (AIF) 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.
Alignment
Anti-corruption, highlighted in the Paris Declaration on Aid Effectiveness as an area where more support to country efforts is needed, has always been a priority for the Bank and is further reemphasized in the African Development Bank Group Ten Year Strategy for 2013-2022 At the Centre of Africa’s Transformation (TYS). The Bank commits in the TYS to strengthen the capacity and reach of government and civil society organizations that focus on anti-corruption. The Bank’s Governance Strategic Framework and Action Plan 2014-2018 (GAP II) identifies the fight against corruption as a cross-cutting objective. The Bank commits in GAP II to support Regional Member Countries’ efforts to improve the performance of anti-corruption agencies in preventing, investigating and sanctioning corrupt practices.
Grounded in the anti-bribery and anti-corruption provisions of the African Union Convention on Preventing and Combating Corruption, the UN Convention Against Corruption, and the OECD Convention on Combating Bribery of Foreign Public Officials, the Organisation for Economic Co-operation and Development (OECD) and the AfDB in 2011 launched a partnership to support African governments in their efforts to fight bribery and corruption. Working with African policymakers, businesses, regional and international organizations, the Joint OECD-AfDB Initiative inter alia aims to boost private-sector competitiveness by promoting standards of corporate integrity and accountability.
In the Uniform Framework for Preventing and Combating Fraud and Corruption agreed upon by the Multilateral Development Banks (“MDB”) community, the signatories commit to support initiatives of member countries to combat corruption. In accordance with Board Resolution B/BD/2012/07 Fine-tuning the Organizational Structure and Business Processes of the Integrity and Anti-Corruption Department, IACD’s mandate was broadened to provide support programs assisting the Bank’s RMCs in preventing, detecting and investigating instances of corruption, fraud and other wrongdoing.
Objectives, core priorities, outcomes and outputs
The AIF’s ultimate objectives are to reduce the prevalence and impact of Prohibited Practices and illicit financial outflows in the Bank’s RMCs by strengthening core priorities, in particular prevention, detection and investigation, and the sanctioning process, as well as by supporting knowledge creation and dissemination. These outcomes will be met by improving the policy framework and the legal environment of law enforcement and public finance management institutions, by enhancing the implementation of the existing legal framework and by encouraging civil society participation in fiduciary, accountability and monitoring systems. The principal activities ensuring such outputs are outreach, training, capacity building and technical assistance. Studies on emerging issues in the field of anti-corruption and the fight against Prohibited Practices and illicit financial flows will result in the development of knowledge products to inform the development of national strategies and programs, as well as providing a robust analytical base to feed into policy dialogue.
More specifically, the AIF aims at:
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Becoming a platform for the funding of activities aiming at reducing the prevalence of Prohibited Practices, at recovering stolen assets, at ebbing illicit financial outflows and at promoting good economic and financial governance across the continent;
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Documenting innovative approaches in the area of anti-corruption and good governance;
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Serving as a vehicle to incorporate development actors such as civil society organizations (CSO), advocacy groups, the press and academia in the fight against corruption and the search for innovative solutions to the problem of corruption and more generally weak governance at both country level and in the region.
Conclusion and recommendation
The AIF will be an innovative instrument providing the Bank with additional resources to address development priorities in its RMCs in the area of anti-corruption without tapping into traditional donor funds. It allows the Bank to fulfill its commitment to RMCs to support their efforts to improve the performance of anti-corruption agencies in preventing, investigating and sanctioning corrupt practices and to strengthen their governance agenda. In addition, the Fund will provide unprecedented support to innovative ideas by incubating and strengthening some of the emerging and most promising anti-corruption practices. Through its agile and flexible approach, it will allow the development community to quickly respond to the pressing need of Africa in this key area and strengthen the role of the Bank as partner of choice for delivering more transparency and accountability in the use of public funds.
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African Corridor Alliance established to stimulate development (New Era)
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GE announces partnership with Transnet to digitise African transport (Pulse)
GE Transport and Transnet, South African-based freight logistics chain have entered a digital partnership to seamlessly connect shippers and transport operators in streamlining pricing and capacity on the network, shipment planning, fuel costs savings and delivering goods to the market more effectively. GE Transport will assist Transnet to deliver goods and services with greater speed and efficiency through the provision of essential data required through Predix – GE’s cloud-based operating system for the Industrial Internet of Things.
Western Power Corridor pact can be revived, says Reuel Khoza (Business Day)
The Western Power Corridor could still be revived with committed political leadership, Reuel Khoza said on Monday. The corridor was a cooperative agreement among five Southern African countries established in 2003 to develop the Inga 3 hydropower project and associated infrastructure. Khoza, a former Eskom chairman, is now involved in renewable power projects. One of the speakers on a ministerial panel on increasing regional energy trade and co-operation at the Africa Energy Indaba starting on Tuesday, he is chairman of Aka Capital and independent power producer Globeleq as well as the author of several books on governance and leadership. "Regional integration is possible with the necessary political vision and will," Khoza said. "In Southern Africa the energy entities are state utilities, not private-sector generation and distribution companies, so everything revolves around co-operation among governments."
South Africa: Durban’s dig-out port a ‘no go’ until 2030 (South Coast Sun)
The proposed dig-out port is a definite ‘no go’ until at least 2030, as Transnet opts to implement short-term solutions. Existing berths closer to the sugar terminals are being widened and deepened to accommodate larger ships, at an envisaged cost of R14.4-billion by 2022/3, as opposed to the inception of the dig-out port off the Prospecton coast. Although Durban Harbour retains the number one position as the busiest harbour in sub Saharan Africa and fourth in the Southern Hemisphere, it relinquished second position in Africa, resulting in a third position behind Port Said in Egypt. That, in turn, relinquished first for second busiest to a new role player in the market, the four-year-old cargo port Tanger Med off the coast of Morocco. These, and other constantly changing factors that include an increased number of road corridors into Central Africa (total of 10 into the DRC), have necessitated adaptive planning.
Mozambique: Access channel to the port of Maputo, Mozambique, dredged to 14.2 metres (Hellenic Shipping News)
This dredging, which was intended to allow access to the port by ships of up to 80,000 tonnes, making the port of Maputo more competitive in regional and international markets, “is a strategic decision that will help to achieve the set target of processing 40 million tonnes of cargo by the end of the year 2020.” Osório Lucas, Executive Director of the MPDC, said during the ceremony that marked the completion of the channel dredging that the idea behind the investments was to transform the port of Maputo “not into an alternative port but into a port of choice.”
Kenya: New regulations to let local firms share in Sh304b shipping profits (The Standard)
The Kenya Maritime Authority said local importers spend Sh304 billion in freight and destination costs annually and that the Government was keen to facilitate local investors to venture into the business. "We are in discussions on how to spur local investment in merchant shipping," said John Omingo, KMA’s commercial shipping manager. Under regulations that govern the right to operate sea transport services, only domestically owned or registered ships are allowed to ply local cargo routes. But KMA is proposing more continental rights. "This will mean that foreign container carriers will drop cargo at one big port, say Mombasa, and African-registered ships will transport the goods within African ports," said Mr Omingo. He said similar arrangements exist in Europe, India and the US.
Why Kenya may lose out on shipping billions (The Standard)
Landlocked countries in the region are watching with interest the mega infrastructure projects that are taking place in countries along the Eastern Africa coastline. Countries such as Uganda, Rwanda, Eastern Congo and South Sudan are currently heavily depended on the port of Mombasa for their imports. Limited alternatives have always seen them put up with high costs, delays and congestion at the port of Mombasa but this could soon change, as Tanzania spends big on upgrading its ports of Dar es Salaam and Tanga and building corridors connecting the ports to the hinterland and neighbouring countries. Djibouti, while not a traditional competitor to Mombasa, is also spending large sums in infrastructure upgrade, with the help of China in its ports and setting up a free trade zone that it expects could be the ‘Dubai’ of the Great Lakes region. While there has always been talk of importers and shippers ditching Mombasa for Dar es Salaam, experts say the new developments when complete will keep Kenyan port operators on their toes. Already, there is a sense that power is shifting in the region, with Kenya’s tradition partners keen on playing a bigger role in the region.
Tanzania authorities to build $4m inland port (Coastweek)
A Tanzanian cabinet minister said on Tuesday the government will next month start construction of a $4m inland container depot in Coast region to decongest the Dar es Salaam port and improve efficiency. The Dar es Salaam port is busy and faces congestion as it serves landlocked countries of Zambia, the Democratic Republic of Congo, Rwanda, Burundi and Uganda. Makame Mbarawa, the east African nation’s Minister for Works, Transport and Communication, said the ICD will be constructed in 500 hectares of land and will be completed in nine weeks.
Nigeria: MD says 25-year ports Master Plan will unfold soon (Pulse)
The Nigerian Ports Authority is committed to concluding the 25-year Port Master Plan. The Managing Director of NPA, Ms Hadiza Usman, said this at a two-day retreat organised by the House Committee on Ports, Harbour and Waterways, the Federal Ministry of Transportation and its agencies. According to her, the Port Master Plan is expected to provide a clear overview of the entire port system, which is vital for guided port development. On passage of pending relevant bills (Ports and Harbours Bill, National Transport Commission Bill, etc), the managing director expressed delight that members of the House Committee agreed that there was an urgent need to pass the bills. She said that the bills would replace the existing obsolete laws, which were not supportive of the current developmental goals. [Railway and Nigeria’s economic development]
Nigeria: FG to concession Nigerian Railway Corporation (Channels)
The Federal Government has concluded arrangements to concession the Nigerian Railway Corporation to any reputable foreign company. “A number of foreign companies responded to the advertisement while the corporation has begun to study the bids submitted by the companies with a view to settling down for one that meets the laid down requirements and standards,” chairman of the NRC, Usman Abubakar, said. [FG’s planned revival of Eastern, Western rail lines will reduce downtime]
South Africa: New Draft White Paper suggests standard gauge network for freight rail (Mining Weekly)
A new national rail strategy, proposed to become legislation in 2018/2019, will give policy direction to the rail sector for the first time in 150 years, says Department of Transport deputy director-general rail Jan-David de Villiers. The policy – currently a Draft White Paper – comes as South Africa’s railways are no longer able to compete effectively against other transport modes in capturing their proper share of the national freight and passenger markets, he explains.
Zimbabwe: Govt moves to revive NRZ (The Chronicle)
The Government has acquired 31 rail wagons worth $2.9 million as it moves to recapitalise the National Railways of Zimbabwe, a Cabinet minister has said. Transport and Infrastructural Development Minister Dr Joram Gumbo said the recapitalisation of the NRZ also included track, signalling and telecommunications infrastructure rehabilitation, re-electrification and acquisition of rolling stock. “The estimated cost of the recapitalisation of NRZ is estimated to be $635m over a period of three years,” Dr Gumbo said. He said this while addressing officers at the Joint Command and Staff on strategic issues affecting the preservation, maintenance and renewal of transportation infrastructure at the Zimbabwe Staff College in Harare on Thursday last week.
Imperial half-year profit falls (Moneyweb)
South African logistics group Imperial Holdings posted a 15% fall in half-year profit on Tuesday and said dividends in future would be based on headline earnings per share. In Africa, the group said: “Falling commodity demand, low oil prices and the consequent impact on currencies and private consumption has negatively impacted the growth rate in the African region where R5.7bn or 9% of group revenue and R461 million or 16% of group operating profit was generated during the period.”
South Africa: Gauteng SOPA 2017 speech (pdf, Gauteng Province)
We have intensified our work regarding economic diplomacy as part of the Gauteng City Region as a preferred destination for investment and tourism. We are focusing on increasing trade and investment flows with major economies in Africa, BRIC, Asia-Pacific, Europe and the Americas. We are also working in partnership with transnational and domestic business chambers that are based in our province. We have a more targeted and purposeful approach to international visits and trade missions. I have decided to appoint the Premier’s Economic Advisory Panel made up of the following economic experts, entrepreneurs and labour representatives: Mr Jabu Moleketi (Chairperson), Dr Sizeka Rensburg, Ms Chichi Maponya, Mr Lumkile Mondi, Mr Dumisani Dakile, Ms Trudy Makhanya, Dr Thandi Ndlovu, Ms Pamela Mondliwa, Mr Ravi Naidoo, Professor Fiona Tregenna, Dr Paul Jourdan, Mr Pepi Silinga, Mr Davis Cook and Ms Tebogo Nkosi. The panel will advise the Premier and the Gauteng Provincial Government on implementing strategies to realise our objectives of increasing employment, empowerment, exports and inclusive growth in line with the vision set out in the National Development Plan and our Provincial Economic Plan.
Under China’s belt (Cranes Today)
In the second of a two-part series, Stuart Anderson, president of Chortsey Barr Associates, looks in more detail at the countries where Chinese crane exporters have had the most notable export successes, and breaks down some of the factors driving this demand. African challenges and opportunities: It’s a market that consumed almost 400 truck cranes in 2015, with XCMG taking a share close to 60%, followed by Zoomlion with over 30%. XCMG’s strength is thanks not only to its political connections but also, in large part, to its continent wide presence as well as the considerable successes of Chinese import/export traders.
Kenya sends 36 students to China to study railway engineering (Capital FM)
Kenya Railways will hold a farewell ceremony tomorrow for the second batch of students leaving for China under the CRBC/SGR Capacity building scholarship program. The scholarship program was launched by the President in March 2016 to train new railway engineers for the future sustainability of the Standard Gauge Railway system. The students will undertake a Bachelor’s degree course in Railway engineering for four years at Beijing Jiatong University.
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Upsurge in India-Africa ties a ‘win-win’ situation: Ansari
Africa’s complementary strengths to become a major contributor to India’s energy and food security requirements make the resource-rich continent a “natural economic partner” of the country, Vice President Hamid Ansari said today.
The imperatives that drive Africa-India engagement are based on “shared challenges, common interests, and perceptions of mutual benefit” and come from “our complementary strengths and capacities that make us natural economic and commercial partners,” Ansari said.
“India provides a long-term, stable and profitable market to the goods and services that Africa generates. For India, Africa has the potential to become a major contributor to our energy security and food security requirements. This is a ‘win-win’ situation,” he said.
Addressing a gathering at the University of Rwanda in Kigali, he emphasised that India’s 328 million youth, who constitute 28 per cent of its population, like young people everywhere, are “anxious to build a better world.”
“The upsurge in India-Africa relations comes at a time when the world has acknowledged India’s growth story. The rapid growth of our economy over the last 25 years has provided India with additional resources, not only to augment its own developmental efforts, but also to collaborate with our partners in their developmental efforts across the world, and particularly in Africa,” Ansari said.
Ansari said the upsurge takes place also at a time when Africa has “cast-off its image of deprivation and hopelessness and taken control of its own resources and destiny, as winds of progress, peace and participation sweep across this great continent.”
“This new-found confidence and developmental zeal is best demonstrated by your own country (Rwanda) whose economic performance has been termed ‘remarkable’ by the International Monetary Fund,” he said.
Minister of Education of Rwanda Musafiri Papias Malimba and Chancellor of University of Rwanda Mike O’Neal were also present during Ansari’s address, which was his last formal engagement in Rwanda before he departs for Uganda.
He arrived in the east African country on February 19 and has launched a India-Rwanda Innovation Growth Programme that seeks to cement the “strong ties” between the two countries.
During Rwandan President Paul Kagame’s visit to India in January an understanding was reached for a new Line of Credit worth USD 80 million for a road project.
“We are also committed to continuing and enhancing the provision of scholarships for training of Rwandan civilians and defence personnel under various technical cooperation and cultural cooperation programmes,” Ansari said. “Our bilateral trade has doubled over the last five years, but at USD 106 million, remains modest and much below its potential.”
The quantum of Indian investments in Africa has increased in recent years and is presently estimated at USD 35 billion.
Ansari yesterday visited the Kigali Genocide Memorial and lauded the “resilience and courage” of Rwandans in putting behind hatred and moving ahead on the path of reconciliation.
“I say this in the confidence that your generation would have the wisdom to avoid the follies and limitations of the past and look forward instead to a future for our world in which the operative principle would be cooperation rather than contention and the objective would be mutual benefit rather than selfish greed,” he said.
Ansari said India shares with Rwanda, this strong desire to provide stable democratic governance and opportunities for growth and prosperity of people.
“We in India see ourselves as a strong development partner to Rwanda. We are already cooperating in sectors such as solar electrification, food processing, skill development and hydropower projects,” he said.
The vice president has described his two-nation visit a “conscious effort” by India to “intensify interactions” with Africa.
“Indiais increasingly an important source of investment for projects in Africa, which span diverse sectors such as pharmaceuticals, information technology and telecom, engineering, education, health and agriculture. Indian private sector has been a pioneer in making investments in Africa, contributing to generation of employment and growth in the countries receiving such investments,” he said.
“Our present choices are informed by our shared experience of anti-colonial struggle against exploitation and racial discrimination. India, despite the constraints of its growing economy, was a forerunner in championing the interests of developing countries, including those from Africa, through initiatives such as the Bandung declaration of 1955, the Group of 77 and the Non-Aligned Movement,” Ansari said.
Rwanda, India and Africa: Imperatives for Cooperation
Lecture delivered by Indian Vice President Hamid Ansari at the University of Rwanda
I am happy to be here in this beautiful land and to have the opportunity to share some thought with the young people, who would shape the world of the future in their own chosen ways.
I say this in the confidence that your generation would have the wisdom to avoid the follies and limitations of the past and look forward instead to a future for our world in which the operative principle would be cooperation rather than contention and the objective would be mutual benefit rather than selfish greed.
My delegation and I bring to you the greetings and good wishes of the 1.3 billion people of India and particularly of the world’s largest number of youth, 328 million, who constitute 28 percent of our population and who, like young people everywhere, are anxious to build a better world.
Last month, we in India, had the privilege to welcome His Excellency President Paul Kagame as a special guest at the Vibrant Gujarat event. This gesture was instrumental in consolidating further our bilateral relationship.
I must compliment you on the impressive signs of development and progress that are evident everywhere. This, I understand, has been possible due to the foresight and sagacious vision of the leadership and the hard work of the people.
We in India see ourselves as a strong development partner to Rwanda. We are already cooperating in sectors such as solar electrification, food processing, skill development and hydropower projects.
During President Kagame’s recent visit an understanding has been reached for a new line of credit worth $80 million for a road project. We are also committed to continuing and enhancing the provision of scholarships for training of Rwandan civilians and defence personnel under various technical cooperation and cultural cooperation programmes.
Our bilateral trade has doubled over the last five years, but at US $106 million, remains modest and much below its potential. Rwanda has a dynamic economy and ranks highly in the ease of doing business, providing many incentives for investors. We share with Rwanda, this strong desire to provide stable democratic governance and opportunities for growth and prosperity of our people.
Yesterday, I had the pleasure of inaugurating, jointly with Prime Minister Murekezi, the Rwanda-India Business Forum that will bring together business partners from our two countries. We also inaugurated an exhibition that showcases some of the more useful and cost-effective innovations from Indian industry that can be adapted for use here.
On our part, we continue to encourage Indian companies to be bolder and more imaginative in seizing the opportunities that Rwanda presents.
The upsurge in India-Africa relations comes at a time when the world has acknowledged India’s growth story. The rapid growth of our economy over the last 25 years has provided India with additional resources, not only to augment its own developmental efforts, but also to collaborate with our partners in their developmental efforts across the world, and particularly in Africa.
It takes place at a time when Africa has cast-off its image of deprivation and hopelessness and has taken control of its own resources and destiny, as winds of progress, peace and participation sweep across this great continent. This new-found confidence and developmental zeal is best demonstrated by your own country whose economic performance has been termed ‘remarkable’ by the International Monetary Fund.
India’s engagement with Africa has its own unique script, based on what Prime Minister Narendra Modi has called, ‘a strong emotional link’ defined by our shared history of struggle against colonialism and our aspiration to bring prosperity to our people.
The imperatives that drive African-Indian engagement are based on our shared challenges, common interests, and perceptions of mutual benefit.
The first imperative comes from our shared history and cultural links. India owes an unforgettable debt of gratitude to Africa’s role in inspiring our struggle for national liberation. It was on this continent that Mahatma Gandhi developed and first practised the concepts of non-violence and peaceful resistance that won India its freedom.
Our present choices are informed by our shared experience of anti-colonial struggle against exploitation and racial discrimination. India, despite the constraints of its growing economy, was a forerunner in championing the interests of developing countries, including those from Africa, through initiatives such as the Bandung declaration of 1955, the Group of 77 and the Non-Aligned Movement.
In addition, a large number of people of Indian origin call Africa their home, a number of them being based in the Eastern and Southern parts of Africa. They contribute to the growth of local economy and provide a link between their adopted homes and their country of origin.
The second imperative comes from our complementary strengths and capacities that make us natural economic and commercial partners. India provides a long-term, stable and profitable market to the goods and services that Africa generates. For India, Africa has the potential to become a major contributor to our energy security and food security requirements. This is a ‘win-win’ situation.
India is increasingly an important source of investment for projects in Africa, which span diverse sectors such as pharmaceuticals, information technology and telecommunications, engineering, education, health and agriculture. Indian private sector has been a pioneer in making investments in Africa, contributing to generation of employment and growth in the countries receiving such investments.
The quantum of Indian investments in Africa has increased in recent years and is presently estimated to be about $ 35 billion, with a large part of it concentrated in Southern and Eastern Africa.
Agro business initiatives have been a crucial component in our commercial exchange. Indian successes in agriculture have taken place in the context of low capital intensive farming and varied climatic conditions, which can be of relevance to Africa. Furthermore, the growing middle-class in urban India can become a dependable consumer for African food processing industry.
In order to address the trade imbalance and diversify the trade basket, India has already offered duty-free access to Indian markets, with very few exceptions, for all the Least Developed Countries of Africa.
The third imperative comes from our common approach in meeting development challenges towards building a sustainable future for our people. The African leadership is aware of India’s domestic experience and success in developing a vibrant manufacturing and services sector, while encouraging inclusiveness at societal level.
While each country has its own unique development story, the answer to many issues confronting us in health and well-being, food security and nutrition, energy, climate change, water and sanitation lie perhaps in the mirror image that India and Africa present in terms of demography, disease burden and resource constraints; and how we have met these challenges through innovative solutions.
Africa and India can thus learn much from each other in terms of capacity building, program implementation and innovation.
Our development cooperation engagement with Africa is unique, based on mutual benefits while contributing to Africa’s development objectives through a consultative process. Our approach has not been one of demanding privileges or rights to projects, but rather a desire to contribute to the achievement of Africa’s development objectives as they are established by Africans themselves.
A wide range of areas have been covered including agriculture, small and medium enterprises, science and technology, health, education, culture, infrastructure, energy, communications, civil society and governance. Our partnership model is premised on human resource development and institution building in partner countries. This in turn, creates skills and capacities in Africa – particularly in sectors such as agriculture, food processing, textile and small industries – and benefits expansion of their export to India and other countries.
India has also sought to develop innovative mechanisms for implementing these initiatives, such as our concessional Lines of Credit, which are tailored to the requirements and capacities of our partners in Africa, to ensure that they do not become another channel leading them into a debt trap.
To support our development cooperation in Africa, the Government of India has announced concessional credit of over $10 billion, over a period of next five years, in addition to the ongoing credit lines. A grant assistance of $ 600 million has also been announced, including $100 million for the India-Africa Development Fund and $10 million for the India-Africa Health Fund.
The grant assistance will also cover more than 50,000 scholarships for African students in India over the next five years.
The fourth imperative for our cooperation comes from a shared perspective on addressing peace and security related issues and a convergence of views on matters global. We share similar views and positions on a variety of global concerns, ranging from combating terrorism and piracy to coordinating our positions in global forums over issues such as reforms at the United Nations, world trade and climate change. The reform of political, security and economic institutions of global governance has been a key area of such cooperation, with both Africa and India underlining the urgency of undertaking such reforms, including a meaningful expansion of the United Nations Security Council.
The threat of terrorism has emerged as a major impediment in our quest for peace and prosperity for our people. The spreading tide of terrorism and extremism is a threat that all civilised societies face today. In India we face the threat from across our borders. Terrorist action and violence cannot be justified on any grounds. We condemn terrorism in all its forms and manifestations and call for strong and concerted international efforts to deal with this menace in a comprehensive manner.
India also remains committed to ensuring stability and peace in Africa under a genuine multilateral effort led by United Nations. In pursuance of this commitment, India has over 6000 personnel committed to UN peacekeeping duties in Africa. In addition, we have worked bilaterally with our African partners to enhance defence training and capacity building in security domains.
In a time when the global political and economic situation is marked by uncertainty and upheavals threaten the stability of the global order, the need for developing economies, which seek stability, peace and prosperity for their people, to cooperate and consult each other in a new spirit of solidarity assumes renewed significance.
India’s commitment to developing a strong partnership with Africa is reflected in our recent initiatives, particularly under the rubric of the India-Africa Forum Summit, whose third edition was held in New Delhi in 2015 with participation from 54 African countries.
The Forum provided an opportunity for the African leaders to explore what India offered to them. The outcome document of the summit – “Delhi Declaration” and “Framework for Strategic Partnership” – reflected the common positions of India and Africa on a wide array of political and economic issues as well as an articulation of our joint commitment to deepening our mutual cooperation.
The meeting provided a new direction to Africa-India relations based on equality, mutual respect and shared gains in addition to identifying broad areas of cooperation in political, economic and social development.
These developments are but a start. Our relations are a long way from reaching the peak. The great potential, therefore, in this relationship provides both India and our African partners, an opportunity to benefit significantly from its enlargement.
Long Live India-Africa Amity
Long Live India-Rwanda Friendship
Thank You.
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Report blames Tanzania for increase in non-tariff barriers
When it comes to non-tariff barriers, each country in the East African Community has a story of its own: If not complaining about another member state, the said country is imposing its own, according to a report on the elimination of non-tariff barriers in the region.
The report points fingers at Tanzania as the country with the highest number of NTBs in the region. For example, to register any product in Tanzania, one is required to pay $2,000 against other countries in the region charging $1,000.
After registration, Tanzania demands the same price for renewal after every five years besides an annual retention fee of $300.
According to the report, presented to the EAC Sectoral Council of Ministers on Trade, Industry, Finance and Investment on February 2, the Tanzania Food and Drug Authority (TFDA) registers injectables and other products per pack size and treats each pack as a product by itself. In other countries in the world including the other EAC states, manufacturer’s register all products as one but highlight all the presentations on the same certificate.
“Kenyan exports to Tanzania are subjected to verification three times – at the manufacturers premises, and the trucks have to pass through ICD for full verification at the border. This consumes time and is costly for Kenyan exporters,” said the report adding that Tanzania also has a pallet fumigation requirement for Kenyan wood pallets to enter into Tanzania.
The 75 per cent rules of origin requirement for tobacco originating from Kenya to enter Tanzania has been referred to the Sectoral Council of Ministers on Trade, Finance and Investment for resolution.
Rwanda reported a discriminatory charge of $300 by Tanzania on tourist vehicles from Rwanda entering the Tanzania national parks.
Burundi on its part complained of the cargo charges for transit trucks in both Kenya and Tanzania. The Mombasa County Government in Kenya charges Ksh6,000 ($60) per transit cargo truck and $5 for transit trucks waiting to load cargo in the parking yard every day, while Tanzania charges $4.37 for every cargo truck entering the country through Mugina/Manyovu border.
However, Tanzania reported that the Kenya Revenue Authority takes up to seven days for physical inspection and approval of entries for Tanzania Breweries Ltd (TBL) consignments at the border and the Kenya Bureau of Standards conducts double checks on products approved by the Tanzania Bureau of Standards and TFDA.
“There are multiple quality checks for export products in Kenya that in some cases can mean up to 21 days delay,” said the report, adding that Kenya invoked the EAC rules of origin and imposes duties on TBL products by insisting Redds and Castle Lite beer are manufactured in South Africa while they are manufactured in Tanzania.
“Pursuant to the Kenya Excise Act 2015, the KRA introduced tax stamps or printed codes on beer and keg manufactured or imported with manual application, which raises the cost to $5.5 per half litre and also introduced conditions for excise remission that hinder TBL beer exports to Kenya.”
The other NTBs reported in the report are that Rwanda charges an arbitrary fee of between $21 and $24 to transporters and importers transporting goods to Rwanda from Uganda. The fee is institutionalised and no receipt is issued. Uganda reported that its transporters are complaining of being stopped by the Kenyan police after passing weighbridges. The police then demand weighbridge certificates and extort up to $100 at a time.
The EAC Sectoral Council directed the Secretariat to convene permanent/principal secretaries from all the partner states to handle the reported issues on NTBs.
Jessica Eriyo, EAC Deputy Secretary General in charge of the productive and Social Sector, said the NTBs Bill should be assented to for a structural and institutional framework to address NTBs.
The EAC Elimination of NTBs Bill 2015 aims to establish a legal mechanism for identifying and monitoring the removal of NTBs.
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African Corridor Alliance established to stimulate development
Transport is a significant sector in that it reduces transactional costs in enhancing trade. To facilitate infrastructure development, governments promote the expansion and improvement of development corridors. Corridors are the focal point for regional development initiatives.
Transport corridors have been around for centuries, but it is only in the last few decades that they have been recognized for what they are and, more importantly, what they can become as well as the value they can add to economic growth. They serve to open up markets and promote increased trade and investment.
With this in mind, leaders of various corridor management institutions (CMIs) from across Africa are joining forces to assist with the development of their cross-border transport corridors. Heads of the CMIs gathered in Walvis Bay, Namibia this week to discuss the architecture of the African Corridor Management Alliance (ACMA).
Hosted by the Walvis Bay Corridor Group (WBCG), the meeting brought together heads of several CMIs, representatives from the United Nations Economic Commission for Africa (ECA), the African Development Bank (AfDB), the African Union Commission (AUC), the Nepad Agency, the African-Export-Import bank (Afrexim Bank) and various other economic integration stakeholders. Among the most prominent CMIs on the continent are the Abidjan-Lagos Corridor, the Northern Corridor that links Mombasa to Kigali and Kampala, the Walvis Bay Corridor with routes to seven southern African countries and the Maputo Corridor connecting Mozambique, Swaziland and South Africa.
“The aim of ACMA is to provide the corridor states with lessons and practical tools for the design, capacity development and successful implementation mechanisms for economic corridors,” said Mr Johny Smith who is the Interim Chairperson for ACMA. The alliance was joined by representatives from the ECA and various other integral stakeholders at the inaugural meeting.
In his welcoming address, Namibia’s Permanent Secretary of Works and Transport Willem Goeiemann expressed the government’s support of the establishment of ACMA. He emphasised the importance of ACMA as a vehicle to enhance the growth of trade throughout the continent, and that the alliance is responding to the African Union’s aspiration of boosting intra-Africa trade.
Director of the Capacity Development Division at the ECA, Stephen Karingi, affirmed the notion, saying that an institutionalised platform for a continental dialogue contributes to policy discussions. Stephen Karingi said that Africa is moving towards a more continental view on trade hence the establishment of the Continental Free Trade Area (CFTA). He further pointed out that 2017 is an important year for the continent’s trade agenda. By the end of the year it is expected that the negotiations for the CFTA will be completed.
There is, therefore, a need for ACMA to work closely with the CMIs as a platform for trade facilitation.
The role of economic corridors in promoting transformation and boosting intra-Africa trade has increasingly become important. The corridors themselves are viewed not only as conduits to growth and regional integration but also as engines of regional and local economic development. The initiatives under the economic corridors help create jobs, generate wealth, mobilise public and private resources and stimulate key economic sectors sustainably.
The ACMA secretariat will assist in unbundling, prioritising and sequencing corridor-orientated initiatives into the pipeline of bankable sub-projects, facilitating private sector engagement and addressing issues of enabling environments in collaboration with CMIs in addition to aiding resource mobilisation in collaboration with financing institutions.
The support and collaboration of the regional economic communities (RECs) and the corridor states are vital to not only lead to the success of the undertakings by the alliance, but also to ensure that the ownership of ACMA initiatives is consistent with those of the RECs and the corridor states that are ultimately the beneficiaries.
With effective management, economic corridors will improve physical connectivity between the corridor states, thereby enhancing access to markets, while expanding economies of scale for value chains. Within the framework of the alliance, economic corridors will enhance the productivity and value addition to the endowed natural resources.
The ultimate objective is to enable the expansion of space for production into various sectors of the economies, leading to increased use of local raw materials and opening up access to new investment opportunities. The realisation of economic development through corridor management presupposes that there is a provision of energy, transportation and effective exchange to drive the economic transformation process.
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tralac’s Daily News Selection
Diarise: launch of the Regional Overview of Food Security and Nutrition in Africa 2016 (23 February, Freetown)
ECA statutory documents, prepared for the Conference of Ministers 2017 (23-28 March, Dakar):
Review of the intergovernmental structure of the Economic Commission for Africa (pdf): The document sets out an assessment of the preliminary findings and recommendations of the review, and also its methodological limitations, with a view to highlighting the need for a further detailed study, because of the inconclusive nature of most of the findings. The analysis is based on the secretariat’s empirical knowledge and experience gained in the implementation of previous resolutions on the subject of the intergovernmental structure, together with the views and suggestions made by secretariat staff during the review process. The document concludes with a set of proposed actions that the Commission may wish to consider in this regard.
Report of the Executive Secretary on the activities of the Economic Commission for Africa (pdf): The report provides an overview of the major events and activities undertaken by ECA (April 2016 to March 2017) in response to its broad mandate of fostering economic and social development in Africa. In addition to the issues presented in the report, a number of key strategic areas of involvement are highlighted, underlining the Commission’s most significant contributions.
ECOWAS plans to sensitise border officials on free movement (Leadership)
Speaker of the ECOWAS Parliament, Honourable Moustapha Cisse Lo, has said ECOWAS will conduct visits to the west African borders to sensitise border officials on the community’s provisions on the free movement of goods and person in the region. “There are obstacles to free movement along out borders. Our intention is to conduct visits to the border posts to sensitize all these authorities on the border to give up these abnormal practices. In collaboration with the Commission, we (parliament) will conduct visits to the borders to create awareness and sensitise the officials.” In a related development, the speaker has said the parliament will convene a special seminar on the enhancement of powers of the parliament to dig deeper into the implications of an enhanced ECOWAS parliament. [ECOWAS cuts operational costs by $12m]
The latest West Africa Brief, from SWAC/OECD, is posted
TZ EALA members faulted for weak efforts in selling integration benefits (IPPMedia)
Lindi Regional Commissioner Godfrey Zambi has criticized Tanzania legislators in the EALA for not marketing business opportunities available in his region into the bloc. Zambi also observed that Tanzanian legislators into EALA were duty bound to sensitise not only Lindi residents but also other people in other regions on the opportunities available in the EAC bloc. “I believe the situation could be different with Lindi regional residents if they were aware of the business opportunities arising from East African common market. Very unfortunately leaders, including EALA members from Tanzania don’t seem to throw their weight into this matter,” Zambi said. Zambi was of the view it would be meaningless for the EAC integration project to be owned by the bureaucrats, leaving the general public, including Civil Society Organizations aside.
Rwanda, Burundi row hurting us: EAC chief (The Citizen)
Is Trump’s plan to repeal conflict minerals rule a gift for Rwanda? (The EastAfrican)
Kenya, Uganda and Rwanda launch EA destination portal (CapitalFM)
Hamid Ansari’s Africa visit aims to broaden India’s outreach efforts (Mint)
Vice-president Hamid Ansari left on Sunday on a five-day tour of Rwanda and Uganda in a bid to broaden India’s general outreach to resource-rich Africa and establish its footprint in sub-Saharan Africa. Ansari will be the first Indian leader to visit Rwanda, where the capital Kigali will be his first stop. His second stop will be Kampala, where the previous bilateral visit was in 1997 by then prime minister Inder Kumar Gujral. “Both Rwanda and Uganda are important from the viewpoint of our trade, especially in the pharmaceuticals, automobiles, mechanical appliances and machinery sectors,” joint secretary Malhotra said. “Our trade with Rwanda has doubled over the last five years while we are one of Uganda’s largest trading partners, we are also one of the largest investors in Uganda,” Malhotra said. [Related: Ansari is slated to address India-Uganda Business Forum, launch the India-Rwanda Innovation Growth Programme]
China should help build Africa e-commerce (Global Times)
Cross-border e-commerce is key to China’s drive to upgrade its foreign trade companies. Africa has increasingly become an emerging market for global cross-border e-commerce given its growing Internet access, rising number of cell phone users and consumers’ increased interest in online shopping. But the barriers to the African market cannot be ignored. Given these challenges, the Chinese government needs to start building supply chains and guiding e-commerce players to enter African markets and tap local potential. First, the government should orient Chinese business operations toward being fully localized when it comes to building cross-border e-commerce platforms. Chinese firms should be fostered to form strategic partnerships with Africa’s local e-commerce businesses. Global heavyweights including eBay and Amazon have performed poorly in the African market. By comparison, many African countries have viable local e-commerce firms. [The author, Song Wei, is attached to the Chinese Academy of International Trade and Economic Cooperation]
Nigeria drops to fourth position as China’s trade partner (ThisDay)
Trade relations between Nigeria and China dropped last year with Nigeria losing her position as the second largest [African] trading partner with China. According to the Chinese Ambassador to Nigeria, Zhou Pingjian, trade relations between the two countries nose-dived from about $15bn in 2015 to about to about $3.1bn in 2016; resulting to Nigeria’s drop from her second position to fourth as trade partners. “Nigeria-China trade is declining fast. Nigeria used to be China’s number two trade partner in Africa, but it’s now number four”, the envoy stated.
Tanzania: UK to double trade finance (Daily News)
British Prime Minister’s Trade and Investment Envoy to Tanzania Lord Hollick has announced doubling of UK’s government trade support for Tanzania to 750 million pounds (over 2tri/-). The announcement was made during Lord Hollick’s visit to Dar es Salaam this week, where he discussed the proposed UK investments by British firms and Tanzania’s priority infrastructure projects with a number of ministers and senior officials. The support is made available through UK Export Finance and UK government’s export credit agency.
Tanzania: Gold miner, TRA in talks to resolve major tax claim (IPPMedia)
Tanzania’s largest gold producer, Acacia Mining Plc (formerly known as African Barrick Gold), is in talks with the Tanzania Revenue Authority and other government authorities to try to resolve a major new dispute on whether or not the UK-registered firm has a taxable presence in Tanzania. Acacia Mining chief executive officer Brad Gordon confirmed the apparent impasse in a statement last week when announcing the company’s 2016 financial results, saying:
Africa must turn resources into manufactured export products (Business Day)
Africa’s abundant labour and low wages make it potentially competitive in the export of labour-intensive manufactures. But since labour productivity is low relative to China and other East Asian countries, abundant low-wage labour does not necessarily translate to low labour costs in production. Consider Ethiopia and Tanzania. Wages for producing polo shirts and wooden chairs range from about a tenth to half those in China. But polo-shirt workers in Ethiopia and Tanzania finish half the number of shirts workers do in China. For wooden chairs, they produce one or two for every 100 in China, pushing Tanzania’s costs to 19 times those in China and Ethiopia’s to 26 times. The young and growing workforce in Africa can be a global competitive advantage and a great asset in driving industrialisation if it is healthy and has the right skills. [The author, Dr Moses Obinyeluaku, is chief economist at the International Trade Administration Commission of SA]
Mcebisi Jonas: ‘Brokering a New Deal for SA’ (City Press)
We must also leverage the role of state capital in South Africa’s economy. The state currently owns and controls about 30% of the economy in highly strategic sectors, including state banking, information technology, energy, transport, aerospace and the weapons industry, and communication. In addition, the state owns about 25% of land and has an array of regulatory and administrative apparatus to influence the behaviour of capital. Hard questions must be asked about whether we are deriving optimal growth and inequality reduction outcomes from this state capital. We must also look at how our pension funds and union investment funds can be better geared to increase fixed investment in the economy. So, what is to be done? It is evident that the coincidence of unfavourable global conditions, the limitations of the 1994 Consensus and the growing recognition that we are stuck in a high inequality-low growth trap implies that we urgently construct a new consensus to transform the economy towards more equal and higher growth. In confronting these challenges, we need to consider a New Economic Consensus derived from three national obsessions: [The author is Deputy Minister of Finance]
Mozambique: Far-reaching impacts from large-scale agriculture projects (Food Tank)
With many African governments still feeding illusions instead of their people, and with land giveaways to big investors, local farmers are becoming more food insecure as their land rights erode. As a new report—and a compelling video documentary—on Mozambique and Zambia shows, even smaller, less egregious land acquisitions are undermining food security in some of the world’s hungriest countries.
Aliko Dangote: Charting way for Nigeria’s self-sufficiency in rice production (Leadership)
Within the next three years Dangote Rice Limited (DRL) is aiming to produce at least one million tonnes of high quality parboiled rice which will be made available to the Nigerian market, making the commodity affordable to ordinary Nigerians. “To achieve this, objective, our plans include cultivating about 160,000 hectares of irrigable rice farmland in selected states, including Sokoto State that will be cultivated to grow paddy during two cropping-seasons per year and achieve a minimum yield of five to six tons per hectare. DRL is committed to off-taking not less than 80 per cent of the paddy produced by the outgrowers. We will also develop our own farm operations to include seed multiplication capabilities. With this ambitious programme, DRL aims to boost the local economy, create jobs along the value chain and make a significant contribution to the transformation of subsistence farms into market-oriented agribusinesses.”
EU asks India to extend by 6 months trade pact with EU nations (Financial Express)
India’s existing trade and investment pacts with The Netherlands have come to an end in November while while similar pacts with several other EU countries will expire in the coming months. Orden said expiry of the pacts will make it difficult for the European countries to go for fresh investments in India, adding the EU want India to first give the extension to the pacts and then move ahead with the FTA which is known as EU-India Broad-based Trade and Investment Agreement (BTIA).
Cross-border e-commerce is one of the fastest growth opportunities in retail (DHL)
The report reveals that cross-border e-commerce offers aggregate growth rates not available in most other retail markets: cross-border retail volumes are predicted to increase at an annual average rate of 25% between 2015 and 2020 (from $300bn to $900bn) – twice the pace of domestic e-commerce growth. The insights presented in th report are based on a proprietary survey of retailers and manufacturers with over 1,800 responses across six countries (US, China, UK, Germany, Brazil, Singapore), more than 60 in-depth interviews with retailers and manufacturers successfully shipping cross-border and with industry experts on cross-border e-commerce.
Today’s Quick Links:
Ghana: Transit trade figures pick up (GhanaWeb)
Herman Kasekende to head Standard Chartered Bank in Zambia (Daily Monitor)
Trump Administration considers change in calculating US trade deficit (WSJ)
Japan logs first trade deficit in five months in January at ¥1.09 trillion (Japan Times)
The growing importance of trade for India (Mint)
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Hamid Ansari’s Africa visit aims to broaden India’s outreach efforts
Hamid Ansari’s five-day tour of Rwanda and Uganda aims to broaden India’s general outreach to resource-rich Africa and establish its footprint in sub-Saharan Africa
Vice-president Hamid Ansari left on Sunday on a five-day tour of Rwanda and Uganda in a bid to broaden India’s general outreach to resource-rich Africa and establish its footprint in sub-Saharan Africa.
Ansari will be the first Indian leader to visit Rwanda, where the capital Kigali will be his first stop. His second stop will be Kampala, where the previous bilateral visit was in 1997 by then prime minister Inder Kumar Gujral.
Together, Ansari, Prime Minister Narendra Modi and President Pranab Mukherjee visited 12 African nations in 2016. This was in keeping with Modi’s promise to maintain the tempo of interaction with Africa, made to leaders and representatives to 54 African nations who attended the third India-Africa summit in New Delhi in October 2015.
“During the current government, under our Africa Outreach Initiative we have also had visits to all African countries at ministerial level, except perhaps the Central African Republic. In many of these countries, no high-level visit had taken place for several years,” said Neena Malhotra, joint secretary in-charge of East and South Africa in the Indian foreign ministry.
A key partner of African nations in the 1950s and 1960s, India has seen its influence in the region wane. In recent years, it has been trying to regain the ground it has lost in Africa to China and other Asian nations in the past decade. India has positioned itself as a partner of choice to Africa in areas such as healthcare, education, investment and trade.
At the October 2015 summit, Modi promised $10 billion in new concessional credit to Africa, besides $600 million in grant assistance, $100 million to an Africa development fund and $10 million to an India-Africa health fund.
India-Africa trade was almost $70 billion in 2014-15 and Indian investments in Africa in the past decade amounted to $30-35 billion. The figures, however, are pale in comparison with the continent’s trade and investment ties with China, which has built large infrastructure projects like roads, railways, airport and government buildings. Reports say China’s investments in Africa add up to $200 billion.
Ansari’s visit comes about a month after Prime Minister Modi hosted Rwandan President Paul Kigame in Gujarat The two countries could sign an air services agreement during Ansari’s visit that will improve connectivity between India and Rwanda as well as other countries in sub-Saharan Africa.
“Rwanda is an interesting story in Africa. Despite the civil war that took many thousand lives (in the mid-1990s), the country’s economy has turned around and now is seen as one of the success stories in Africa,” said Ruchita Beri, heads of the Africa programme at the government-backed Institute of Defence Studies and Analyses think tank in New Delhi.
“India is conveying the message that it is looking at forging partnerships with all African countries—even those who are not traditional partners, without hydrocarbons or those that are Anglophone countries,” Beri said. “This is a more proactive diplomacy than we had had in the past,” she added.
From Kigali, Ansari will reach Kampala on 21 February. Ugandan president Yoweri Museveni was one of the many African heads of state who was in New Delhi for the 2015 India-Africa summit.
“Both Rwanda and Uganda are important from the viewpoint of our trade, especially in the pharmaceuticals, automobiles, mechanical appliances and machinery sectors,” joint secretary Malhotra said. “Our trade with Rwanda has doubled over the last five years while we are one of Uganda’s largest trading partners, we are also one of the largest investors in Uganda,” Malhotra said.
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Conference of Ministers 2017: Growth, inequality and unemployment
Introduction
The Tenth Joint Annual Meetings of the African Union Specialized Technical Committee on Finance, Monetary Affairs, Economic Planning and Integration and the Economic Commission for Africa’s Conference of African Ministers of Finance, Planning and Economic Development (together known as the Conference of Ministers) will be held as part of Africa Development Week 2017 in Dakar, Senegal, from 23 to 28 March 2017. The conference will be preceded by a technical preparatory meeting of the Committee of Experts.
The Tenth Joint Annual Meetings will deliberate on the theme of “Growth, inequality and unemployment”. The theme builds on the understanding that the sustained reduction of inequality requires a holistic understanding of the interrelated issues for coherent policymaking. The Meetings offer the opportunity to discuss the nexus between issues of economic growth, inequality and unemployment. They will address strategies for enhancing inclusive growth and promoting employment, especially for women and young people. The conference will also explore measures for reducing inequality and extreme poverty on the continent in order to achieve the targets of the First Ten-Year Implementation Plan (2013-2023) of Agenda 2063 and the goals of the 2030 Agenda for Sustainable Development.
The Committee of Experts will meet from Thursday, 23 March to Saturday, 25 March 2017. The Committee will analyse the theme and make recommendations to the ministers for adoption. In addition, the Committee will review the state of economic and social conditions in Africa, consider other statutory issues relating to the work of the African Union Commission and the EC A secretariat and make appropriate recommendations for consideration at the Conference.
The Conference of Ministers will take place on Monday 27 and Tuesday 28 March 2017. The plenary sessions of the Conference will commence with a high-level policy dialogue on the 2017 theme, followed by a series of plenary sessions on various sub-themes. The discussions will draw on the concept note and technical background materials, which synthesize the results of recent research on the subject. It is expected that seasoned and high-level panelists from within and outside Africa will build on the overarching theme towards an outcome that will have important implications for Africa’s future.
The proceedings will feature a number of significant high-level side events and other meetings, including the eighteenth session of the Regional Coordination Mechanism for Africa (RCM-Africa), as well as the annual Adebayo Adedeji lecture on a topical issue of importance to African development.
Background
Africa has achieved impressive economic growth over the past 15 years. Average growth in real gross domestic product (GDP) increased from close to zero in the 1980s and 1990s to a robust 4.5 per cent a year between 2001 and 2014, with large variation across countries. Since then, growth has been more moderate as the decline in commodity prices in recent years has put severe strains on many of the largest economies on the continent. Still, many countries continue to register growth in excess of 5 per cent and even higher, especially those with ongoing infrastructure investment and strong private consumption.
The period of sustained growth in Africa has been accompanied by high income inequality. Of the 10 most unequal countries in the world, 7 are in Africa. While African countries have made steady progress with gains in education, health and living standards, the pace of progress is slow and hampered by high levels of income inequality which weaken the impact of growth on poverty reduction and limit work opportunities.
Africa is a youthful continent. More than 60 per cent of the total population is under the age of 25, and in 15 countries half the population is under 18. Africa has more people aged under 20 than anywhere in the world. In 2015, Africa’s youth population (15-24 years) was 226 million, comprising about 19 per cent of the global youth population. It is expected to more than double by 2050. Already the world’s youngest region, Africa will be home to 38 of the 40 youngest countries in 2050, with a median population under 25 years old. This youth bulge can be a huge asset, and offer an opportunity to mobilize this reservoir of human capacity towards economic and social transformation. Countries with growing working-age populations can potentially benefit from increases in productivity through higher savings and investment and overall economic growth. Alternatively, the youth bulge can be a source of instability if the continent fail s to harness the potential of young people by designing and implementing appropriate policies that unlock new economic opportunities.
Economic growth is a necessary condition for employment generation, and employment is a pathway out of poverty. The economic growth witnessed since the turn of the century has failed to create the number of good-quality and decent jobs necessary to absorb the more than 10 million young people joining the labour force each year. Furthermore, the majority of the continent’s workforce, particularly women and youth, remain trapped in the informal economy and the rural sector, which suffer from low productivity, low incomes and low social protection, if any.
There is an imperative need for African countries to adopt coherent strategies and national development plans t hat promote structural transformation and address the challenges of growth, inequality and unemployment within the context of the African Union’s Agenda 2063 and the 2030 Agenda for Sustainable Development.
The Conference of Ministers 2017 will provide a platform for dialogue and exchange of experience on the theme by engaging high-level experts and other stakeholders, including member States, academia, civil society and agencies in the United Nations system.
Thematic issues
The theme of the 2017 Conference goes beyond a sectoral focus on employment and aims to address the issue holistically by locating it within a larger discussion on the nature of economic growth and its role in reducing both poverty and inequality. The theme is underpinned by the recognition that inequality is one of the most pressing social, economic and political challenges of our times. The issue of providing employment opportunities is seen through a “demographic” lens. Access to reliable data is considered central for evidence-based policymaking and monitoring progress.
The 2017 Conference offers an opportunity to draw attention to the need to forge a socially cohesive society in Africa in the framework of AU’s Agenda 2063 and the UN’s 2030 Agenda for Sustainable Development. Participants will be able to discuss the interrelated issues of economic growth, inequality and unemployment so as to devise suitable strategies for enhancing inclusive growth and promoting employment, especially among young people and women. The Conference will also explore measures for reducing inequality and extreme poverty on the continent and achieving the targets of the 2030 Agenda and the first 10-year plan (2014-2023) for the implementation of Agenda 2063. In particular, participants will address the following thematic issues:
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Strategies for sustained, sustainable and inclusive growth
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What strategies, complementary actions and institutional arrangements are required to sustain both the quantum and the quality of growth momentum achieved by African countries?
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What factors contribute to the fact that some countries show stronger growth than others?
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What can policymakers do to better redistribute the benefits of growth?
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What are the relationships between growth, integration and regional inequalities? How can we address cross-country inequality through regional economic integration?
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What are the impacts of government spending on economic growth and available options to finance sustainable and employment-friendly economic growth?
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Priorities for addressing inequalities at the national and regional levels.
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What are the challenges for policymakers at the national level in addressing different inequalities, especially gender and horizontal inequalities?
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What are the trade -offs among growth, inequality and redistribution that need to be managed by member States to ensure an inclusive and sustainable development agenda?
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What policy tools have successful countries applied to reduce inequalities while fostering economic growth? What lessons can be learnt from their experience?
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What is the role of government spending on social infrastructure (such as education, health and social insurance) and other budgetary policies in reducing inequalities?
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Are the drivers of inequality different across countries? What are the policies and programmes that are relevant for specific groups of countries in Africa (such as resource-dependent, aid-dependent, emerging, post-conflict and fragile)?
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Policy approaches for promoting sustainable and inclusive employment through a stronger role of the private sector and resilient labour markets
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What steps can be taken to develop a multidisciplinary approach towards tackling unemployment particularly that which affects young people and women? How should these be prioritized?
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How can the quality of education be raised in member States to equip young people with the necessary skills needed by the private sector and the jobs market? What is the role of technical and vocational training in Africa's educational system?
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How can the mandate of the Africa Mining Vision be implemented to promote job creation through investment in associated sectors closely related to the mining sector?
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What policies do member States need to adopt to encourage the sound development of the private sector for the creation of inclusive and productive jobs, especially for you ng people? How can public-private partnerships be improved?
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What policies are required to build strong and resilient labour markets in Africa?
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What reforms are needed to boost growth and create employment? What are the experiences regarding the coordination of monetary and fiscal policies in the times of crisis or big drops in world commodity prices?
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Strengthening the data value chain for designing better policies and monitoring implementation to reduce inequalities
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What should be done to ensure that opening up official statistics and data does not compromise the fundamental United Nations principles governing official statistics, including that of maintaining privacy and confidentiality where necessary or appropriate?
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How can national statistical offices play their expected leadership role in open data initiatives in member States?
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What steps can be taken to make official statistics open and timely by default in member States?
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The Conference of Ministers is expected to result in Ministerial endorsement of policy guidelines and recommendations for developing a common framework to address the problems of lack of inclusive growth, inequalities and unemployment among member States in Africa; and guidance on the mechanisms for developing such a common framework.
Background documents
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2017 Conference of Ministers: Concept note | February 2017
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Overview of recent economic and social developments in Africa | February 2017
ECA Statutory documents
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Report on United Nations system support for the African Union and its New Partnership for Africa’s Development programme | February 2017
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Progress Report on the Implementation of Agenda 2063 First Ten Year Implementation Plan | December 2016
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Report of the Executive Secretary on the activities of the Economic Commission for Africa (April 2016 to March 2017) | February 2017
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Review of the intergovernmental structure of the Economic Commission for Africa pursuant to resolution 943 (XLIX) | February 2017
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Report of the 8th Ordinary Meeting of the African Union (AU) Sub-Committee of Directors General of Customs | February 2017
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Meeting of Member States Experts on consideration of Pan African Investment Code and African Inclusive Market Excellence Center: Report | February 2017
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Draft Pan-African Investment Code | February 2017
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Draft revised statute of the African Institute for Economic Development and Planning | March 2017
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DG Azevêdo: Work to cut trade costs can help Africa’s economic integration
Director-General Roberto Azevêdo was in Dakar, Senegal, on 16 February 2017, for meetings with President Macky Sall, Trade Minister Alioune Sarr and other high-level government representatives.
As part of his visit, the Director-General also spoke at the “Forum des Ports Africains”, where he highlighted the importance of modernizing and harmonizing port procedures in Africa to support the process of economic integration across the continent. He also discussed how the WTO could further support Africa’s development and enhanced participation in the global economy by helping to cut trade costs.
Forum des Ports Africains, Dakar, Sénégal
Remarks by DG Azevêdo (temporarily in French)
Je suis très heureux de me joindre à vous aujourd’hui à l’occasion du Forum des ports africains ici au Sénégal. Je suis heureux d’être de retour! Je vous remercie pour votre aimable invitation à prendre la parole devant vous aujourd’hui et je remercie le Sénégal pour sa merveilleuse hospitalité.
Cet événement est une initiative très importante pour la communauté du commerce en Afrique.
L’Afrique est souvent décrite comme la nouvelle frontière de la croissance. Malgré la baisse des prix des produits de base, je pense qu’il y a de nombreuses raisons d’être optimistes.
La croissance en Afrique subsaharienne devrait reprendre dans les prochaines années. Nous estimons 3,7% en 2018.
L’Afrique a une population très jeune et une base de consommateurs de plus en plus importante. D’ici à 2034, le continent devrait avoir une main‑d’œuvre plus nombreuse que la Chine ou l’Inde.
L’Afrique est en expansion. Mais pour que le continent réalise pleinement son potentiel, il faut faire des progrès dans tous les domaines.
Cela signifie qu’il faut s’attaquer à des problèmes comme la pauvreté et les inégalités. Cela signifie aussi qu’il faut mettre fin à la dépendance à l’égard des produits primaires.
Il faut en outre trouver des moyens de renforcer les infrastructures, tant immatérielles que matérielles. Il faut que les réseaux physiques soient en place et reposent sur des institutions et des processus adéquats et efficaces.
Il va sans dire que la compétitivité des ports africains sera un facteur essentiel.
Les ports sont au centre du système commercial de l’Afrique. Environ 90% du commerce du continent se fait par la mer.
Les ports sont aussi très importants en raison des recettes douanières qu’ils collectent. Dans certains pays africains, ces recettes représentent environ 40% des recettes publiques.
C’est clair donc que le renforcement continu des ports africains sera crucial pour la poursuite du développement économique.
Et il y a fort à faire.
Les coûts du commerce liés à l’expédition de marchandises à partir des ports africains sont relativement élevés.
Prenons l’exemple du traitement des conteneurs.
Dans les pays émergents, l’expédition de conteneurs à l’étranger prend environ une semaine. Dans les ports africains, le temps d’attente moyen est plus proche de trois semaines.
Les coûts élevés du commerce posent un problème aussi pour les importations et, par conséquent, pour la chaine productive.
Des études montrent que les retards dans les ports africains peuvent augmenter de 10% le coût des marchandises importées. Cela peut être plus que l’effet des droits de douane.
À l’évidence, ces problèmes doivent être réglés pour que l’Afrique puisse s’intégrer avec succès dans le système commercial mondial.
Je pense qu’il est positif que les autorités portuaires africaines entreprennent déjà des réformes pour améliorer les infrastructures et la compétitivité des ports.
Lors de ma visite au Sénégal en février de l’année dernière, j’ai eu l’occasion de visiter le port de Dakar. J’ai été impressionné par ce que j’ai vu et par les améliorations qui étaient réalisées, en particulier la modernisation des procédures douanières et la mise en place d’un système de guichet unique.
Mais ce n’est qu’un exemple des nombreuses solutions novatrices qui sont mises en œuvre dans les ports partout en Afrique. Ce forum sera une excellente occasion d’échanger entre vous, vos expériences et vos bonnes pratiques.
Il montre votre volonté de relever les défis à venir. Et il montre aussi votre détermination collective à faire en sorte que les ports africains jouent un rôle positif dans la croissance du continent.
Ce travail est particulièrement important dans le contexte économique actuel.
Les perspectives de croissance du commerce mondial sont faibles et les flux d’investissements étrangers directs ne sont pas revenus aux niveaux observés avant la crise financière. L’OMC table sur une croissance du commerce de l’ordre de 1,8 à 3,1% en 2017. Cela tient en grande partie aux résultats médiocres de l’économie mondiale.
Dans ce contexte précaire, on entend parler de plus en plus de politique de repli sur soi.
Cela est souvent le cas quand la croissance mondiale est faible. Mais le recours au protectionnisme ne résoudrait pas les problèmes qui nous sont posés, il ne ferait que les aggraver.
La mise en place d’obstacles au commerce serait préjudiciable à la croissance économique partout dans le monde, y compris ici en Afrique.
Le commerce est vital pour la croissance, le développement et l’emploi. Il a permis à 1 milliard de personnes de sortir de la pauvreté et c’est un élément essentiel des nouveaux Objectifs de développement durable des Nations Unies, parmi une série d’autres objectifs importants.
Alors, au lieu d’ériger des obstacles au commerce, nous devons faire en sorte qu’il fonctionne mieux.
Nous devons veiller à ce que le commerce ouvre davantage de possibilités à un plus grand nombre de personnes, en particulier ici en Afrique.
Le commerce intrarégional ne représente que 13% du commerce total sur le continent.
Il est donc à l’évidence possible de faire plus et d’offrir plus de possibilités à plus de gens.
Je pense que l’OMC peut continuer à jouer ici un rôle important, et ce de manières très diverses – mais je n’en mentionnerai que trois aujourd’hui.
La première est d’offrir une plate‑forme pour influencer le débat sur le commerce.
Les pays africains représentent plus du quart des Membres de l’OMC. Et nous avons sept autres en processus d’accession.
La discussion à l’OMC est actuellement plus ouverte et plus dynamique que depuis longtemps. C’est l’occasion de mettre sur la table les questions et les priorités économiques de l’Afrique.
Deuxièmement, l’OMC peut aider les pays africains à améliorer leur capacité à faire du commerce.
C’est ainsi que, par le biais de l’initiative Aide pour le commerce de l’OMC, les pays africains reçoivent une aide ciblée pour améliorer leurs infrastructures commerciales.
Entre 2006 et 2014, l’Initiative a permis d’allouer quelque 102,3 milliards de dollars aux pays africains. L’impact sur le terrain est réel!
Des études ont montré que 1 dollar investi dans l’Aide pour le commerce génère près de 8 dollars d’exportations pour les pays en développement en général – et 20 dollars d’exportations pour les pays les plus pauvres.
En juillet de cette année, nous tiendrons le sixième Examen global de l’Aide pour le commerce à l’OMC à Genève. Ce sera l’occasion de définir l’orientation future de ces travaux de la manière la plus utile pour vous. Je vous encourage donc tous à prendre part à ces discussions et j’espère vous accueillir à Genève.
Troisièmement, l’OMC peut parvenir à de nouvelles réformes du système commercial qui pourront aider chacun à participer et à mieux profiter des opportunités qui se présentent.
Ces trois dernières années, nous avons convenus d’un certain nombre de nouveaux accords commerciaux qui se sont traduits par des avantages économiques importants.
En 2013, les Membres de l’OMC ont adopté l’Accord sur la facilitation des échanges qui est l’accord commercial mondial le plus important de ces 20 dernières années.
Cet accord vise à rationaliser, simplifier et normaliser les procédures douanières, réduisant ainsi les délais et les coûts liés au mouvement transfrontières des marchandises. Il aidera à améliorer l’efficacité des ports.
Il contribuera à normaliser l’accès à l’information, telle que données, réglementations, documents, d’une façon non discriminatoire et facilement accessible.
Il encouragera la coopération et le partage de renseignements entre les organismes à la frontière, contribuant à la cohérence réglementaire.
Enfin, il aidera les autorités à faciliter et rationaliser le dédouanement et la libération des marchandises.
L’Accord permettra d’alléger les formalités administratives et d’améliorer l’efficacité, de lutter contre la corruption et de promouvoir une bonne gouvernance tout en réduisant considérablement le coût des transactions commerciales.
Les estimations montrent qu’une fois pleinement mis en œuvre, l’Accord pourrait réduire les coûts du commerce de 14,5% en moyenne. Cela entraînerait une augmentation des exportations qui pourraient atteindre 1 000 milliards de dollars par an, les pays les plus pauvres enregistrant les gains les plus importants.
L’Accord a aussi une architecture unique.
Il donne aux pays en développement et aux pays les moins avancés la flexibilité nécessaire pour adapter leurs calendriers de mise en œuvre en fonction de leurs besoins spécifiques et de leur stade de développement.
L’Accord sur la facilitation des échanges prévoit aussi l’assistance technique nécessaire pour aider les pays à le mettre en œuvre.
Un certain nombre de programmes de soutien ont été mis en place à cet égard, faisant intervenir divers Membres donateurs et divers partenaires. Pour faire avancer les travaux et faciliter la liaison entre donateurs et bénéficiaires, nous avons lancé le Mécanisme pour l’Accord sur la facilitation des échanges.
Ce mécanisme vise à faire en sorte que chacun puisse accéder aux ressources et renseignements nécessaires pour mener les réformes requises – et il accomplit déjà un gros travail.
Pour que tous ces avantages se concrétisent, il faut d’abord que l’Accord entre en vigueur. Nous sommes sur le point d’atteindre le nombre nécessaire de ratifications à cet effet. Il ne nous en manque qu’un ou deux – et nous pensons pouvoir les annoncer au cours de la semaine prochaine.
Je souhaiterais remercier tous les Membres qui, comme le Sénégal, ont déjà ratifié cet accord et nous ont aidés à parvenir là où nous sommes. Si votre pays ne l’a pas encore ratifié, je vous engage instamment à encourager vos autorités à le faire aussi rapidement que possible.
Bien sûr, le Secrétariat de l’OMC et le Mécanisme pour l’AFE sont prêts à vous apporter toute l’aide nécessaire à cet égard.
Cet accord a été le premier d’une série d’avancées majeures pour l’Organisation. D’autres résultats ont été obtenus dans le sillage de l’AFE.
En 2015, les Membres de l’OMC se sont mis d’accord sur la plus grande réforme du commerce mondial des produits agricoles des 20 dernières années. Nous avons décidé d’éliminer les subventions à l’exportation des produits agricoles.
C’était d’ailleurs un élément de l’objectif de développement durable des Nations Unies intitulé “Faim zéro”. Et on l’a atteint seulement trois mois après l’adoption de ces objectifs à New York!
Les Membres sont aussi convenus de diverses mesures pour aider les plus vulnérables à s’intégrer dans le système commercial et à renforcer leurs capacités commerciales.
En outre, un groupe de Membres a décidé d’éliminer les droits de douane sur un éventail de produits des technologies de l’information de nouvelle génération. Le commerce de ces produits représente environ 1 300 milliards de dollars par an. C’est plus que le commerce mondial des automobiles.
Cette série d’accords est sans précédent pour l’Organisation.
Grâce à cela, les gens commencent à se mobiliser et nous observons un regain d’intérêt pour les travaux de l’Organisation.
Les Membres discutent maintenant de la manière de faire avancer les questions de Doha, y compris l’agriculture, les services et les subventions à la pêche.
Par ailleurs, certains Membres discutent de diverses autres questions, par exemple:
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comment aider les petites entreprises à faire du commerce;
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quelles mesures prendre pour encourager et faciliter l’investissement; et
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comment mettre le pouvoir du commerce électronique au service de l’inclusion pour favoriser les petits fournisseurs. Les Membres discutent aussi la manière d’améliorer les infrastructures et la connectivité dans les pays en développement.
Ces discussions n’en sont qu’à leur début et c’est aux Membres qu’il incombe de les poursuivre ou non.
Notre prochaine réunion ministérielle se tiendra à Buenos Aires à la fin de l’année et elle pourrait être l’occasion de progresser.
Il y a une ferme volonté de maintenir le développement au centre de nos efforts et de poursuivre sur la lancée de nos réalisations.
Je dirai donc en conclusion que l’année à venir s’annonce passionnante pour l’Organisation.
Nous avons la chance de pouvoir prendre d’autres mesures pour favoriser la compétitivité de l’Afrique et son intégration dans le système mondial.
Je me réjouis de travailler avec vous pour obtenir des résultats concrets à cet égard et dans bien d’autres domaines.
Je vous remercie et vous souhaite tout succès pour le Forum.
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Is Trump’s plan to repeal conflict minerals rule a gift for Rwanda?
Rwanda is counting on US President Donald Trump coming good on his intention to suspend a law that bars companies from handling conflict minerals to save the country more than $4 million spent annually on compliance.
President Trump had throughout his campaign threatened to do away with the law, known as the Dodd Frank Act, which he argued restricted the growth of manufacturing in the US.
The Dodd Frank Act was signed into law by his predecessor Barack Obama in 2010. The legislation was intended to safeguard stability in mineral-rich conflict-prone countries like those in the Great Lakes region, by ensuring that natural resources were not used to fund conflicts.
Last week, a leaked memorandum from the White House showed that President Trump had drafted an executive order suspending the Dodd Frank Act for two years.
In the order, he requested his administration to find an alternative law that does not infringe on the US manufacturing sector while also curbing the conflict mineral trade in the Democratic Republic of Congo and its neighbours.
Critics say that a suspension of the law will increase the possibility of instability in countries like DR Congo.
For Rwanda, however, it would mark the lifting of an unwanted legislation that has led to a sharp increase in the cost of mining and worsened the plight of rural artisanal miners.
Boon for Rwanda?
Sources said the suspension would eliminate discrimination against minerals from Central and East Africa, a major consequence of the Dodd Frank Act.
“The law has forced Rwanda into spending more money on complying with the conflict mineral requirements than money paid in government taxes. Despite all these efforts and the costly investments in due diligence, we continue to suffer a negative international market bias against Rwandan minerals,” said a strategist working with the government on the implications of a suspension.
Minister for Natural Resources, Vincent Biruta, said the government would give its official position after the law is repealed.
Information on the ministry’s website indicates that Rwanda has been suffering high due diligence fees for complying with the Dodd Frank Act that are directly paid either by large-scale mining companies or by Rwandan mineral exporters – who in turn pass on the levies to small-scale and artisanal miners.
“In October 2015, Rwanda tungsten miners paid $12,000 for each container in due diligence costs in comparison with $8,330 paid for royalty tax. Between January and August 2015, $3.2 million was spent on due diligence – 4 per cent of the value of minerals produced,” the ministry states.
The Dodd Frank Act requires US companies to publicly disclose their use of particular minerals originating from DR Congo or its 10 neighbouring countries.
The minerals mentioned are tin (cassiterite), tungsten (wolfram), tantalum and gold ore, which are happen to be Rwanda’s principal mineral export.
According to the Act, the illicit flow of these minerals, particularly from eastern DR Congo fuels violent conflict and finance armed rebel groups that disrupt peace in the region.
However, government sources complain that this law is discriminatory and does not recognise the efforts undertaken by individual countries to fight illegal mining practices.
“The Dodd Frank Act is tantamount to a blanket ban on minerals from the region and take not put into consideration the different levels of measures that the countries have put in place to ensure mineral traceability,” the source said.
“For us, knowing where minerals originate from or to ascertain whether they were smuggled is very important – and we always do it for ourselves as the government. But such international mechanisms that do not consider individual countries impact negatively on our mining sector.”
Opposed to repeal
Still experts warn that Rwanda may not reap the expected benefits from the proposed repeal because it could instead lead to an international bias against minerals from Rwanda.
“Repealing this law will not favour Rwanda. You have seen reports that falsely claim that Rwanda’s mineral exports are stolen from DR Congo, but with this law, all minerals are traced to have originated from Rwanda,” Digne Rwabuhungu, Dean of the School of Mining and Geology at the University of Rwanda, said.
“Dodd Frank Act offered a boost to the mineral sector and removed suspicion. If they remove that, it will open the door for all sorts of rumours and suspicion on the traceability of Rwandan minerals.”
International watchdogs have also warned the US against repealing the law, with Human Rights Watch arguing that this would undermine positive efforts to eliminate conflict minerals from the supply chain of major companies, especially giant telecom like Intel, Microsoft and Apple.
Suspension of the law would also be a “gift to warlords and corrupt businesses,” according to Global Witness – a watchdog dealing with natural resources exploitation.
“This law helps stop US companies funding conflict and human-rights abuses in the DR Congo and surrounding countries. Suspending it will benefit secretive and corrupt business practices.”
Related: ICGLR Declaration on Section 1502 of the US Dodd Frank Act
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Economic policy options for African economies in advent of Brexit, Trump
There are interesting coincidences in the Brexit and “America first” movements. First is their timing and ideological convergence, second is the affinity between their prime movers, and third is that the three men – Mr Boris Johnson and Mr Nigel Farage of Brexit, and President Donald Trump of “America first” – all share German ancestry.
The Brexit and “America First” movements are driven by ideological impetus that is isolationist and inward looking. In both the UK and USA, traces of nationalist discriminative stances against the “foreign” manifest in several policy areas but most prominently in regard to migration.
Strong anti-migration sentiments were evoked during the Brexit campaigns with claims that migrant workers from the rest of the European Union were taking away jobs from British citizens.
President Trump and his followers not only claimed that migrants had “stolen” jobs from Americans, but also that migrants and migration per se are phenomena that threat national security; avenues for foreign terrorist attacks.
Ideological rhetoric to fan populist emotions against foreigners and migrants worked excellently both for Brexit and Mr Trump’s presidential election.
Matters have, however, mutated and gone beyond migration policy, to encompass trade, market access and cross border investments. The spill-over has broader effects on foreign policy; international relations and national “sovereignty”.
Emanating from the original campaign rhetoric, the new US and British administrations are now under pressure of political expediency to adopt near extremist nationalism; an inward looking world view that appeals to the aroused appetites for change among their constituencies, hence the clarion calls like “Brexit means Brexit” and “only America first always”.
Trade arrangements
Ms Marine Le Pen who promises to “make France great again” by leading her out of the EU (Frexit) has a good chance of becoming France’s next President. If it happens, her victory would add momentum and critical mass to an emerging worrisome ultra-nationalist ideology, among the world powers.
From an economic standpoint, this will put into jeopardy the very essences of multi-lateral (World Trade Organisation) rule-based trade and regional economic community regimes.
In their place, “domestic self-sufficiency” and two-way “scratch my back, I scratch yours” bi-lateral frameworks will emerge as preferred trade arrangements.
A new world economic-order is in the offing, putting utopian dreams of globalised free trade and borderless movements of labour and capital in limbo.
Nothing underscores better the emerging “new normal” than President Trump’s pledge to revoke and renegotiate the North American Free Trade Agreement, with neighbouring Mexico and Canada, the Transatlantic Trade and Investment Partnership, between the US and EU and the Trans-Pacific Partnership proposal between Asia Pacific region states that include the USA.
Where does all this leave Africa, and how should Africa respond?
Firstly, the foundational principles of post-Uruguay WTO trading system, anchored on trade without discrimination (most favoured nation-MFN) rules; the principle of national treatment, (treating foreign and local goods and services equally); fair competition, (regarding highly contested retention of protectionism on farm subsidies by developed economies); all are in suspense.
Quality challenges
Of particular interest to Africa (and other developing economies) is that the WTO Development (Doha) Round launched in 2001, that focuses on helping developing countries overcome their supply side constraints in respect to production costs, and both quality and quantity challenges is on its death bed. As of June 2012 the future of Doha Round remained uncertain.
With Brexit and “America first” we can as well forget further progress on the Doha agenda and WTO re-negotiations on Uruguay Round set-rules. Brexit and likely Frexit will also put in suspense ongoing East Africa Community negotiations with EU on Economic Partnership Agreements. Given that EU is also the biggest funder of African Union troops in Somalia, Kenya should be concerned.
Secondly, international trading nations will henceforth focus more on domestic markets and bi-lateral trade deals negotiated outside the multilateral (WTO) frameworks.
For Africa, however, in addition to bi-lateral trade arrangements she also ought to embrace regional economic communities and ensure Common Markets’ Customs Unions work.
In this regard Africa must acknowledge that unlike developed economies, most AU member economies lack domestic consumer numbers and purchasing power to generate beneficial economies of scale for trade-production and investment.
Zaddock Syong’oh is former policy adviser, Ministry of Foreign Affairs, Kenya.
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Kenya, Uganda and Rwanda launch EA destination portal
Three East Africa countries will now jointly market their tourism products online with the launch of the first joint East African destination portal.
Kenya Tourism Board Chief Executive Officer Betty Radier joined other top tourism officials from Uganda and Rwanda in the unveiling the platform at the Pearl of Africa Trade Expo held in Kampala at the weekend.
The portal will be a shared platform for tourism trade operators to place their multi-country-packages promoting Kenya, Rwanda and Uganda; and provide a new channel to reach regional and international audiences.
“The launch of the portal comes in stride with the East Africa striving to work together for the betterment of her people. If ever there was a better time for Uganda, Rwanda and Kenya to come together, it is now. Our economies are growing stronger and travel has been made easier due to the great improvements in our infrastructure,” said Radier.
It will also allow access to tourism information on products, experiences and destinations, all on a single platform with the aim of enhancing the availability of information in the region as well as accessibility to the tourism supply chain.
Radier challenged the East African Community to have a taste of both worlds-business and leisure at affordable rates by exploring what lies within East Africa reaffirming Kenya’s commitment to placing East Africa on the map by promoting sustainability of Kenya as a destination product for generations to come.
“The fact that members’ countries can easily access each other’s countries by road, rail or even short distance flights should encourage more inter-country visits. Why travel the world when one has not explored the amazing beauty that East Africa as a whole has to offer?” she said.
Uganda is the regional leading source of tourists to Kenya.
Last year, the market recorded a growth of 75.7 percent increase in air arrivals closing at 51,023 exclusive of cross border arrivals up from 29,038 recorded in 2015.
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Cross-border e-commerce is one of the fastest growth opportunities in retail, according to DHL report
Cross-border online retail predicted to grow at twice the rate of domestic e-commerce (CAGR: 25%) until 2020; retailers can grow 60% faster with a premium service offering
DHL Express has published research highlighting the significant growth opportunity for retailers and manufacturers with an international online product offering.
The report, The 21st Century Spice Trade: A Guide to the Cross-Border E-Commerce Opportunity, looks in detail at the markets and products that offer the highest growth potential, the motivations and preferences of customers making international online purchases and the success factors for online retailers that wish to expand overseas. It focuses in particular on the opportunity for premium products and service offerings, with higher basket values accounting for a significantly higher proportion of orders in cross-border transactions.
The report reveals that cross-border e-commerce offers aggregate growth rates not available in most other retail markets: cross-border retail volumes are predicted to increase at an annual average rate of 25% between 2015 and 2020 (from USD 300 Billion to USD 900 Billion) – twice the pace of domestic e-commerce growth.
Online retailers are also boosting sales by 10-15% on average simply by extending their offering to international customers. An additional boost comes from including a premium service offering: retailers and manufacturers that incorporated a faster shipping option into their online stores grew 1.6 times faster on average than other players.
“Shipping cross-border is much, much easier than many retailers believe, and we see every day the positive impact that selling to international markets can have on our customers’ business growth,” said Ken Allen, CEO, DHL Express.
“We also see that virtually every product category has the potential to upgrade to premium, both by developing higher quality luxury editions and by offering superior levels of service quality to meet the demands of less price-sensitive customers. The opportunity to ‘go global’ and ‘go premium’ is there for many retailers in all markets. Our global door-to-door time definite network is perfectly positioned to support any retailer that is developing a premium service offering or simply looking for a way of reaching new overseas markets directly without investing resources in warehousing or distribution.”
The report is based primarily on research and in-depth interviews conducted by a leading global management consultancy, as well as more than 1,800 responses to a proprietary exporter survey of retailers and manufacturers in six countries. It casts a light on the evolving face of e-commerce, with both supply and demand becoming more sophisticated Manufacturers are increasingly taking advantage of e-commerce to move to direct retail models – bypassing the ‘middleman’ and offering their products online to the end customer – and expect to grow 30% faster in cross-border e-commerce than other retailer groups.
Customers in many markets are also becoming more discerning, citing product availability and trust, as well as attractive offers, as the motivating factors for shopping with overseas online retailers.
The main challenges highlighted by consumers to cross-border purchases relate to logistics, trust, price and customer experience. At the same time, online retailers can take a number of relatively easy steps to identify, cultivate and service demand from abroad.
The report noted that the e-commerce trend has given birth to a new eco-system of facilitators and off-the-shelf solutions (such as payment providers and programs that localize a website’s check-out experience for the visitor), helping retailers to adapt their offering to the digital world and to transact with customers in foreign markets.
Global logistics partners can provide support in identifying the right trade-off between centralized and local warehousing and fulfillment, while fast, reliable and flexible delivery options can be an important tool in turning speculative interest into long-term customer loyalty.
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UN calls for commitments to safeguard the world’s oceans ahead of first major conference
Calling for concrete actions to protect the oceans, the United Nations on 15 January 2017 launched an online register to collect voluntary commitments made by UN Member States, businesses, civil society organizations, the UN System and other intergovernmental organizations that can meaningfully contribute to the implementation of Sustainable Development Goal (SDG) 14.
The Government of Sweden, UN Environment (UNEP) and the Peace Boat group, a non-governmental organization, were the first to list their contributions on the Registry of Voluntary Commitments during the Preparatory Meeting of The Ocean Conference today. Their commitments highlight efforts to protect the marine environment, curb marine pollution and address the impact of ocean acidification.
“Between now and The Ocean Conference in June, we’re expecting hundreds of actionable voluntary commitments to be registered. They must comprehensively cover all targets for the implementation of SDG 14,” said the President of the UN General Assembly, Peter Thomson of Fiji. “These voluntary commitments will be central to the global plan to reverse the cycle of decline into which human activity has put the Ocean.”
The register will be a central outcome of The Ocean Conference, which will take place from 5 to 9 June in New York. The Conference will support the implementation of SDG 14, which calls for the conservation and sustainable use of the oceans, seas and marine resources. The Conference will also result in a declaration that will serve as a “Call to Action” to support the implementation of the Goal.
“This is a matter for all of humanity,” said the Minister for International Development Cooperation and Climate and the Deputy Prime Minister of Sweden, Isabella Lövin. “The Ocean Conference is the opportunity for all stakeholders to make their voluntary commitments to save our ocean.”
The Government of Sweden commits to expand its marine protected areas to reach the SDG 14 target in 2017; UN Environment will campaign to stop plastic pollution in the ocean; and the Peace Boat group aims to launch the “Ecoship Project”, a 55,000 ton energy efficient vessel which will set sail in 2020 as a flagship for the SDGs.
“Only by mobilizing all actors, from Governments and the UN system, to major groups and other stakeholders, can we generate the actions needed to conserve and protect our oceans and seas for future generations,” said the Conference Secretary-General and UN Under-Secretary-General for Economic and Social Affairs, Wu Hongbo. “The registry of voluntary commitments will be an important tool in this endeavor.”
More than three billion people depend on marine and coastal biodiversity for their livelihoods. However, today some 30 percent of the world’s fish stocks are over exploited, reaching below the level at which they can produce sustainable yields.
Oceans also absorb about 30 percent of the carbon dioxide produced by humans, but there has been a 26 percent rise in ocean acidification since the beginning of the industrial revolution. Marine pollution, an overwhelming majority of which comes from land-based sources, is reaching alarming levels, with an average of 13,000 pieces of plastic litter to be found on every square kilometre of ocean.
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tralac’s Daily News Selection
2017 African Development Bank Annual Meetings: transforming agriculture for wealth creation in Africa
The 2017 Annual Meetings of the AfDB Group will be held on 22-25 May in Ahmedabad, India. The potential of the agricultural sector in Africa and the need to bridge the gap on food supply is itself a compelling business case for private sector investment. With over 65% of the world’s remaining arable land, a youthful population – with 420 million people between the ages of 15 and 35 years – and a favourable climate, Africa has the potential to become a global agriculture powerhouse and the setting of the next Green Revolution. Nigeria, Rwanda, Ethiopia, Senegal and Burkina Faso provide valuable examples of successful agriculture transformation.
Annual Bank Conference on Africa: the challenges and opportunities of transforming African agriculture
The fourth Annual Bank Conference on Africa will be held at Berkeley, California, on 1-2 June. It will cover various topics pertinent to agriculture in Sub-Saharan Africa. It is being organized jointly by the World Bank (Office of the Chief Economist for the Africa Region), the University of California, Berkeley, and the University of California, Davis, and the Agricultural Technology Adoption Initiative. The conference will include keynote addresses by Kathryn Dewey (University of California, Davis), Ted Miguel (University of California, Berkeley) and opening remarks by Makhtar Diop (World Bank Vice-President for the Africa Region), as well as invited contributions by senior scholars. Submitted papers with a focus on Africa are now welcome on any of the following topics:
Special Economic Zones Summit: update
UNIDO has expressed its full support for the first World Free and Special Economic Zones Summit, which will take place in Geneva this October. The event will be organized by FEMOZA, Fédération Mondiale des Zones Franches (the World Free and Special Economic Zones Federation). There are over 1800 free and special economic zones established worldwide. Many countries see them as useful instruments for stimulating the growth and diversification of their economies, fostering technological learning and innovation, and creating jobs. However, their aggregate track record in attracting investors is mixed. Better planning, dialogue with stakeholders and improved regulation are vital to maximizing the zones’ potential, attracting tenants and ensuring investor confidence.
Benin abolishes short-stay visa for nationals of 31 African countries (Africa News)
Beninese authorities have abolished the short stay visa for nationals of 31 African countries. The exemption promised by President Patrice Talon, is based on the Rwandan example, and applies to stays of less than 90 days. “Based on the experience of Rwanda, I decided that Benin will no longer require visas for Africans. South-South cooperation can make real sense. My hope is that cooperation between Rwanda and Benin can serve as an example,” Talon said.
Air transport in Africa: a portrait of capacity and competition in various market segments (UNU-WIDER)
Route types in the African market can be divided into different segments: intercontinental traffic, international traffic within sub-Saharan Africa, international traffic between North Africa and sub-Saharan Africa, and domestic traffic within sub-Saharan Africa (Table 1 and Figure 6). The highest amount of capacity can be found in the intercontinental capacities, followed very closely by domestic seat capacity. Though a small player in overall capacity, the routes connecting North Africa with sub-Saharan Africa show the highest growth rates, at 12.0% (Figure 5). The growth in routes with North Africa may have to do with hubs in North Africa providing connections for travellers from underserved Sub-Saharan countries, especially in West Africa. Recent developments include first the rise of Ethiopian Airlines’ role on the continent, displacing South African Airways as the leader. Both Ethiopian and Emirates seemed to have appeared rather rapidly, without much of a share in 2001. [The analyst: Heinrich C. Bofinger]
Can Africa grow its manufacturing sector and create jobs? (World Bank)
Over the past decade and a half, Sub-Saharan Africa has experienced rapid economic growth at an average annual rate of 5.5%. But since 2008, the share of manufacturing in GDP across the continent has stagnated at around 10%. This calls into question as to whether African economies have undergone structural transformation – the reallocation of economic activity across broad sectors -- which is considered vital for sustained economic growth in the long-run. So if most African countries haven’t experienced manufacturing-led structural transformation, what is it that has constrained the manufacturing sector over this relatively robust period of economic growth? Our recent working paper attempts to address that exact question by utilizing the Atlas of Economic Complexity analytical framework. [The analysts: Francois Steenkamp, Christopher Rooney]
The latest Bridges Africa newsletter from ICTSD is posted: ‘Financing Africa’s development: challenges and opportunities’. Profiled contribution: Edward Chisanga, ‘African manufacturing: what can the continent learn from Asia?’: It is striking to note that there are only four African embassies in Viet Nam. One would expect countries like Rwanda, that are ambitious and want to modernise their economy, to have established an embassy there, with a view to acquiring knowledge and drawing lessons from the Vietnamese experience. Sometimes, technological advancement comes out of learning, as the Indian example of semi-conductors shows. The Indian diaspora who joined the Silicon Valley learnt, took that knowledge back to their country, and used it to bolster India’s growing trade in electronics.
Unpacking Trade and Investment: a series of 11 fact booklets about global trade policies from the Rosa Luxemburg Stiftung. Profiled contribution: Yash Tandon, ‘Controlling the South: the case of East Africa’ (pdf): Taking the evidence from UNECA’s study on value addition in Africa, and drawing on related experience in the real world, the following conclusions are made apparent: (i) Africa is still caught up in the imperial embrace, as a provider of largely unprocessed raw materials; the continent has continued to play this role over the last 50 years of ‘virtual independence’. (ii) Africa must start with the local value chain, move on to the regional value chain and only when it is able to compete with the rest of the world enter the global value chain; (iii) In the meantime, Africa must resist the imposition of the 21st century mega trade and investment agreement.
South Africa: Competition Commission’s complaint against banks
In the case of the Competition Commission v Bank of America Merrill Lynch International Limited and seventeen others, the Competition Tribunal will place all public versions of the respective filings on its website once they have been received by our registry. The first filing in this matter is the complaint referra (the document which initiates proceedings), and which was filed by the Competition Commission with our registry on the 15 February. In terms of the rules of the Competition Tribunal the respondents have 20 business days after being served with a referral to file their answers. The public version of the answers will also be made available on the website once we receive them. [Statements by National Treasury, SA Reserve Bank, ANC, COSATU]
South Africa: Foreign investor mediation regulations ‘unlawful’ (Business Day)
Draft regulations under the Protection of Investment Act that govern the way disputes between investors and the government will be mediated are defective as they will deprive foreign investors of the right to seek mediation, since the government will have the right to veto any such referral. This is the view of Herbert Smith Freehills co-chair and partner Peter Leon in a comment on the regulations published in the government gazette for public comment by the end of February.
COMESA Court assures investors: ‘You can invest in confidence’
Speaking in Khartoum, the President of the Court Justice Lombe Chibesakunda said the Court had already set a precedent by providing remedies to parties whose rights has been violated in the past. “You can therefore invest in confidence,” Justice Chibesakunda told stakeholders attending a publicity seminar that included the business community, members of the Judiciary, the legal profession, government and diplomats based in Sudan. Despite the Court having been in existence since 1994, Justice Chibesakunda observed that its services are not widely known or understood and have been under-utilized by the COMESA Member States and other stakeholders.
Kenya, Egypt launch joint business council to boost trade (Coastweek)
Kenya’s Ministry of Industry, Trade and Cooperatives, Principal Secretary Chris Kiptoo told a media briefing that the council was operationalized following negotiations between the Chamber of Commerce from the two countries. An Egyptian trade mission comprising of 55 companies is currently visiting Kenya to look for business opportunities. This is the second Kenya-Egypt Business Forum, following one held in January 2015. Kenya government data indicates that bilateral trade reached approximately $550m in 2016, with the trade being in favor of Egypt. Kenya exports are limited to a number of products with tea accounting for 85% of Kenya’s total exports to Egypt. However, Egypt sells to the east African nation diversified products ranging from pharmaceutical, chemical and petroleum products. Currently, Egypt is Kenya’s ninth largest export market. [Kisumu leaders boycott Lake Basin Expo and Investment Summit]
East Africa customs administration: post-seizure analysis workshop (WCO)
Under the auspices of WCO/JICA Joint Project (launched in July 2016 to support trade facilitation in Africa) workshop on intelligence analysis for master trainers of East Africa was held in Kampala, 6-10 February. The master trainers are customs officials actively contributing to sustainable capacity building in customs administrations in East Africa. During the workshop, 26 officials from Burundi, Kenya, Rwanda, Tanzania and Uganda developed training materials on Post Seizure Analysis which reflect the enforcement challenges faced by customs administrations in East Africa. [Namibia: WCO workshop on IPR border enforcement]
West African Economic and Monetary Union: IMF statement
Economic activity has remained strong but vulnerabilities have increased. Real GDP growth is estimated to have reached 6.5% in 2016, underpinned by robust and resilient domestic demand. Inflation has remained subdued due to continued solid agricultural production and low oil prices. Preliminary data suggest an overall fiscal deficit of 4.5% of GDP in 2016, higher than initially planned. Public debt is on the rise and reserve coverage has declined to 3.7 months of imports, reflecting a continued expansion in public infrastructure and lower-than-expected external financing. The medium-term growth outlook is favorable with GDP growth around 6 percent but remains subject to significant downside risks.
Kampala, Addis SGRs: Same specifications, different costs (The EastAfrican)
At issue is the $2.3 billion engineering, procurement and construction contract for the 273km eastern route that starts at Malaba and terminates at Bukasa, near Kampala, translating into $8.42 million per kilometre of the track. The argument over the cost comes after the Parliamentary Committee of Physical Infrastructure presented a report based on a visit to Ethiopia. “The committee notes that Uganda’s proposed SGR has the same specifications as regards design and operating speeds and is expected to serve the same purpose as the Ethiopia and Kenya networks,” the report said, adding that Ethiopia paid $5 million per kilometre of track. But officials in Kampala defend the cost estimates for Malaba-Kampala as “realistic” because of the topography, terrain and hydrology of the route. According to Kasingye Kyamugambi, the SGR project co-ordinator, the MPs should distinguish route length from track length.
Nordic countries in global value chains (pdf, OECD)
This report, which reflects the work of a close collaboration between the OECD and Nordic Statistical Offices, attempts to do just that, through the development of an extended TiVA dataset that splits current TiVA industries into new categories of firms, including SMEs and MNEs, providing important new insights on the nature of GVC integration within the Nordic region. Key highlights from the report:
Pressure builds for WTO discussions on e-commerce, MSMEs (Mint)
Attempts to steamroll discussions on two controversial issues - rules for electronic commerce and frameworks for micro, small and medium enterprises - at the WTO are gaining pace, despite opposition from a majority of developing countries, including India. In two separate proposals, reviewed by Mint, proponents have called for immediate discussions on ‘Inclusive Innovation and MSME Collaboration’, and issues concerning ‘electronic commerce and development’.
Ghana: Chamber of Commerce to establish regional shipping line
China’s ambassador to Tanzania, Dr Lu Youqing: ‘How to hit 7%’
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East Africa economies set for rough ride this year
The “below par” performance by East Africa’s economies in 2016 is expected to carry over to this year, although prospects remain broadly positive, a recent assessment by Citi Research notes.
A crisis of confidence triggered by elections in the past two years has already taken its toll of the big three economies, Citi analysts note.
Tanzania and Uganda held elections in 2015 and 2016 respectively, while Kenya (as well as Rwanda) are expected to do so this year. This, plus other shocks like drought, food inflation and weakening currencies, have seen countries perform way below expectations, a trend that is projected to continue in 2017.
“Overall, there is a sense that the economic party of the past decade is now over; instead there is a pressing need to refocus on medium-term policy issues,” said Citi Africa economist, David Cowan.
Chief economist at Mentoria Consulting Ken Gichinga said that major macroeconomic indicators suggest that the economies of Kenya, Uganda and Tanzania will have to navigate strong headwinds in 2017.
Across East Africa, governments are grappling with widening fiscal deficits, weakening currencies, rising inflation, runaway public debt and tightening of lending to the private sector.
In Uganda, Citi Research contends that there has been little recovery in confidence since the elections in February 2016 that saw President Yoweri Museveni re-elected for a fifth term.
Business confidence
Business optimism, which stood at around 50 per cent in mid 2015, plunged to 45 per cent after the election and is yet to show signs of recovery. This is attributed to political uncertainty, impending constitutional reforms, uncertain government fiscal policy, rising inflation and banking sector crisis.
This trend is projected to persist this year, particularly because the Ugandan shilling has come under severe pressure in recent years and is not expected to stabilise.
The Uganda currency has depreciated from Ush2,500 to the dollar in mid 2014 to close last year at Ush3,600. Inflation on the other hand is forecast to average 7.1 per cent compared with an average of 4.9 per cent in 2016.
Despite the challenges, Citi predicts that business confidence and the economy will continue to pick up slowly, with real GDP growth forecast to rise from around five per cent in 2016 to 5.5 per cent this year.
The focus, however, is now on Kenya, where elections have the potential of degenerating into violence whose ripple effects could be felt across East Africa.
“While some violence around the August elections seems possible, notably around closely contested county elections, it should not be overplayed and we think it is unlikely that there will be more widespread unrest,” said Dr Cowan.
This, however, does not mean the economy will not suffer, with real GDP growth projected to be stuck in the five per cent range.
While the Kenya shilling has started the year on a depreciating note, having enjoyed stability in 2016, Citi reckons there is no cause for panic. The shilling closed the year at around Ksh103 to the dollar and is projected to close 2017 at Ksh106.
Trade deficit
Inflation however, threatens to be a major concern, with an annual forecast of 7.1 per cent in 2017, with a year-end rate of 6.3 per cent, which is marginally higher than in the past three years.
Of concern, however, is that the Kenyan government must cut down on wastage and adopt prudent spending and devise ways to increase revenue to narrow the fiscal deficit.
Mr Cowan said that the target should be to reduce the deficit to five per cent of GDP in 2017 and aim for 3.7 per cent by the 2018/19 fiscal year in line with International Monetary Fund prescriptions.
In Tanzania, despite the country’s economy being the best performing in the region, the shilling has been under pressure in recent years. It fell to a historically mark of Tsh2,400 against the dollar in June 2015, forcing the Bank of Tanzania to intervene. The shilling closed 2016 at Tsh2,126, and is forecast to close at Tsh2,299 to the greenback.
Inflation, on the other hand has remained stable averaging 4.5 per cent last year. In 2017, it could surge to around 7.5 per cent due to rising food prices.
In Rwanda, the franc has also been in a freefall against the dollar dropping to a low of Rwf770 in mid 2015 and closing 2016 at Rwf805.
The Rwanda currency is projected to remain in the range of Rwf800 to the dollar in 2017. Inflation, however, which averaged 4.5 per cent in 2016, is expected to remain stable at 4.7 per cent in 2017.
The Burundian economy on its part has been in turmoil since the country was plunged into a political crisis after the 2015 elections. Inflation has been on the rise from an average of 5.5 per cent in 2015 to close 2016 at 7.1 per cent.
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Trade, finance, and development: Getting the institutions right
What should policymakers do to improve the enabling environment for trade and finance to better contribute to sustainable development?
The primacy of economic institutions as determinants of economic growth and development is a key empirical regularity that has emerged from the past two decades of research. The mechanisms through which trade and finance affect development do not escape this pattern. A country’s institutional environment – where institutions are understood in their economic (and not political) sense in terms of social and regulatory structures, such as the rule of law or the protection of property rights – is thus central for economic activity to develop and flourish.
Broad agreement was reached among the members of the E15 Expert Group on Trade, Finance and Development, convened by ICTSD and the World Economic Forum in partnership with the Center for International Development at Harvard University, that strengthening the enabling environment through concrete policy proposals in the trade and finance arena is one of the most important ways of advancing the 2030 Agenda for Sustainable Development. Members of the group were also aware of the fact that, to be politically acceptable, its proposals would have to pass the “market failure test.” Namely, any meaningful policy recommendation would have to be justified on the basis of the underlying problem not being adequately dealt with by the private market system.
Correcting market and institutional failures thus constitutes the crux of the Expert Group’s policy options, which are primarily directed at low-income economies. Policy-makers and developing country governments dealing with trade and finance must concentrate on “getting the institutions right.”
Conceptual framework
One of the leading explanations for poverty in the world today is that it is partly a product of departures from Pareto-optimality. When markets, firms, and households are subject to market, institutional, and informational imperfections, Pareto-inferior equilibria occur, leading to deviations with respect to the first-best optimum. This manner of seeing the world holds that inefficiencies lie at the heart of underdevelopment. If one takes this view as the point of departure, the big questions for the realm of trade, finance, and development are the following: what are the main sources of deviations with respect to the first-best optimum, and what can be done to tackle these deviations in concrete policy terms? All of the policy options put forward by the expert group lie squarely within at least one of the canonical types of market, institutional, or informational failure:
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Externalities, particularly network externalities, including international standards and other problems of coordination failure;
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Public goods and common property resources, which includes the regulatory and enabling environments, as well as other sundry institutions;
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Natural monopolies, in which problems are more efficiently solved at the regional rather than at the national level;
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Asymmetric information, which can be on the side of the country (lack of capacity) or on the side of the firm (unreliable information available to foreign investors).
A benefit of using the market failure framework is that all of the policy options that emerged from the expert dialogue process correspond to problems that will not be solved by the market mechanism. The options, grouped under the four market failure headings, aim at improving economic institutions – national and supranational – in some shape or form.
Externalities and coordination failure
Externalities arise when the private cost or benefit of an activity is not equal to its social cost or benefit. Four policy options fall under this category.
Strategic use of ODA and blended finance
The analysis of trends in financial flows to least developed countries (LDCs) reveals that official development assistance (ODA) has played a relatively marginal role, in comparison to domestic public and private finance, in underwriting the Millennium Development Goals (this policy option refers explicitly to LDCs). However, ODA enjoys a number of unique developmental advantages over other forms of financial flows, with concessionality being one of the most important. Strategic use of this scarce resource will be one of the main challenges for LDCs as they position themselves to implement the Sustainable Development Goals in their domestic context. There is a need to focus ODA in a manner that increases its marginal productivity, often through a focus on building institutions that strengthen the enabling environment, as well as by using it to leverage private sources of capital through blended finance. There is also the potential for improving the productivity of domestic financial resources. In basic economic terms, the social benefit of ODA is significantly higher than its private benefit, and current arrangements fail to “internalise” this potentially valuable positive externality, including ODA’s role in helping to ensure a stable macroeconomic environment.
Mobilisation of domestic resources through tax revenue
Tax policy is a key determinant of the behaviour of firms, be they domestic or multinational. In order to increase the capacity for domestic resource mobilisation of poor countries, major efforts – both at the international and domestic level – need to be made in terms of revamping policies aimed at combatting “base-erosion and profit-shifting” (BEPS). Corporate tax from multinational enterprises (MNEs) is an important source of government revenue in many developing countries, particularly the poorest. Tackling BEPS by MNEs could substantially increase tax collection.
A particular challenge arises from “transfer mispricing.” A major portion of global trade takes place within firms, and tax authorities need to be able to discover the transactions that have taken place, assess whether the correct amount of tax has been paid, and collect any tax due. It can be difficult for a tax administration to know about offshore transactions, so a high level of international cooperation between tax authorities is required. For developing countries, more support is thus needed in two areas: (i) strengthening domestic institutions and legal arrangements so that they can implement new international standards on BEPS measures initiated by the OECD; and (ii) strengthening the international tax system so that it facilitates the work of developing country tax authorities.
Guidelines for broadly used private standards affecting trade
The road to diversification, value addition, and industrialisation in a modern economy involves linking up effectively with global supply chains. In some of these, important purchasing firms act together and establish industry-wide standards that affect a large number of suppliers. These standards may be conflicting or even contradictory. For many developing country exporters, private standards are more significant constraints than official sanitary and phytosanitary standards or technical barriers to trade. There is a manifest issue of coordination failure involved when it comes to international standards set by dominant private firms, and which cannot be solved in existing fora such as the WTO. The adoption of standards is a typical example of a situation where coordination, in order to achieve a socially efficient outcome, is paramount: in the absence of outside involvement, coordination failure is likely. The gains to adopting well-crafted standards can also be characterised as a situation where there are significant positive network externalities to be internalised. For private industry-wide standards not to be a constraint but rather a conduit for effective participation in global supply chains, particularly for small and medium-sized enterprises, existing limitations need to be tackled.
Duty-free and quota-free preferences and rules of origin
There has been a distinct lack of coordination (and political will) in terms of duty-free and quota-free (DFQF) preferences when it comes to LDCs. The United States, first and foremost, and large emerging markets should grant such access where they have not, and include liberal and simple rules of origin with extended cumulation provisions to maximise preference utilisation by LDCs.
Public goods
At the intra-country level, economic institutions are the key public good. Public goods and services possess two characteristics. First, they are non-exclusive: once they are provided, they are available to all irrespective of whether or not they were involved in their financing. Second, they are non-rival: the consumption of the good or service by a given agent does not reduce its consumption by others. As such, they are the best example of goods, services, or institutional structures that will be underprovided by the market mechanism and where outside intervention is needed. The group formulated five policy options that fall under the public goods heading. All are typical examples of institutional public goods that would go a long way towards improving the enabling environment in low-income countries, allowing them to harness the development potential of international trade.
Development-led legal and regulatory reform
Within institutions such as the WTO, current approaches to trade and development have focused primarily on access to developed country markets through trade preference programmes and special and differential treatment for developing economies – which are important but not sufficient to achieve economic diversification and poverty reduction. What is missing is a process (both top-down and bottom-up) for effectively assessing the development benefits of trade policy at the national and regional levels, addressing non-tariff measures from a development perspective, and applying a more widespread, inclusive, and coordinated system for implementing trade frameworks through legal and regulatory reform. Without a well-functioning legal and regulatory framework, economic activity will not develop, but these structures have to be better adapted to developing country circumstances. While this is not a policy recommendation per se, it should be kept in mind when designing concrete legal and regulatory policy options.
Trade facilitation framework for services
Given the pro-poor bias of the services sector, and in light of the fundamental contribution which efficiency in the services sector will make to the realisation of the Sustainable Development Goals, WTO members should urgently embark on a joint process to establish a comprehensive Framework for Trade Facilitation in Services. This Framework should encompass both cooperative and negotiating mechanisms, complemented by capacity building and technical assistance, through which the multilateral trading system can spur concerted action. The Framework should include arrangements for public-private dialogue with services stakeholders and allow for the implementation of measures on a regional, plurilateral, and multilateral basis.
Aid for Trade funding for services
The incentives that determine the sectoral allocation of Aid for Trade funds, which currently tend to ignore the services sector, need to be modified. Insufficient attention is given to services trade in Aid for Trade, especially via multilateral mechanisms, including the Enhanced Integrated Framework. This constitutes a misallocation of funding given the significant development dividends available from services growth. Boosting growth in the services sector is largely about getting the regulatory setting right, so that public policy objectives can be met without unduly increasing the costs of doing business. Regulatory regimes in services are often complex and overlapping. There is a need to fund country studies to address policy and regulatory failures and to develop well-tailored reforms to reverse those failures – including mechanisms geared towards helping governments apply the guidance set out in recent World Bank regulatory toolkits designed to boost services competitiveness. Aid for Trade funds should be applied to this problem.
Correspondent-banking availability
Heightened regulatory requirements in the financial sector (e.g. Know Your Customer, Anti-Money Laundering) have led many low-income countries to become functionally cut off from international financial markets by the simple lack of a correspondent (international) bank. The consequence of this financial exclusion is particularly serious when it comes to the exchange of goods and services since, without the ability to exchange information or funds, local companies struggle to enter into the contractual obligations that underpin international trade. Solving this problem in the short run, which is both feasible and relatively low cost, would make a significant contribution to facilitating international trade for firms located in low-income countries. The proposal is that each country should house at least one local bank with a fully-fledged correspondent-banking arrangement with international financial institutions.
Coordination efforts for trade and supply chain finance
A comprehensive global coordination mechanism for trade and supply chain finance is needed. It is recommended that a working group be established (within the E15Initiative or as part of another international coalition of experts and institutions) to propose ideas and commission studies that could contribute to improved global coordination efforts in this area.
Natural monopolies at the regional level
Natural monopolies occur when it is socially efficient, from the cost standpoint, to have a single supplier for a given good or service. The productive efficiency argument immediately begs the question of how to regulate the ensuing monopolistic structure. For the two policy options that fall under this heading, the natural monopoly framework is used in a slightly less restrictive form. The main point is that there are a number of key institutional failures that are more efficiently dealt with at the regional, rather than national, level because of the importance of underlying economies of scale and scope.
Regional regulatory cooperation in financial services
Regional mechanisms dealing with the regulatory aspects of cross-border financial services need to be strengthened. The integration of financial services has generally received insufficient attention in regional integration efforts. This has made it difficult for banks and other financial entities to operate regionally and support their customers so that they can enjoy the benefits of diversified, efficient, and cheaper financial services. It is important to ensure that the full extent of benefits arising from the economies of scale accrue to those in need of finance, such as micro, small and medium enterprises. Access to finance has been highlighted as the single most important constraint for such enterprises to face the competition of an integrated regional market and connect with the global economy. Key issues to be addressed include the heterogeneity of regulatory frameworks and restrictive market access, significant checks on the mobility of talent, and constraints on cross-border data flow and offshoring regulatory structures.
Enhancement of regional aid for trade
Given the many small markets in developing countries, it is clear that sustained economic growth needs to rely in part on creating larger, more viable markets through the rule-based sharing of resources and production assets. Deepening economic integration via regional cooperation has thus emerged as a key priority in the reform strategies of most developing economies. Implementing regional aid for trade initiatives is often complicated by: technical standards and financing issues; mistrust among parties; membership of overlapping regional organisations; non-implementation of regional agreements; poor articulation within national strategies; and, national and regional capacity constraints. This creates significant problems in terms of ownership, mainstreaming, and aligning national strategies around regional aid for trade priorities. Bridging these gaps by enhancing regional aid for trade initiatives through appropriate incentives is thus an important policy recommendation.
Asymmetric information
Asymmetric information arises when, in a bilateral relationship, one party knows something that the other does not. In the market failure framework, this can be interpreted as there being a missing market for the underlying information, which can lead to severe inefficiencies. The two policy options grouped under this heading involve: (i) strengthening the capacity of developing country governments to negotiate and implement public-private partnerships (PPPs); and (ii) providing low-income countries with access to world class advice as well as in-country capacity building geared towards improving their position when in comes to designing and negotiating sovereign bond issuances and restructuring. In both of these areas, low-income countries are currently at a serious informational disadvantage vis-à-vis their international interlocutors.
Technical advice on PPPs and sovereign debt contracts
Demographic trends together with anticipated robust economic growth in low-income countries is increasing demand for physical infrastructure. Financing this infrastructure will require enormous amounts of capital in the coming decades, and only part of this can come from domestic savings or aid.
Developing country governments are increasingly turning to PPPs in a bid to attract foreign investment and address this gap. However, they face two types of problems in realising the benefits that can accrue from PPPs. First, despite the potential for high social rates of return, relatively small amounts of private foreign capital are flowing into infrastructure in developing countries. The obstacles include: investments that are large and lumpy; construction risks that are high; returns that are reliant on regulatory agencies and the creditworthiness of national governments; and, individual infrastructure projects that require complex legal arrangements often involving multiple parties and government agencies.
Second, even when foreign investment does arrive, many PPPs fail in practice to deliver high public benefits. High-quality PPPs are complex to design, negotiate, and manage. Developing country governments face very substantial resource and informational challenges. These include: asymmetries in cost and technology information; insufficient institutional capacity to conduct solid prefeasibility studies or to structure contracts effectively; and, public sector liabilities triggered by PPPs that can be very sizeable (an aspect of PPPs that is very important in the context of rising developing country external debt profiles). Consequently, the institutional capacity of developing country governments to design, negotiate, implement, and evaluate PPP projects in all sectors, with a particular focus on infrastructure, should be strengthened.
Adoption of model solvency schemes and restructuring approaches
A striking new trend in international finance is that the governments of many low-income countries are issuing sovereign bonds to finance public debt. Developing countries are entering uncharted territory as they turn towards international financial markets, which offer credit on harder terms than “traditional” donors and present new economic and political risks. While such bonds can provide funding for large projects, create domestic financing space for the private sector, and can be less costly than local issuance, they also come with refinancing risk, re-pricing risk, and exposure to exchange rate fluctuations. In some countries there has been a deterioration in sovereign balance sheets amid expansionary fiscal stances that have led (in some cases) to the rebuilding of debt stocks, with mounting concerns about debt sustainability.
As global yields normalise, there is the real risk of sovereign debt difficulties in developing countries. Yet there is a dearth of suitable mechanisms for dealing with defaults and restructurings in an orderly, timely, and fair manner. In practice, restructurings have been conducted under various frameworks without a consistent approach that normalises local laws and provides clarity for investors. Issuing governments have found themselves vulnerable to competing stakes that carry inherent conflicts of interest. Dependence on the market has led to restructuring outcomes that are counterproductive for the policy initiatives of the sovereign issuer. The precise legal provisions in bond contracts can make a very substantial difference for developing country governments, and the contracts that underpin many issuances are weak. These governments should be supported to strengthen the legal underpinnings of the bonds they issue – including through the adoption of model legal language.
Next steps and measuring progress
The policy options presented above range from ambitious recommendations, in that they will most probably only be feasible in the long term, to options that should technically (if not politically) be easy to implement in the short term. In all cases, work on these options should start immediately.
Short-term options
Three options deserve immediate attention in that they can deliver benefits rapidly. First, ensuring correspondent-banking availability depends on mobilising the international banking community. In addition, the two capacity-building options (technical advice on PPPs and adopting model solvency schemes and restructuring approaches) are relatively shortterm ventures, although they do involve coordinating a broad range of players at the international and domestic levels.
Medium-term options
The two services-centred options (implementing a trade facilitation framework for services and encouraging Aid for Trade funding) should be actively pursued in international fora for medium-term implementation. In addition, expanding DFQF and simple rules of origin (with extended cumulation) to all LDCs depends on nudging major preference givers. At the regional level, where there may in some instances be a greater convergence of interests, enhancing regional aid for trade and improving mechanisms for regional regulatory cooperation in financial services have a good chance of being adopted – perhaps by having successful regional groupings, such as ASEAN, mentor less successful ones. Providing guidelines for broadly used private standards affecting trade could be taken up by international organisations such as the International Organization for Standardization.
Long-term options
Options that involve the revamping of part of the international trade and finance architecture are long-term in nature and require the buy-in of a plethora of players. This is the case for the proposals on making strategic use of ODA and blended finance, and constructing a global coordination mechanism for trade and supply chain finance. Finally, two of the options (fostering development-led regulatory reform and mobilising domestic resources) are also long-term and (largely) need to be implemented at the national level. Perhaps a limited number of “test case countries” could be identified in which the political will for such reforms is likely to exist.
Measuring progress
A central element of the empirical literature on the impact of institutions on income per capita and growth is the use of protection against expropriation risk as the main indicator for economic institutions. The work of the Expert Group suggests that alternative indicators of what can be termed the “enabling environment” could be constructed. Based on the weaknesses in country-specific trade and finance characteristics identified through the proposed policy options, the constituent elements of this new index could be the following: a Herfindahl index of concentration in the banking sector; the existence of a functioning antitrust authority; an indicator of fluidity of visa policy; the number of correspondent foreign banks; the existence of a national or regional credit bureau and/or a rating agency; and, the legal system under which sovereign bond issuance takes place. This list of indicators could be complemented with data from the World Bank’s Doing Business survey, and standard composite indicator methods could then be applied to arrive at an aggregate index of “institutional readiness.” This is work in progress, and it is proposed that a working group be set up to operationalise the construction of this index.
Jean-Louis Arcand is Director of the Centre for Finance and Development and Professor at the Graduate Institute, Geneva.
This article is published under Bridges Africa, Volume 6 - Number 1, by the ICTSD.
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Realising the potential of services SMEs in developing economies
The development of services sectors in least developed countries (LDCs) and low-income countries (LICs) has the potential to generate economic growth, raise incomes, and reduce poverty rates.
Small and medium-sized enterprises (SMEs) play a key role in this quest given their ability to not only react quickly to rapidly changing market conditions, which have come to characterise much of the global economy, but also to disperse economic gains more widely throughout the domestic economy than their larger counterparts.
This paper examines the critical role which SMEs play in the services sector, investigates the primary supply-side constraints which limit their increased participation in the economies of LDCs and LICs, and proposes a set policy options which could boost SME participation, productivity, and competitiveness in the services sectors of the world’s most vulnerable economies.
Executive Summary
The tremendous technological advances that have taken place in recent years have created a new kind of world – one in which production processes are increasingly being split up and outsourced to different countries that have various cost-saving competitive advantages. This is the basis of the regional and global value chain phenomenon. Unfortunately, the least-developed countries (LDCs) and low-income countries (LICs) are poorly integrated into the global economy and make a very small contribution to global production. Instead, they are largely dependent on low-value exports, e.g. raw materials or simple manufactures.
However, global trade in services (such as information and communication technology, financial services, transport, education and healthcare) is showing strong growth, helped by the surge in regional and global value chain activity that relies heavily on services. This could herald a new era for LDCs and LICs, especially as it is often easier to transition to a range of service-related activities than to value-added industrial outputs. Services already make a major contribution to the gross domestic product (GDP) of many poor countries, although the majority of service businesses are still survivalist in nature with limited prospects of growing and creating more employment opportunities. Furthermore, poor countries’ services exports – other than, say, those linked to tourism – are insignificant by global standards.
This scoping paper examines the potential of the services sector to extend an economic lifeline to the LDCs and LICs, which are concentrated in four regions: East and Southern Africa; West, North, and Central Africa; Asia; and the Pacific Islands. The paper focuses specifically on SMEs (small and medium-sized enterprises) whose economic potential tends to be suppressed by insufficient market knowledge, a lack of skills and access to finance, fierce competition from larger businesses, ailing or undeveloped national infrastructure, an unhelpful policy and regulatory environment, and excessive bureaucracy.
If these obstacles could be swept aside or at least minimised, SME service providers’ competitive advantages (which might include being adaptable and eager to learn) would be more likely to be revealed, and they could make a more meaningful contribution to their countries’ economies and to the global quest for sustainable development.
It is at the policy level that much can and should be done to create opportunities for SMEs operating in various service sectors in less-developed countries. While SMEs often feature on LDCs’ and LICs’ policy agendas, such references rarely translate into practical initiatives and concrete outcomes. As a result, most SMEs are relegated to the side lines, forced to watch larger and better equipped service providers dominate the playing field. However, with regional and global value chains creating openings for different types of economic contribution, SME service providers with limited capacity but appealing attributes in other areas, and with the necessary support at policy level, could well find their niche.
This paper was produced under ICTSD’s Programme on Inclusive Economic Transformation as part of a project focused on leveraging services to drive sustainable economic growth. The views expressed in this publication are those of the authors and do not necessarily reflect the views of ICTSD or the funding institutions.
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Can Africa grow its manufacturing sector and create jobs?
Over the past decade and a half, Sub-Saharan Africa has experienced rapid economic growth at an average annual rate of 5.5%. But since 2008, the share of manufacturing in GDP across the continent has stagnated at around 10%. This calls into question as to whether African economies have undergone structural transformation – the reallocation of economic activity across broad sectors – which is considered vital for sustained economic growth in the long-run.
It is often argued that the process of manufacturing-led structural transformation results in employment growth characterized by the creation of good, high-productivity, good-paying jobs. The kind of jobs that can break the cycle of poverty and address inequality.
So if most African countries haven’t experienced manufacturing-led structural transformation, what is it that has constrained the manufacturing sector over this relatively robust period of economic growth?
Our recent working paper attempts to address that exact question by utilizing the Atlas of Economic Complexity analytical framework. The framework allows one to examine the extent of manufacturing-led structural transformation across African countries, as well as investigate what may be constraining manufacturing performance in these countries.
It has been argued that economic development involves the accumulation of productive capabilities that allow a country to produce increasingly diverse and complex products. These productive capabilities can be described as non-tradable networks such as logistics networks, finance networks, supply networks, knowledge networks, and the like. The more complex products a country produces, typically manufactured products, the more complex the economy.
On aggregate, African countries are characterized by low levels of economic complexity. This is consistent with the export structures of these economies being dominated by basic commodities or products from mining or agriculture, as opposed to more complex manufactured products. However, there is evidence of heterogeneity within the African context.African countries that exhibit relatively higher levels of economic complexity, producing (and exporting) manufactured products can be divided into two groups: 1) countries with an established manufacturing base such as South Africa, Tunisia, Morocco and Egypt; and 2) countries with emerging manufacturing sectors such as Mauritius, Kenya and Uganda.
Further insights are offered by another empirical tool available in the Atlas of Economic Complexity analytical framework: the product space. It is argued that countries shift production to related products when the manufacturing capabilities needed to produce each of the products are similar. For instance, it is easier to shift production from shirts to jackets, as opposed to shifting from shirts to catalytic converters.
Drawing on these ideas, we predict that a country’s existing productive structure and the productive capabilities that it embodies are related to the future diversification of its manufacturing sector. In the graph below we relate the opportunity value index for a sample of African and non-African countries in 1995 against the number of manufacturing products that these countries produce in 2013, by level of development. The opportunity value index is a measure of the productive opportunities associated with a country’s export structure. It measures the difference in productive capabilities between a country’s export portfolio and the products that it does not currently export.
Figure 1: Opportunity Value Index in 1995 in Relation to Number of Manufacturing Exports (RCA≥1) in 2013
First, it is evident that for low-income countries in Africa there is no correlation between their initial opportunity value and their subsequent manufacturing performance. This indicates that a manufacturing sector in these countries is non-existent. Therefore, the productive capabilities inherent in their initial productive structure is too distant from those needed in order to easily diversify into manufacturing products.Second, we found a positive correlation between initial opportunity value and subsequent manufacturing performance in middle-income countries. This suggests that the initial export structures of these relatively more complex economies, some of which are African, allowed for subsequent diversification into manufactured products. As such, these African economies with existing and emerging manufacturing sectors have the greatest potential to undergo manufacturing-led structural transformation.
The extent to which African economies can undergo manufacturing-led structural transformation is constrained by the limited productive capabilities inherent in these economies.From a policy perspective two questions arise:First, if economic development is the accumulation of productive capabilities, can identifying requisite productive capabilities specific to an economy enable firms to successfully enter manufacturing activities? Identifying and developing such capabilities might just enable manufacturing-led structural transformation and in turn create jobs.Second, it has been argued that the global economy is changing and that manufacturing-led structural transformation may no longer be enough. In light of this, does the high productivity modern services sector offer an alternative or complementary option for African economies to undergo structural transformation? That scenario too might just create some of the jobs required to contribute to the alleviation of inequality and poverty on the continent.
Francois Steenkamp is Researcher for the Development Policy Research Unit, University of Cape Town. Christopher Rooney is Junior Researcher at the Development Policy Research Unit, UCT.
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Air transport in Africa: A portrait of capacity and competition in various market segments
Sub-Saharan Africa’s air transport, though low in overall volume when compared to other regions in the world, has experienced significant growth in the last decade, both in international and domestic traffic.
The sector, in part because of its relatively small size, still faces the challenges of high concentration in services and lack of competition, with only a few dominant airlines providing international services within the continent. In addition, Africa faces challenges in safety oversight, as well as having many smaller non-viable state-owned carriers.
Contextual setting of air transport in Africa
Air transport in Africa is a vigorously growing sector. However, the growth, though an important element of the sector, does not provide a complete perspective of its health. Several important facts play a role in truly understanding where Africa’s air transport has been, is now, and where it might develop.
Air transport volumes in Africa are still very low when compared to the rest of the world. The density of traffic, measured in seat capacity, is relatively small: with 104 million seats, on all types of routes, sub-Saharan Africa is far behind the country of Brazil, with 120 million seats, of which nearly 100 million are domestic traffic only. Other comparisons are as staggering. In the area of Washington, DC in the US, three airports (Reagan National Airport, Duller Airport, and Baltimore Washington International Airport) had 68.5 million passengers in 2015, which would translate to 90 million seats at a load factor of 76 per cent. This is nearly all of the capacity offered in all of sub-Saharan Africa. A simple snapshot of current aircraft positions in flight throughout the world shows the sparsity of service in Africa.
The distribution of these capacities is also important: the main air transport corridors are along the East stretching from South Africa to Kenya and north to Ethiopia, all three being important hubs. No such hubs exist in West Africa, and Central Africa has minimum service.
Another factor is the fact that Africa still leads in hull losses due to accidents, and still retains a safety record that is in most need of improvement when compared to the rest of the world. Though there has been significant improvement from 2010 until 2013, the sharp increase since then (in 2015 at 3.49) is well ahead of the Commonwealth of Independent States (1.88), and much above of the world average (0.32).
The industry is also having difficulty in adopting more modern approaches to airline ownership and management. The notion of the national flag carrier is still deeply ingrained in the politics of the air transport sector, and though various privatization attempts have been made (e.g. PPP arrangements for Air Senegal after the disbandment of Senegal Airways), many governments are reluctant to (a) completely hand over airlines to the private sector, or (b) completely depend on airlines from the outside if a national airline is not economically sustainable. The air transport sector generally is seen as a way to show technical accomplishment and skill, which motivates many governments to pursue policies that in the end are not economically sustainable.
Both anecdotally and empirically the new challenges for African air transport market development are not so much around liberalization, but rather affordability and the rise of airport charges. Though lack of liberalization has been an issue, the implementation of the Yamoussoukro Decision for introducing liberalization amongst African countries is taking place, as evidenced, for example, by the expansion of fifth freedom routes of Ethiopian Airlines. However, new and sometimes overambitious investments in airports and terminal buildings are increasingly being financed by higher per passenger airport charges.
Policy recommendations
Three significant challenges face the aviation sector in sub-Saharan Africa: Aviation safety (a reflection of institutional oversight), non-sustainable national flag carriers, and expensive infrastructure investments that overestimate demand and fail to recognize the key functions of airports. Policy makers should be fully aware of where the separation of private sector service provision and public infrastructure should occur. Three general policy recommendations are:
1) Aviation safety cannot be compromised for any short-term economic gain or interim policy objective.
Trust in safety is key for developing the air transport sector. This is not just because of statistical implications: air transport accidents and crashes garner significant attention in the media, and tend to appear dramatic. Precisely because they are such rare occurrences, crashes are particularly visible. Preventing accidents requires a rigorous institutional approach in implementing international standards and recommended practices. Regulators, airport authorities, and airlines should be institutionally separated and have clear firewalls between them.
2) Small, state-owned flag carriers tend to drain state funds, are not sustainable, hinder the sector from developing, and often even pose a safety hazard.
There is a list of about-to-be defunct and actually defunct small flag carriers that have accumulated extensive losses for their treasuries. Airlines appear, some survive, and some fail, and the private sector should assume this risk. An open system with competition will assure that carriers will provide service—socially desired and unstainable route servicing should be accomplished with subsidies that are transparently granted after a competitive bidding process, not by state-owned carriers that are most likely to make losses on all routes, be they sustainable or not. Government intervention and ownership of assets should only occur in expensive infrastructure projects that in their own nature are a monopoly, not in service provision.
3) Airport investment should be done carefully, keeping in mind that most airports serve as gateways, not as hubs, and that creating a hub requires players who desire a hub.
Three notions need to be kept in mind when looking at airport investments:
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Airports are, by their very nature, monopolistic. This implies that airport infrastructure will most likely be owned by governments. But airports are also complex systems: there is, for example, no shortage of runways in Africa given the current traffic levels. However, terminal space can run out as traffic grows, and terminals can be developed with private sector participation. It is becoming more and more common for governments without the capital reserves to invest in new terminals to use PPP concessions to finance new investments.
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Many countries dream of developing passenger or logistics hubs at the airports, often spurred on by hearing news that a neighbouring country has the same plans. The fact is that there can only be so many hubs globally, and most likely the airport in question really serves as an all-important gateway. A properly run gateway that is effective and efficient will serve the business and tourism industry, and may, over time, become a hub if an airline decides to base its passenger transfer operations there. However, the most important function of airports in most countries is to connect the country with the outside world. This must remain the primary objective.
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In Africa, new airport development is often financed through very high ticket surcharges. These have the effect of reducing traffic and demand. If a US$400 ticket has a US$80 to US$100 airport development surcharge, the extra 25 per cent added to the ticket price will have a dampening effect. Very often a new airport is not even needed, and the real drawback to the current installation remains with the current terminal. A careful balance needs to be reached in airport master planning that balances true infrastructure needs with both publicly and privately available investment capital and takes into account the elasticity of final ticket prices.
This study has been prepared within the UNU-WIDER project on ‘Industries without smokestacks’, which is part of a larger research project on ‘Jobs, poverty and structural change in Africa’.